asset prices credit and the business cycle abstract this paper uses the multivariate unobserved components model with phase shifts to analyse the interaction of interest rates output asset prices and credit in the us we find close linkages amongst cyclical fluctuations in the variables

debt deleveraging and the liquidity trap a fisher minsky koo approach in this paper we present a simple new keynesian style model of debt driven slumps that is situations in which an overhang of debt on the part of some agents who are forced into rapid deleveraging is depressing aggregate demand making some agents debt constrained is a surprisingly powerful assumption fisherian debt deflation the possibility of a liquidity trap the paradox of thrift a keynesiantype multiplier and a rationale for expansionary fiscal policy all emerge naturally from the model we argue that this approach sheds considerable light both on current economic difficulties and on historical episodes including japan s lost decade now in its 18th year and the great depression itself

household debt and monetary policy revealing the cash flow channel we study the effect of monetary policy on spending when households hold debt with variable interest rates when interest rates on outstanding loans vary with the short term market interest rate monetary policy has a direct and immediate effect on households expenses and disposable income if households are borrowing constrained they will respond to a shock to disposable income by adjusting their spending as a result a monetary policy induced interest rate change leads to a larger change in consumption than what is predicted by the elasticity of intertemporal substitution we examine this cash flow channel of monetary policy using administrative data on swedish households we estimate a strong and statistically significant response in spending to changes in interest expenses more specifically we estimate a marginal propensity to consume including durable consumption that is around unity or even higher in response to monetary policy induced changes in interest expenses for example highly indebted households with adjustable rate mortgages reduce consumption growth by several percentage points more in response to a one percentage point increase in the household interest rate than households with little debt or fixed rate mortgages our findings imply that monetary policy will have a stronger effect on real economic activity when households are highly indebted and have adjustable rate mortgages jel classification d14 e21 e52 g11

multivariate detrending under common trend restrictions implications for business cycle research abstract this paper outlines a methodology to detrend multiple time series under common trend restrictions the same filters used to construct the estimated trend in univariate exercises are shown to be appropriate in multivariate studies with a single common trend however to estimate the common trend in the multivariate case the filter is applied to a linear combination of series rather than to each series individually an empirical example and simulation exercises illustrate the implications of common trend detrending for measurement of business cycle properties

asymmetric phase shifts in u s industrial production cycles abstract we identify cyclical turning points for 74 u s manufacturing industries and uncover new empirical regularities a industries tend to comove between expansion and contraction phases over the business cycle b clusters of industry turning points are highly asymmetric between peaks and troughs troughs are much more concentrated and sharper than peaks c the temporal pattern of phase shifts across industries supports the spillovers through input output linkages and d macroeconomic shocks such as unanticipated changes in monetary policy government spending oil prices and financial conditions are significant drivers of industrial phase shifts

business cycles in switzerland a comparative study abstract the goal of this paper is to provide an empirical description of business cycles in switzerland and a comparison with business cycles in other countries we adopt a view of business cycles as a set of regularities in the movements and the co movements of economic aggregates common to all decentralized economies lucas 1977 and test whether switzerland conforms to this view in order to identify the appropriate cyclical series we follow a procedure proposed by hodrick and prescott 1980 we then compute correlations of various types we test their stability through time and compare with corresponding estimates for the u s france germany and the u k

inflation and other aggregate determinants of the trend in us divorce rates since the 1960s this article extends empirical research on the determinants of divorce in two ways first i examine the effect of inflation on divorce second the use of a structural time series modelling approach attributes unobservables and omitted variables to an unobserved component which allows for the model s parameters to be estimated consistently inflation is statistically significant positive and persistent i show that the effects of inflation are robust to the inclusion of additional explanatory variables and various trend specifications the long run implications of inflation are also substantial i conclude that price stability has the potential to reduce divorce rates

