the political economy of clientelism in this paper we argue that the political commitment problem provides an explanation for why much income redistribution takes an inefficient form particularly employment in the public sector a job is a credible way of redistributing when it provides rents such as in situations with moral hazard and employment is optimal ex post moreover a job is selective and reversible and thus ties the continuation utility of a voter to the political success of a particular politician we show that the need to make offers of employment incentive compatible leads to inefficiencies in the supply of public goods we also show that such inefficient redistribution becomes relatively attractive in situations with high inequality and low productivity inefficiency is increased when the stakes from politics are high when inequality is high and when money matters less than ideology in politics

the impact of minimum wages on youth employment in portugal textabstractfrom january 1 1987 the legal minimum wage for workers aged 18 and 19 in portugal was uprated to the full adult rate generating a 49 3 increase between 1986 and 1987 in the legal minimum wage for this age group this shock is used as a natural experiment to evaluate the impact of the minimum wage change on teenagers employment by using a large firm level micro data set it is shown that by comparing the employment growth of 18 19 year old workers with their 20 25 year old counterparts one can identify the employment effects of the minimum wage hike the same comparisons are done with 30 35 year old workers this study finds that the rise in the minimum wage significantly reduced employment this conclusion is reinforced by evidence showing that these employment effects are concentrated in firms more likely to be affected by the change in the law

the political economy of public income volatility with an application to the resource curse abstract in recent years many countries have witnessed a great deal of volatility in public budgets be it due to volatility in the access to foreign loans in greece or to unstable oil prices in venezuela we study the political consequences of such public income volatility as is standard in our model political incentives create inefficient policies to increase re election probabilities but we show that making public income uncertain creates specific new effects future volatility reduces the benefit of being in power making policy more efficient yet at the same time it also reduces the re election probability of an incumbent and since some of the policy inefficiencies are concentrated in the future this makes inefficient policy such as patronage public employment less costly our model highlights a new political economy connection between the volatility of the public budget and economic growth in the case where volatility comes from natural resource prices a characteristic of many developing countries we show that volatility in itself may be a source of inefficient resource extraction jointly interacting with increased patronage employment

using local labor market data to re examine the employment effects of the minimum wage using quarterly census data for 1996 2000 the author evaluates how minimum wages affected teenage employment at the county level an analysis that includes all counties yields small and statistically insignificant effects consistent with previous research using state panels however in counties where the minimum wage was likely binding above the market clearing wage for teens the negative impact on employment was considerably larger the effect was strongest in small counties was restricted to transitory jobs and new hires and apparently was not experienced by young adults ages 19 22 the small employment effects found in much of the literature the author argues at least partly reflect the estimates inclusion of local labor markets where the minimum wage is not binding by averaging the effects across all areas with no disaggregation based on where the minimum wage is binding and where it is not these studies overlook important regional variation

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

a political economy theory of the soft budget constraint why do soft budget constraints exist and persist in this paper we argue that the prevalence of soft budget constraints can be best explained by the political desirability of softness we develop an infinite horizon political economy model where neither democratic nor autocratic politicians can commit to policies that are not ex post optimal we show that because of the dynamic commitment problem inherent in the soft budget constraint politicians can in essence commit to make transfers to entrepreneurs which otherwise they would not be able to do this encourages such entrepreneurs to support them politically though the soft budget constraint may induce economic inefficiency it may be politically rational because it influences the probability of political survival in consequence even when information is complete politicians may fund bad projects which they anticipate they will have to bail out in the future we show that maybe somewhat surprisingly dictators who are less likely to lose power are more likely to use the soft budget constraint as a strategy to gain political support

happy birthday you re fired the effects of an age dependent minimum wage on youth employment flows in the netherlands the dutch minimum wage for workers aged 15 to 23 is defined as a stepwise increasing function of a worker s calendar age using dutch administrative records the author shows that the birthday disc

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

political foundations of the resource curse a simplification and a comment in this note we show how a considerably simpler model than the one in our original jde 2006 paper generates all the same results we also acknowledge an error in the specification of a utility function in our previous paper

okun s law across time and frequencies abstract we present the first assessment of u s okun s law across time and frequencies we use a set of continuous wavelet tools that allows for estimating okun s coefficient and the lead lag of output over unemployment at each moment and for each cyclical frequency we find similar results for the gaps and the first differences specifications at business cycles frequencies but not at lower frequencies okun s coefficient has increased in absolute value since the mid 1960s except in 1985 1995 and is not particularly sensitive to recessions the lead of output varies considerably over time and also at different frequencies we observe especially with the gaps specification that there are at least two cyclical processes relevant for the okun s relationship one at the business cycle and another at lower frequencies methods that do not take this into account are bound to mix the information embedded in both cycles

