history dependence in concave economies abstract this paper investigates concave intertemporal optimization problems and derives two mechanisms either growth or control state interactions e g due to endogenous preferences that allow for multiple steady states including an unstable one therefore history dependence is possible in a perfectly governed economy subject to the law of diminishing returns if one of these two mechanisms is present this result complements a large amount of literature that attributes history dependence to convexities as a consequence lock ins into undesired evolutions are possible beyond the familiar case of increasing returns

tracking the new economy using growth theory to detect changes in trend productivity abstract the acceleration of productivity after 1995 prompted a debate over whether the economy s underlying growth rate would remain high in this paper we draw on growth theory to identify variables other than productivity namely consumption and labor compensation to help estimate trend productivity growth we treat that trend as a common factor with two regimes high and low growth our analysis picks up striking evidence of a return in 1997 to the high growth regime nearly 25 years after a switch from high to low growth we find that both the common factor and regime switching aspects of the model are important for identifying changes in trend productivity and also show that the trend breaks are more difficult to detect with per capita as opposed to per hour based data because of persistent labor supply shifts finally we argue that our methodology is effective in detecting changes in trend in real time in the case of the 1990s the methodology would have signaled the regime switch by 1999 or within roughly six quarters of when it occurred according to the full sample

the inexorable and mysterious tradeoff between inflation and unemployment this paper discusses the short run tradeoff between inflation and unemployment although this tradeoff remains a necessary building block of business cycle theory economists have yet to provide a completely satisfactory explanation for it according to the consensus view among central bankers and monetary economists a contractionary monetary shock raises unemployment at least temporarily and leads to a delayed and gradual fall in inflation standard dynamic models of price adjustment however cannot explain this pattern of responses reconciling the consensus view about the effects of monetary policy with models of price adjustment remains an outstanding puzzle for business cycle theorists several years ago i gave myself a peculiar assignment i decided to try to summarise all of economics in ten simply stated principles the purpose of this task was to introduce students to the economic way of thinking in the first chapter of my textbook principles of economics i figured if god could boil all of moral philosophy down to ten commandments i should be able to do much the same with economic science most of the ten principles i chose were microeconomic and hard to argue with they involved the importance of tradeoffs marginal analysis the benefits of trade market efficiency market failure and so on i allocated the last three principles to macroeconomics the first of these was a country s standard of living depends on its ability to produce goods and services which i viewed as the foundation of all growth theory the second was prices rise when the government prints too much money which i took to be the essence of classical monetary theory the last of my ten principles is the subject of today s lecture society faces a short run tradeoff between inflation and unemployment perhaps not surprisingly this statement turned out to be controversial when my publisher sent out the manuscript for review a few readers objected

equipment investment and growth in developing countries abstract differences in equipment investment or equipment prices account for large variations in growth rates across countries an important task is to understand the economic mechanism underlying the equipment growth nexus and its policy implications in order to study this issue this paper develops a model in which growth is driven by the adoption of technologies that are embodied in equipment i show that this model can quantitatively account for the observed cross country relationships between equipment investment equipment prices and growth i find that the competitive equilibrium is characterized by inefficiently low levels of learning and too slow growth and study which policies are able to remedy this inefficiency

unit root tests and the statistical pitfalls of seasonal adjustment the case of u s postwar real gross national product unit root tests applied to the postwar seasonally adjusted quarterly gross national product series strongly support the null hypothesis of the presence of a unit root in the data generating process evidence reported here with seasonally unadjusted data is far less conclusive it is explained why seasonal adjustment procedures may alter the outcome of conventional tests

detecting multiple factors in panel data an application on the growth of local regions in china abstractdue to unbalanced growth in china s local regions we construct a panel data model with multiple common factors to examine the differences among the growth factors in these areas this article shows the various impacts from the supply and demand sides on economic growth different from the demand side the supply side impacts have permanent influences this article focuses on these deep and profound impacts to explain the reasons behind china s fast economic growing by using data on 27 regions from 1958 to 2013 we summarize the main permanent influences along three lines the first comes from the coastal regions which have learned modern technology and systems from foreign companies such as in guangdong zhejiang fujian and liaoning the second comes from big cities such as beijing and shanghai in which a huge migration has given the companies opportunities to recruit excellent workers making the resource allocation specialized and more efficient the third is from the government s major p