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

measurement and testing of inequality from time series of deciles with an application to u s wages this article uses unobserved components time series models to capture the underlying trends in the quarterly deciles of u s hourly wages tests of stability and divergence are developed as a means

detrending stylized facts and the business cycle the stylized facts of macroeconomic time series can be presented by fitting structural time series models within this framework we analyse the consequences of the widely used detrending technique popularised by hodrick and prescott 1980 it is shown that mechanical detrending based on the hodrick prescott filter can lead investigators to report spurious cyclical behaviour and this point is illustrated with empirical examples structural time series models also allow investigators to deal explicitly with seasonal and irregular movements that may distort estimated cyclical components finally the structural framework provides a basis for exposing the limitations of arima methodology and models based on a deterministic trend with a single break

trends and cycles in macroeconomic time series two structural time series models for annual observations are constructed in terms of trend cycle and irregular components the models are then estimated via the kalman filter using data on five u s macroeconomic time series the results provide some interesting insights into the dynamic structure of the series particularly with respect to cyclical behavior at the same time they illustrate the development of a model selection strategy for structural time series models

debt deflation theory and evidence abstract in the early 1990s the most severe recessions occurred in those countries which had experienced the largest increases in private debt burdens was this an accident of history or did it reflect deeper forces affecting market economies the paper comprises three parts first it presents three stylised facts about debt and its impact on consumption growth in the 1930s and the 1990s second it discusses the reception of irving fisher s work on debt deflation by his contemporaries and argues that it is helpful to think of debt deflation as a real business cycle phenomenon third there is a theoretical discussion of the reaction of debt and consumption to shocks in the context of a model of precautionary saving central to the model is the role of distributional shocks which implies that aggregate demand may be a nonmonotonic function of the price of assets in terms of the consumption good multiple equilibria may exist leading to the possibility of financial instability the analysis of debt deflation requires the construction of real business cycle models without a representative consumer

the limits of business cycle research assessing the real business cycle model the real business cycle model dominates business cycle research in the new classical tradition typically real business cycle modelers both offer the bold conjecture that business cycles are equilibrium phenomena driven by technology shocks and also novel strategies for assessing the success of the model this article critically examines the real business model and the assessment strategy surveys the literature supporting and opposing the model and evaluates the evidence on the empirical success of the model it argues that on the preponderance of the evidence the real business cycle model is refuted copyright 1997 by oxford university press

real time forecasting regional tourism with business sentiment surveys abstract this study provides evidence that supply side soft information retrieved from business surveys is effective in real time forecasting of hotel arrivals at the regional level we assess the effect of including business sentiment indicators in commonly used naive specifications and structural time series models using residuals and predictive diagnostics we find that both the goodness of fit and the forecasting accuracy of the augmented models are superior to those of the baseline models whence the opportunity to extend to the tourism sector the surveys on the business sentiment currently realized by the provincial chambers of commerce for the manufacturing sector allowing an effective and timely managing of local tourism market where official information is likely to be either lacking or poor in quality

convergence in italian regional per capita gdp this paper addresses the issue of convergence of per capita gdp of the 20 italian regions the paper first focuses on the notion of convergence and proposes a new hierarchical clustering algorithm grouping regions according to the presence of a monotonically decreasing trend in entropy then alternative definitions of long run convergence are given based on the notion of cointegration and common trends and the evidence arising from application of stationarity tests to the time series of regional contrasts is examined the conclusion is that both kind of convergence can be used to characterize the dynamics of regional per capita gdp

infrastructure pricing policies and the public revenue in african countries abstract the paper shows that the public revenue constraint on economically and socially desirable programs in africa could be greatly relaxed through the adoption of cost reflecting pricing policies for physical infrastructure services roads and drainage water and sewerage electricity and telecommunications currently the prices of infrastructure services are frequently below both economic costs and what is needed to finance investment operating and maintenance expenditures the services generate poor financial returns and absorb much public finance when in practice they are capable of earning appreciable surpluses the paper discusses the benefits of reforming infrastructure pricing policies the institutional and other difficulties of bringing reforms into effect and finally makes some proposals although much of the analysis relates to africa several of its findings apply more generally