earnings losses of displaced workers revisited recent literature reviews conclude that job displacement results in sustained earnings losses bruce c fallick 1996 lori g kletzer 1998 and that estimates of the size of those reductions vary with the type of data used in the analysis the industry within which displacement occurs and business cycle conditions the largest estimated losses were obtained using administrative data from pennsylvania during the 1970s and 1980s louis s jacobson robert j lalonde and daniel g sullivan 1993a the data covered a period of high unemployment in a heavily indus trialized state characterized by disproportionate job losses in manufacturing thus the ability to generalize those results to more favorable economic times and states with a greater reliance on service sector employment has been questioned to address these issues administrative data are used to similarly examine the impact of job displacement on earnings losses of workers in connecticut from 1993 to 2004 the work of jacobson lalonde and sullivan jls also provided important methodologi cal advancement by adapting analytical techniques developed for program evaluation james j heckman and v joseph hotz 1989 to the context of job displacement the same techniques fixed effects and time trend estimators as those used in the original jls publication are initially employed here then the methods are extended to include matching estimators developed since their publication both nearest neighbor estimators of average treatment on the treated att and differenced average treatment on the treated datt are adapted to the context of this study heckman hidehiko ichimura and petra todd 1997 heckman et al 1998 and rajeev h dehejia and sadek wahba 1999 2002 the results presented here for connecticut differ in some ways from those found in the work of jls using data from pennsylvania in the period immediately following job loss regardless of the technique employed earnings reductions for workers displaced through mass layoff range from 32 percent to 33 percent jls reported immediate losses of more than 40 percent six years later using the same estimators as jls earnings reductions in connecticut range from 13 percent to 15 percent they report sustained losses in pennsylvania of 25 percent the smaller long term impacts in connecticut demonstrate that under more ordinary economic times esti mated losses from administrative data lie within the range observed using other data sources this finding resolves a long standing conflict among the results of high quality studies that have used differing data sources to study earnings reductions following job loss 1 using two different matching estimators earnings losses six years after mass layoff are 12 percent the matching estimators compare those who experienced mass layoff to compari sons with the same ex ante probability of the event these smaller losses are consistent with the

var analysis and the great moderation post world war ii us macroeconomic history is usually divided into two distinct subperiods the former period which extends up to the end of the volcker disinflation is characterized by a significant extent of macroeconomic turbulence with highly volatile inflation and output growth the latter period from the end of the volcker disinflation up to the present day is marked in contrast by significantly smaller volatilities for both inflation and output growth these dramatic changes in the reduced form properties of the us economy over the last several decades char acterize a phenomenon known as the great moderation see in particular chang jin kim and charles nelson 1999 margaret mcconnell and gabriel perez quiros 2000 a vast empirical literature has investigated the source s of the great moderation in an attempt to disentangle the relative contributions of two main explanations good policy and good luck based on time varying or markov switching structural var methods the good luck hypoth esis has been advocated by a number of authors including james h stock and mark w watson 2003 giorgio e primiceri 2005 christopher sims and tao zha 2006 and luca gambetti evi pappa and fabio canova 2008

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

evaluating the minimum wage exemption of the long term unemployed in germany the authors evaluate the exemption of long term unemployed job seekers from germany s national minimum wage using linked survey and administrative micro data they rely on a regression discontinui

the value of democracy evidence from road building in kenya ethnic favoritism is seen as antithetical to development this paper provides credible quantification of the extent of ethnic favoritism using data on road building in kenyan districts across the 1963 2011 period guided by a model it then examines whether the transition in and out of democracy under the same president constrains or exacerbates ethnic favoritism across the post independence period we find strong evidence of ethnic favoritism districts that share the ethnicity of the president receive twice as much expenditure on roads and have five times the length of paved roads built this favoritism disappears during periods of democracy jel d72 h54 j15 o15 o17 o22 r42

cross country evidence on labor market institutions and young adult employment through the financial crisis i develop and analyze a set of cross country facts regarding employment and wage setting institutions over the decade surrounding the 2008 financial crisis among long industrialized countries young adult employment declined more than prime age employment over this time period i show that differences in countries wage setting institutions strongly predict variations in the magnitude of declines in young adult employment both unconditionally and conditional on changes in macroeconomic conditions young adult employment declined 5 percentage points less in countries where wage setting is driven by collective bargaining arrangements than in countries with statutory wage floors evidence on the evolution of legislated minimum wage rates and of an asymmetry in the relationship between growth and young adult employment suggest an important role for a standard wage rigidity mechanism

a positive theory of fiscal deficits and government debt this paper considers an economy in which policymakers with different preferences alternate in office as a result of elections government debt is used strategically by each policymaker to influence the choices of his successors if different policymakers disagree about the desired composition of government spending between two public goods the economy exhibits a deficits bias that is debt accumulation is higher than it would be with a social planner the equilibrium level of debt is larger the larger is the degree of polarization between alternating governments and the less likely it is that the current government will be re elected