evaluating the economy embedded in the brazilian ethanol gasoline flex fuel car a real options approach the introduction of the flex fuel cars in the brazilian market in 2003 changed considerably the consumer decision making process prior to this date it was necessary to choose the automobile type only by gasoline or by ethanol fuel today it is possible to choose a car type with both fuel options this flexibility generates economic advantages for his owner but what are the financial benefits of a flex fuel car in comparison with a car using only gasoline geographically where is the owner of the benefits from this flexibility located this article presents an empirical application of the real options theory in the analysis of the flex fuel car option for five geographic brazilian regions northern northeastern central western southeastern and southern the regional price differences as well as the consumer preferences of these regions were met for this purpose historical fuel prices were considered stochastic and following a mean reverting stochastic process the prediction and option values were

a new approach to dating and predicting australian business cycle phase changes due to well known lags counter cyclical macroeconomic policies often exacerbate rather than ameliorate business cycles early recognition of upcoming phase shifts particularly contractions may assist in fine tuning such policies this objective is pursued in the paper by applying hamilton s 1989 1990 1991 quasi bayesian markovian regime switching model to monthly growth rates of leading long leading and coincident indexes of australian economic activity a simple rule applied to regime probabilities for each data point of the coincident index produces a phase chronology that is very similar to that produced by the bry and boschan 1971 turning point algorithm the regime switching model is also applied to the leading and long leading indexes the application of a simple rule to the resultant regime probabilities is found to result in a potentially very reliable advance signalling system for australian business cycle phase changes

valuing managerial flexibility an application of real option theory to mining investments abstract the value of managerial flexibility is assessed using data on prices costs grades reserves ore extraction and metal output for a panel of canadian copper mines a real option model is estimated and solved for project and option values most empirical researchers i consider the initial investment decision but neglect flexible operation thereafter ii assume that price is stochastic but ignore cost and reserve uncertainty and iii model price as a nonstationary stochastic process the evolution of three state variables price cost and reserves is assessed here differences in assumptions compared to others are found to lead to large differences in estimated project and option values

changes in the behavior of output in the united kingdom 1856 1990 abstract this paper reports evidence of major increases in the persistence of output as well as contributions of low frequency components to the variance of output growth for the united kingdom during 1856 1990 these results are contrary to those obtained by jaeger 1990

does real u k gdp have a unit root evidence from a multi century perspective we employ linear and nonlinear unit root tests to examine the stationarity of five multi century historical u k series of real output compiled by the bank of england three series span 1270 to 201

informal self employment and macroeconomic fluctuations article i nfo article history informal self employment is a major source of employment in developing countries its cyclical behavior is important to our understanding of the functioning of ldc labor markets but turns out to be surprisingly complex we develop a flexible model with two sectors a formal salaried tradable sector that may be affected by wage rigidities and an informal non tradable self employment sector faced with liquidity constraints to entry this labor market is then embedded in a standard small economy macro model we show that different types of shocks interact with different institutional contexts to produce distinct patterns of comovement between key variables of the model relative salaried self employed incomes relative salaried self employed sector sizes and the real exchange rate model predictions are then tested empirically for argentina brazil colombia and mexico we confirm episodes where the expansion of informal self employment is consistent with the traditional segmentation views of informality however we also identify episodes where informal self employment behaves pro cyclically here informality is driven by relative demand or productivity shocks to the non tradable sector

are real gdp levels nonstationary evidence from panel data tests potential nonstationarity of important macroeconomic variables and unit root tests are now a standard procedure in empirical analyses while there are many findings of unit roots in macroeconomic variables using the popular augmented dickey and fuller 1979 test this test has low power against near unit root alternatives recently panel data procedures have been proposed as an avenue to increased power this paper applies panel unit root tests to international real gdp and real gdp per capita data the results overwhelmingly indicate that international real gdp and real gdp per capita levels are nonstationary