household debt and spending during the financial crisis evidence from danish micro data abstract we use data for nearly 500 000 danish households to study the relationship between household leverage prior to the financial crisis of 2007 2009 and the development in spending over the course of the crisis we find a strong negative correlation between pre crisis leverage and the change in spending during the crisis this reflects that highly levered households spent a larger share of their income than their less levered peers prior to the crisis resulting in larger increases in debt in these years once we condition on the size of the pre crisis change in debt a high level of debt is no longer associated with a larger spending decline our results suggest that the larger decline in spending among high leverage households is the result of a spending normalization pattern that is also found in other years rather than a causal effect of high debt levels suppressing household spending during the crisis

the public finance of infrastructure issues and options using economic principles the author provides criteria for financing infrastructure services where consumption related user charges can be levied effectively in light of the suggested criteria the author examines the experience of developing countries in financing publicly provided infrastructure services in transport road water telecommunications and power in developing countries most infrastructure is provided by the public sector although the private sector has become increasingly involved because it is difficult to raise funds through general taxes self financing of these services remains a desirable second best policy one that almost all developing countries endorse but experience suggests that except in telecommunications full cost recovery is more the exception than the rule financing remains inadequate the political economy of tariff setting is an important element in low improperly designed user charges infrequent adjustments for inflation and poor enforcement such sectors as water power and transportation drains funds from the treasury although their impact varies from sector to sector when it is difficult to get budget transfers to materialize especially during a fiscal crisis there is often a reduction in nonwage operations and maintenance expenditures as a result services deteriorate the private provision of infrastructure services is often suggested as an alternative the private provision of services can certainly reduce the public sector s financing requirement for infrastructure services for which technological advances have made competition possible the market system could ensure efficient private provision of services which could be a relief to the public sector but for services that require a single provider to achieve economies of scale and similar benefits the private provision of services will work only if an appropriate rate of return is assured and only if user charges cover costs

the seasonal cycle and the business cycle almost all recent research on macroeconomic fluctuations has worked with seasonally adjusted or annual data this paper takes a different approach by treating seasonal fluctuations as worthy of study in their own right our results show that seasonal fluctuations are an important source of variation in all macroeconomic quantity variables but are small or entirely absent in both real and nominal price variables the timing of the seasonal fluctuations consists of increases in the second and fourth quarters a large decrease in the first quarter and a mild decrease in the third quarter the paper demonstrates that with respect to each of several major stylized facts about business cycles the seasonal cycle displays the same characteristics as the business cycle in some cases even more dramatically than the business cycle that is we find that at seasonal frequencies as well as at business cycle frequencies output movements across broadly defined sectors move together the timing of production and the

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

structural adjustment a survey of the issues and options abstract the article raises and attempts to answer questions such as adjustment for what purpose to what shocks of what factors or forces by whom who loses and who benefits from adjustment and adjustment how it also discusses the question of adjustment when the distinction between external and internal shocks is rejected as neither helpful for the allocation of blame nor for the justification of raising finance an analysis of the impact on the poor is sketched out after a brief discussion of the role of the market and government intervention in adjustment policy and the fallacy of aggregating country policies there follows a discussion of the double paradox of conditionality why should a donor impose conditions that are in the best interest of the recipient and why instead of paying for getting good advice is the recipient rewarded with extra money ten possible reasons are given the paper ends with proposals as to how to overcome the conflict between national sovereignty and assuring that donor money is well spent

estimating labour and output gap evidence from the athens olympic region in greece the present article estimates potential labour and labour gap as well as potential output and output gap using a cobb douglas production function and a hodrick prescott filter we investigate the athens region in greece by sector of economic activity with the aid of the non accelerating wage inflation rate of unemployment concept the results support the idea that the athens region seems to be working mostly over the regional economy s capabilities a fact which leads to inflationary pressure