mean reversion in investment decisions the case of hollywood one explanation for the comparatively lower quality of movie sequels is selection bias known in personnel economics as the peter principle only abnormally successful movies are selected for a sequel another explanation is a deterministic depreciation in quality due to the decline in the novelty of the sequel s characters and storyline both explanations predict that relative to the original the sequel s performance will revert towards the mean we develop a structural model to decompose the two explanations and estimate its parameters using detailed data on 306 franchise films and 2 823 non franchise films between 1995 and 2014 parameter estimates provide evidence of selection bias for action adventure and horror movies and evidence of a deterministic decline in quality for comedies

long memory in foreign exchange rates using the geweke porter hudak test we find evidence of long memory in exchange rate data this implies that the empirical evidence of unit roots in exchange rates may not be robust to long memory alternatives fractionally integrated autoregressive moving average arfima models are estimated by both the time domain exact maximum likelihood ml method and the frequency domain approximate ml method impulse response functions and forecasts based on these estimated arfima models are evaluated to gain insight into the long memory characteristics of exchange rates some tentative explanations of the long memory found in the exchange rates are discussed

the persistence of marketing effects on sales are marketing efforts able to affect long term trends in sales or other performance measures answering this question is essential for the creation of marketing strategies that deliver a sustainable competitive advantage this paper introduces persistence modeling to derive long term marketing effectiveness from time series observations on sales and marketing expenditures first we use unit root tests to determine whether sales are stable or evolving trending over time if they are evolving we examine how strong this evolution is univariate persistence and to what extent it can be related to marketing activity multivariate persistence an empirical example on sales and media spending for a chain of home improvement stores reveals that some but not all advertising has strong trend setting effects on sales we argue that traditional modeling approaches would not pick up these effects and therefore seriously underestimate the long term effectiveness of advertising the paper concludes with an agenda for future empirical research on long run marketing effectiveness

the case for trend stationarity is stronger than we thought in dejong and whiteman 1991a we concluded that 11 of the 14 macroeconomic time series originally studied by nelson and plosser 1982 supported trend stationarity phillips 1991 criticizes this inference claiming that our procedure is biased against integration and that our results are sensitive to model and prior specification however phillips alternative models and priors bias his results in favour of integration despite these biases phillips own findings indicate that the data provide the greatest relative support to trend stationarity this result is similar to our own 1989 1990 1991b findings concerning the sensitivity of our results the trend stationarity inference is remarkably robust

long run relationships between international stock prices further evidence from fractional cointegration tests the recent empirical literature supports the view that most of the international stock prices are not pairwise cointegrated however by using fractional cointegration techniques this paper shows that france germany hong kong and japan stock prices indices are pairwise fractionally cointegrated with us stock prices equilibrium errors are mean reverting with half life lying between 2 and 12 days it is worthwhile noting that emerging markets like brazil and argentina are not pairwise cointegrated with the us stock market these new results have important implications for asset pricing and international portfolio strategy

the nonstationarity of aggregate output some additional international evidence in this paper the stationarity of aggregate output is examined using the scaled variogram for a sample of twelve countries it is argued that if the true data generating process of output is stationary around a deterministic trend with a change in mean and or growth rate the results of previous studies are biased once the authors allow for a one time exogenous shock the conclusions are indeed less clear cut and for some countries even reversed copyright 1994 by ohio state university press

the long run impact of foreign shocks to the austrian economy an analysis at a sectoral level this paper investigates the long run impact of foreign shocks on the austrian economy which is an example of a small open economy with a fixed echange rate regime the analysis is done in a multisectoral vector autoregression framework foreign shocks involve inovations in gnp of european oecd countries oil prices effective echange rate and interest rates sectoral responses appear to be very different in particular shocks to european oecd gnp have a high long run impact on sectoral output especially in export dependent sectors this supports the hypothesis of export led growth

incentives in corporations evidence from the american whaling industry in the 1830s when whaling was a prosperous american industry a number of whaling corporations were chartered all of them were short lived this paper analyzes the failure of corporations in the american whaling industry and argues that the corporate form was unable to create the incentives requisite for success in whaling most nineteenth century whaling ventures were owned by a small number of local investors and were configured to provide powerful incentives for their managers the effect of the corporate form on productivity is analyzed using a newly collected panel data set of 874 whaling voyages many whaling corporations were managed by individuals who had previously or would subsequently manage ventures with the usual ownership structure using an individual fixed effects framework i identify a strong negative effect of the corporate form on productivity

a model of the political economy of the united states we develop and test a model of joint determination of economic growth and national election results in the united states the formal model which combines developments in the rational choice analysis of the behavior of economic agents and voters leads to a system of equations in which the dependent variables are the growth rate and the vote shares in presidential and congressional elections our estimates support the theoretical claims that growth responds to unanticipated policy shifts and that voters use both on year and midterm elections to balance the two parties on the other hand we find no support for rational retrospective voting we do reconfirm in a fully simultaneous framework the naive retrospective voting literature s finding that the economy has a strong effect on presidential voting we find congressional elections unaffected by the economy except as transmitted by presidential coattails

the term structure of interest rates over the business cycle abstract whether real gnp is assumed to be trend stationary or difference stationary which implies that shocks have transitory or permanent effects is critically important in explaining the behavior of the forward risk premium the term risk premium and changes in the yield curve over the business cycle while this is the main result there are two additional results of interest first although movements in the nominal yield spread are useful in predicting future economic activity these movements are not enough to separate real from nominal shocks the source of the shock can be determined if movements in the spread and shifts in the nominal yield curve are used jointly second the yield differential which is defined as the difference between the yields on inflation indexed bonds and nominal bonds is generally a biased predictor of expected inflation and may signal the wrong information about changes in expected inflation

the big problem of forecasting small change the united states mint recently reviewed approaches to forecasting the demand for new coin this paper reports on methods used to determine fundamental attributes of the data and uses these to help better determine appropriate model specification in order to better plan coin production in particular the debate regarding trend versus difference stationarity in macroeconomic trending data is considered the interest in the present paper is limited to applying a well known unit root test procedure to an untested macrodata set changes in us coin demand to see whether the test is useful in guiding the specification to improved forecast performance it is found that the forecast results are somewhat sensitive to the way in which the data are seasonally adjusted and lessons learned from this case study indicate that unit root tests are useful in guiding model specification

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

a measure of the u s output gap abstract an autoregressive distributed lag regression of the unemployment rate on output growth is structurally stable over the 1890 1986 period inverting this equation yields a measure of the output gap which is not subject to the spurious detrending problem

trends random walks and tests of the permanent income hypothesis abstract recent studies find that consumption is excessively sensitive to income these studies assume that income is stationary around a deterministic trend the data however do not reject the hypothesis that disposable personal income is a random walk with drift if income is indeed a random walk then the standard testing procedure is greatly biased toward finding excess sensitivity moreover if income follows either a more general non stationary process or a borderline stationary process this procedure is also seriously biased

measuring persistence in the presence of trend breaks the case of us gnp abstract measures of output persistence vary between the studies of campbell and mankiw 1987 and cochrane 1988 mainly because of the use of per capita versus real gnp data and annual versus quarterly observations i show that the existence of trend breaks in both the gnp and the population series can explain the different findings for per capital and real gnp data

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

modelling the informal sector formally abstract the theoretical characterization of formal informal sector dualism by labor market dualism is integrated with its empirical characterization by size dualism by supposing that the minimum formal sector wage is only enforced for firms greater than a certain size a firm s size varies directly with the talent of its enterpreneur manager and the choice between formal and informal sector entrepreneurship is determined endogenously it is then shown that the size gap between the smallest formal sector firm and largest informal sector firm varies directly with the formal informal sector wage differential which in turn is shown as expected to increase the further is the minimum wage above the market clearing wage the comparative statics of changes in the size of the firm above which the minimum wage is enforced are also examined

international evidence on persistence in output in the presence of an episodic change this paper uses some newly developed methods and techniques to examine the dynamic properties of international output in the presence of a structural break we provide statistical evidence to show that the unit root test results can in some cases be sensitive to whether a one time structural break in the data is modelled exogenously or endogenously however in most cases the unit root test results remain robust to specification of the structural break exogenously or endogenously moreover we find that the null hypothesis of a unit root in output can be rejected in favour of a flexible trend alternative for a number of countries such as canada denmark france and the united states

informal sector the credit market channel abstract we build a model of firms choice between formality and informality complying with costly registration procedures allows the firms to benefit from key public goods enforcement of property rights and contracts that make the participation in the formal credit market possible in a moral hazard framework with credit rationing their decision is shaped by the interaction between the cost of entry into formality and the relative efficiency of formal versus informal credit mechanisms and their related institutional arrangements the model is consistent with existing stylized facts on the determinants of informality