housing wealth and consumption a micro panel study there is strong evidence that house prices and consumption are synchronised there is however disagreement over the causes of this link this study examines if there is a wealth effect of house prices on consumption using a household level panel data set with information about house ownership income wealth and demographics for a large sample of the danish population in the period 1987 96 we model the dependence of the growth rate of total household expenditure with unanticipated innovations to house prices controlling for factors related to competing explanations we find little evidence of a housing wealth effect

intertemporal consumption and credit constraints does total expenditure respond to an exogenous shock to credit there is continuing controversy over the importance of credit constraints this paper investigates whether total household expenditure and debt is affected by an exogenous increase in access to credit provided by a credit market reform that enabled danish house owners to use housing equity as collateral for consumption loans we find that the magnitude of the response is correlated with the amount of equity released by the reform and that the effect is strongest for younger households even for this group the response was moderate the aggregate effect of the reform was significant but small

trends in the well being of american women 1970 1995 this paper examines the trends in the well being of american women over the last 25 years a time of significant changes in the relative economic status of women and in the labor market as a whole a broad range of indicators are considered to capture changes in women s well being in the family as well as in the labor market for virtually all age and education groups substantial evidence is obtained of rising gender equality in labor market outcomes notably labor force participation wages and occupational distributions broad evidence is also found of greater gender parity within married couple families as the housework time of husbands increased relative to wives and the relative wages of wives rose compared to their husbands however parallel to the recent evidence of the declining labor market position of lower skilled men there has been a similar deterioration in the economic status of less educated women especially high school dropouts their labor force participation rates and wages have risen at a much slower pace than those of more highly educated women while their incidence of single headship has increased much more rapidly these findings for less educated women serve to underscore the widening gap between more and less skilled americans of both sexes as well as to emphasize its broad dimensions

the cyclical component of u s economic activity quarterly data on industrial production and deflated gross national product in the united states from 1947 through 1985 are decomposed into independent nonstationary trend and stationary cycle components using kalman filtering and smoothing techniques estimates of the model parameters imply that at least half of the quarterly innovation in u s economic activity can be attributed to a stationary cyclical component that persists over periods of time as long as five years this finding is inconsistent with the hypothesis that most of the apparent variation in u s economic activity can be attributed to a nonstationary trend component

hours per capita and productivity evidence from correlated unobserved components models recent studies debate the effect of a permanent productivity shock on hours per capita within a structural var context this paper examines the issue using a correlated unobserved components uc framework the estimates show that permanent shocks to productivity are negatively correlated with transitory shocks to hours this result is robust for non stationary or levels stationary specifications of hours model comparisons indicate that the data do not favor imposing var type restrictions on the uc models copyright 2008 john wiley sons ltd

imputing consumption from income and wealth information we investigate the feasibility of deriving a measure of total expenditure at the household level from administrative micro data on income and wealth we use danish administrative data that provides measures of disposable income and the holding of different assets at the end of the year the ability to link the households in the 1994 6 danish expenditure survey to their administrative data for the years around the survey year offers a unique possibility for constructing a measure of total expenditure and of checking directly on the reliability of the imputation the results are promising

job loss credit constraints and consumption growth we use direct evidence on credit constraints to study their importance for household consumption growth and for welfare we distentangle the direct effect on consumption growth of a currently binding credit constraint from the indirect effect of a potentially binding credit constraint which generates consumption risk our data is focused on job losers we find that less than 5 of job losers experience a binding credit constraint but for those that do they experience significant welfare losses and consumption growth is 24 higher than for the rest of the population however even among those who are currently unconstrained and who are able to borrow if needed consumption responds to transitory income

the business cycle macroeconomic shocks and the cross section the growth of uk quoted companies we bring to light a significant aspect of firm level heterogeneity over the business cycle analysing the responsiveness of firm growth quoted uk companies to aggregate shocks we find that the effects of aggregate shocks are more pronounced for firms in the middle range of growth rapidly growing and rapidly declining firms are less sensitive to aggregate shocks than firms in the interior of the growth range this is consistent with the fact that the higher moments of the distribution of firm growth rates have significant cyclical patterns these findings throw new light on growth of firms as well as on business cycle dynamics