the nature of the farm abstract using a model based on a trade off between moral hazard incentives and gains from specialization this paper explains why farming has generally not converted from small family based firms into large factory style corporate firms nature is both seasonal and random and the interplay of these qualities generates moral hazard limits the gains from specialization and causes timing problems between stages of production by identifying conditions in which these forces vary we derive testable predictions about the choice of organization and the extent of farm integration to test these predictions we study the historical development of several agricultural industries and analyze data from a sample of over 1 000 farms in british columbia and louisiana in general seasonality and randomness so limit the benefits of specialization that family farms are optimal but when farmers are successful in mitigating the effects of seasonality and random shocks to output farm organizations gravitate toward fa

persistence of shocks and their sources in a multisectoral model of uk output growth this paper develops a multisectoral framework for the measurement of persistence of shocks to sectoral and aggregate output and provides a decomposition of the contribution of shocks from different sources to the overall persistence measure the framework is applied to u k output data distinguishing four types of macroeconomic shocks innovations in money supply growth stock returns exchange rates and oil prices among the macro shocks exchange rate shocks have the largest persistence effects on aggregate output through their effects on manufacturing sectors the contribution of the identified macro shocks to total persistence was small however compared to that of sector specific shocks copyright 1992 by royal economic society

random walks and monetary velocity in the g 7 countries new evidence from a multiple variance ratio test the random walk hypothesis rwh of the velocity of money has often been supported for the developed economies the literature is however far from unanimous this paper employs the most recent methodological advances in testing for random walks the multiple variance ratio test to re examine the behaviour of the velocity of money in the g 7 countries monetary velocity is computed as the ratio of nominal income to contemporaneous money stock under alternative definitions of income and money the empirical results from the present study do not support the rwh in most of the g 7 countries with the us m1 and m2 velocities as exceptions furthermore the results show that the rwh is sensitive to either the definitions of monetary velocity or the sample period of study

a survey of some recent econometric methods this survey is written mainly for the applied economist though we hope that the specialist econometrician will find something of interest too our aim has been to try to bring the applied worker as up to date as possible and in the process to improve the quality of applied work by providing access to the latest ideas in econometrics we have tried to describe and explain in a relatively non technical way the main developments that have taken place in the last ten years partly for reasons of space the survey is by no means exhaustive but it does cover a wide range of topics in both time series and cross section analysis among the subjects covered are the followoing the nature of data including integrated and fractionally integrated data four estimation methods maximum likelihood method of moments m estimators and non parametric estimation inference with stationary and integrated regressors a comparison of various model evaluation principles the formulation of models including dynamic specification cointegration and conditional expectations in mean and variance copyright 1989 by royal economic society

the random walk in canadian output this paper examines the time series properties of canadian real output for the years 1870 to 1985 in doing so tests for unit roots in the univariate time series representation of the series are performed the testing procedures are based on recent work by pierre perron 1989 and allow for trend breaks

shifting trends segmented trends and infrequent permanent shocks abstract a stochastic trend model is considered in which permanent shocks occur infrequently and randomly we show that this model is observationally equivalent to shifting segmented deterministic trend models moreover we show that standard full sample time series methods are incapable of distinguishing between small frequent permanent shocks and large infrequent permanent shocks an outlier search however reveals substantial evidence of large infrequent shocks to the gnp deflator and that these shocks account for most of the persistence in the gnp deflator for real gnp evidence of infrequent permanent shocks is weaker

international evidence on shock persistence structural change nonlinearities and subsample robustness testing for unit roots and the related issue of measuring shock persistence has attracted considerable theoretical and applied econometric interest the issue of the size of the random walk component raised by cochrane journal of political economy 96 893 920 1988 has been extended in the work of other authors leung economics letters 40 435 44 1992 in particular considers the effects of structural breaks on measures of persistence in this paper we consider new results for the effects of structural change nonlinearities and subsample robustness on spectral based measures of persistence illustrating the potential problems via an updated and extended version of the cogley journal of political economy 98 501 18 1990 data set we find that significant structural breaks exist in the majority of the series investigated furthermore measured persistence differs markedly across distinct periods with the assumption of common growth rates over very long periods leading on occasions to potentially

inertial inflation indexation and price stickiness evidence from brazil abstract this paper evaluates the inertial inflation hypothesis for brazil the hypothesis posits that indexation created a feedback mechanism such that one time supply shocks were fully transmitted into permanent changes in inflation a theoretical model is used to show that this outcome is based on the assumption of perfect price flexibility however with price stickiness indexation does not produce inertial inflation the degree of inertia is then compared for two periods one without indexation 1945 1963 and one with indexation 1969 1985 finally vector autoregressive representations are estimated for the latter period allowing for price stickiness the empirical results do not support the hypothesis

the persistence of taiwan s output fluctuations an empirical study using innovation regime switching model in this article we examine the persistence nature of taiwan s aggregate output fluctuations by using the innovation regime switching irs model in which the effect of an innovation may be permanent or transitory depending on an unobservable state variable that follows a first order markov chain by applying the irs model to taiwan s real gdp data we find that during the 1961 to 2000 period 61 39 of the real output shocks are likely to have permanent transitory effects moreover the innovations in the officially identified expansion contraction are more likely to have a permanent transitory effect these results are similar to those found in many studies of us real output fluctuations e g beaudry and koop 1993 kim and nelson 1999 and kuan et al 2005 however we also find that taiwan s output dynamics have changed drastically ever since year 2000 in particular the shocks to real gdp have become more likely to have only transitory effect even during the period of post 2001 iv ex

testing the rational expectations hypothesis further evidence this article tests the macro rational expectations hypotheses of rationality and neutrality for quarterly u s data the vector autoregressive representation is derived and the implied interequation nonlinear restrictions are tested using the wald statistic despite several modifications adopted here the results confirm the robustness of earlier findings that is the test results support rationality but not neutrality

persistence of shocks on seasonal processes the paper addresses the issue of measuring the persistence of shocks on seasonally integrated processes observed at quarterly intervals we show that the amplitude of the limiting cycle described by the cumulated impulse response function provides a parametric measure of persistence and that cochrane s normalized variance ratio can correspondingly be extended as a non parametric counterpart for illustrative purposes the latter is applied to the italian gdp and to the output of the agricultural sector copyright 1996 by john wiley sons ltd

consumption innovation persistence and the excess smoothness debate based on studies using us data consumption is too smooth relative to the implications of the rational expectations permanent income hypothesis repih of consumption we examine this and a number of related methodologicalissues for the uk using maximum likelihood estimation mle of an autoregressive fractionally integrated moving average arfima model of the income process we conclude that an innovation to income has a persistent effect on consumption and that in contrast to the findings from us studies consumption is too volatile compared to the repih model further mle is substantially more efficient than the semi parametric method of estimating arfima models which has previously been used in this area

on persistence of shocks to economic variables a common misconception abstract empirical results on u s gnp have provided estimates of the beveridge and nelson s persistence measure almost always greater than unity when using arima models and always smaller than unity when using ucarima models this paper shows that a measure of persistence less than unity is a mathematical consequence of the definition of ucarima models and not an independent estimation result therefore arima and ucarima estimates of persistence cannot be compared on the same ground

uncertainty about the persistence of economic shocks the behavior of time series of economic output has been characterized in terms of the persistence of shocks for a series generated by an autoregressive integrated moving average model persistence is a function of the model parameters we demonstrate that a careful analysis based on the likelihood can lead to considerably more uncertainty about persistence than is implied by the confidence intervals that are usually calculated we examine also the estimation of persistence from a vector autoregression in this case we also find nonstandard concentrated log likelihood functions concluding again that considerable care is necessary to assess uncertainty

non nested tests of three competing theories of business cycles this paper tests the keynesian new classical and real business cycle theories against each other as non nested hypotheses using quarterly data for the us covering the period 1959 1 1989 2 the results indicate that no one theory stands out as the dominant explanation of the business cycle this contrasts with the findings of earlier work which is mostly concerned with testing the keynesian against the new classical theory we find that the introduction of a third theory the real business cycle theory which accounts of real factors blurs the distinction between the demand sided keynesian and the new classical theories

ex tridenti mercatus sea power and maritime trade in the age of globalization this paper tests an implication of the hypothesis that hegemons provide increased global stability and thus promote international commerce specifically we measure the influence of naval power projections on global trade during the latter 19th and early 20th centuries a time of relative peace and robust commercial activity we use archival data on the navies of britain france the united states and germany capturing longitudinal measures of ship deployment tonnage and ship personnel first we develop an empirical naval arms race model and demonstrate that the navies of britain and france in particular responded rigorously to each other we then use our estimates of naval power projected around the world by britain and france to measure their effects on bilateral trade in a panel data gravity model results indicate that while navies had some positive impact on their own nation s trade other nations trade suffered our results show that rather than bolster globalization the first global arms race damaged commercial interests and lowered trade potential around the world

taxation wage controls and the informal sector abstract in this paper we study the effects of taxation and wage controls in a developing economy with an informal sector for that purpose we build a model with firm heterogeneity in which a formal and an informal sector endogenously emerge in some productive branches of the economy based on the assumption that the marginal cost of tax and regulation evasion increases with the size of the firm our model offers an explanation for the observed discontinuity in the distribution of firms size the missing middle three forms of dualism scale wage and evasion consistent with market segmentation are obtained the model accounts for the presence of waiting unemployment that seems particularly pervasive in urban regions a computable general equilibrium cge model for cameroon is built incorporating these features various reforms of the tax and regulation system are simulated and their effects on the extent of the informal sector are analyzed

let s take a break trends and cycles in us real gdp abstract trend cycle decompositions for us real gdp such as the unobserved components models the beveridge nelson decomposition the hodrick prescott filter and others yield very different cycles which bear little resemblance to the nber chronology ascribes much movements to the trend leaving little to the cycle and some imply a negative correlation between the noise to the cycle and the trend we argue that these features are artifacts created by the neglect of a change in the slope of the trend function once this is accounted for all methods yield the same cycle with a trend that is non stochastic except for a few periods around 1973 the cycle is more important in magnitude than previously reported and it accords well with the nber chronology our results are corroborated using an alternative trend cycle decomposition based on a generalized unobserved components models with errors having a mixture of normals distribution for both the slope of the trend function and the cyclical component

accommodation price flexibility and fluctuations abstract we show that in an economy where output fluctuations are driven primarily by aggregate demand shocks allowing a contemporaneous response of nominal wage contracts to actual market conditions in the period of the reopening of a contract invalidates taylor s second order phillips curve and delong and summers destabilizing output effects of increased price flexibility

aggregate output dynamics in the twentieth century abstract this study shows that annual output data of the g7 countries in the twentieth century are better characterized as transitory deviations from a shifting growth trend than as integrated processes furthermore i find no two countries share common business cycles

persistence in foreign exchange rates abstract this study examines the long run behavior of seven daily nominal exchange rates using univariate and multivariate persistence measures our results indicate that for some currencies the long run behavior deviates from that of a pure random walk in certain periods the multivariate estimates reflect the effect of both the ems exchange rate mechanism and increased post louvre accord coordinated intervention a large portion of the effect of a shock in one currency on another currency s long run value can be attributed to contemporaneous effects on the other currencies

lyapunov stability in an evolutionary game theory model of the labour market in this paper the existence and stability of equilibria in an evolutionary game theory model of the labor market is studied by using the lyapunov method the model display multiple equilibria and it is shown that the nash equilibria of the static game are evolutionary stable equilibria in the game theory evolutionary set up in this vein a complete characterization of the dynamics of an evolutionary model of the labor market is provided

further investigation of the uncertain trend in us gdp the presence of deterministic or stochastic trend in us gdp has been a continuing debate in the literature of macroeconomics ben david and papell 1995 found evidence in favour of trend stationarity using the secular sample of maddison 1991 more recently murray and nelson 2000 correctly criticized this finding arguing that the maddision data are plagued with additive outliers ao which bias inference towards stationarity hence they propose to set the secular sample aside and conduct inference using a more homogeneous but shorter time span post wwii sample in this article we re visit the maddison data by employing a test that is robust against ao s our results suggest the us gdp can be modelled as trend stationary process

nonlinear business cycle dynamics cross country evidence on the persistence of aggregate shocks i introduction economists have long been interested in the dynamics of business cycles particularly regarding the symmetry of expansions and contractions more recently the specification of stochastic trends in economic growth has generated concerns about the relative persistence of positive and negative shocks to the economy several papers have looked at the persistence of business cycles including nelson and plosser 1982 campbell and mankiw 1987 cochrane 1988 diebold and rudebusch 1989 balke and fomby 1990 zelhorst and de haan 1994 and bradley and jansen 1995 while results vary especially on the issue of a unit root in output the overarching result is that output fluctuations are highly persistent one question not asked by the above authors is whether business cycle dynamics are asymmetric this issue has been investigated by neftci 1984 falk 1986 delong and summers 1986 hamilton 1989 diebold and rudebusch 1990 and terasvirta and anderson 1991 these authors take a variety of approaches but they reach a general conclusion that there is some evidence of asymmetric business cycle dynamics however most of these studies ask if contractions are shorter and steeper than expansions except hamilton 1989 they do not ask if there is a difference in persistence due to the asymmetries in a recent paper beaudry and koop 1993 propose a set of methods for simultaneously examining these two questions specifically beaudry and koop bk recommend the augmentation of the standard arma representation of real output growth through the inclusion of a nonlinear term that captures the relative state of the economy this augmentation provides for nonlinear dynamics and the possibility of asymmetric dynamic responses to positive and negative shocks in addition calculation of the implied impulse responses permits detection of the relative persistence implied by the combination of asymmetric cycle dynamics and stochastic trend based upon their analysis of u s data bk conclude that the response of the economy to positive and negative shocks is indeed asymmetric and the imposition of symmetry on impulse responses has likely led to misleading measures of persistence bk p 162 as a result bk conclude we find that the effects of negative shocks to be mainly temporary and the effects of positive shocks to be very persistent bk p 162 if bk s results are correct they have strong implications for the way macro economists view economic fluctuations and will in their words contribute to a reappraisal of some macroeconomic theories that is bk s results suggest that macroeconomic models must be revised to provide for temporary effects of negative shocks but permanent effects of positive shocks because of the potential importance of bk s results we examine the robustness of those results by modifying and extending bk s proposed methods of testing not only do we extend the analysis to the other six g7 countries besides the united states but also we redefine in a sensible way the nature of the nonlinear dynamics overall our results from other economies provide only mixed support for the asymmetry of cyclical dynamics and the lack of persistence of negative shocks ii the model to be estimated in the bk framework the estimated model includes an asymmetric response term the asymmetry is generated by a variable that measures the strength of a recession the variable is calculated as the distance between current real gdp and the previous peak level of real gdp that is bk define a measure they call current depth of the recession cdr where 1 cdr sub t max y sub t j sub j greater than or equal to 0 y sub t with this definition in place bk recommend augmenting an autoregressive model of real gdp growth as 2 phi l delta y sub t delta omega l 1 cdr sub

international evidence on the persistence of economic fluctuations abstract this paper presents new evidence on the persistence of fluctuations in real gnp we estimate two measures of persistence nonparametrically using post war quarterly data from canada france germany italy japan the united kingdom and the united states we compare these estimates with monte carlo results from various ar 2 processes for six out of seven countries the point estimates indicate that a 1 shock to output should change the long run unvariate forecast of output by well over 1 low order arma models yield similar conclusions finally we examine the persistence in relative outputs of different countries

unit roots in the presence of abrupt governmental interventions with an application to brazilian data this paper considers econometric issues related to time series data that have been subject to abrupt governmental interventions the motivating example for this study is the brazilian monthly inflation rate 1974 1 1993 6 which we use throughout for illustration this series has been heavily influenced by the effect of so called shock plans implemented by various governments starting in the mid 1980s the plans act as inliers in the sense that the series is temporarily brought down to low levels before returning to its previous trend path we analyse the effects on standard unit root tests and measures of persistence caused by the presence of these inliers we show a substantial bias in favour of concluding that the series is stationary and that shocks have temporary effects we then construct appropriately corrected statistics which take into account the presence of the plans these show unlike the standard tests that the stochastic behaviour of the inflation rate was indeed unstable over this period simulation results are presented to support the adequacy of our corrected statistics copyright 1999 john wiley sons ltd