explaining the great moderation it is not the shocks this paper shows that the explanation of the decline in the volatility of gdp growth since the mid eighties is not the decline in the volatility of exogenous shocks but rather a change in their propagation mechanism

the persistence of inflation in the united states abstract has the persistence of inflation in the united states changed since 1965 we estimate the persistence of inflation over time using different measures and estimation procedures and we produce confidence intervals for our estimates as well as formal tests of unchanged persistence we find that inflation persistence has been high and approximately unchanged in the u s over our sample period we reconcile our results with other studies that reached different conclusions

disentangling the minimum wage puzzle an analysis of worker accessions and separations changes in the legislation in the mid 1980s in portugal provide remarkably good conditions for analysis of the employment effects of mandatory minimum wages as the minimum wage increased sharply for a very specific group of workers relying on a matched employer employee panel data set we model gross worker flows accessions and separations in continuing firms as well as in new firms and those going out of business using a count regression model applied to proportions employment trends for teenagers the affected group are contrasted to those of older workers before and after the raise in the youth minimum wage the major effect on teenagers of a rising minimum wage has been the reduction of separations from the employer which during the period under analysis has compensated for the reduction of accessions to new and continuing firms in this sense our results can reconcile some of the previous evidence in the empirical literature when analyzing the aggregate impact of the minimum wage on youth employment without decomposing it by type of worker flow jel d21 j23 j38

factor hoarding and the propagation of business cycles shocks this paper analyzes the role of variable capital utilization rates in propagating shocks over the business cycle to this end we formulate and estimate an equilibrium business cycle model in which cyclical capital utilization rates are viewed as a form of factor hoarding we find that variable capital utilization rates substantially magnify and propagate the impact of shocks to agents environments the strength of these propagation effects is evident in the dynamic response functions of various economy wide aggregates to shocks in agents environments in the statistics that we construct to summarize the strength of the propagation mechanisms in the model and in the volatility of exogenous technology shocks needed to explain the observed variability in aggregate u s output other authors have argued that standard real business cycle rbc models fail to account for certain features of the data because they do not embody quantitatively important propagation mechanisms these features include the observed positive serial correlation in the growth rate of output the shape of the spectrum of the growth rate of real output and the correlation between the forecastable component of real output and various other economic aggregates allowing for variable capital utilization rates substantially improves the ability of the model to account for these features of the data

the effect of minimum wages on youth employment in canada a panel study previous u s panel estimates of minimum wage effects have been criticized on the grounds that their identification rests on comparisons of low wage and high wage workers using canadian panel data for 1988 90 i compare estimates based on the traditional u s methodology with those based on samples of low wage workers exclusively the results would appear to vindicate the critics the minimum wage effect from the latter approach is virtually zero yet estimates from different subgroups of low wage workers indicate that there is a significant disemployment effect for those with longer low wage employment histories this highlights the heterogeneity within low wage workers and the importance of carefully defining the target group not solely based on workers wages

minimum wage effects on employment substitution and the teenage labor supply evidence from personnel data using personnel data from a large us retail firm i examine the firm s response to the 1996 federal minimum wage increase compulsory increases in average wages had negative but statistically insignificant effects on overall employment however increases in the relative wages of teenagers led to significant increases in the relative employment of teenagers especially younger and more affluent teenagers further analysis suggests a pattern consistent with noncompetitive models where the legislation affected mainly the wages of teenagers and so was only moderately binding it led both to higher teenage labor market participation and to higher absolute employment of teenagers

characterizing the financial cycle evidence from a frequency domain analysis a growing body of literature argues that the financial cycle is considerably longer in duration and larger in amplitude than the business cycle and that its distinguishing features became more pronounced over time this paper proposes an empirical approach suitable to test these hypotheses we parametrically estimate the whole spectrum of financial and real variables to obtain a complete picture of their cyclical properties we provide strong statistical evidence for the us and slightly weaker evidence for the uk validating the hypothesized features of the financial cycle in germany however the financial cycle is if at all much less visible

minimum wage shocks employment flows and labor market frictions we provide the first estimates of the effects of minimum wages on employment flows in the u s labor market identifying the impact using policy discontinuities at state borders we find that minimum wages have a sizable negative effect on employment flows but not stocks separations and accessions fall among affected workers we interpret our findings using a job ladder model in which minimum wage increases can reduce job to job transitions we find that a standard calibration of the model generates predicted relative magnitudes of the employment stock and flow elasticities that are very close to our reduced form estimates

spectral welfare cost functions if preferences are not time separable economic agents care not only about the magnitude of fluctuations in consumption but also about the persistence and other temporal characteristics of those fluctuations this paper extends and develops the theory of spectral utility functions which measure utility frequency by frequency to illustrate the interaction between consumption volatility and time non separable preferences to highlight the economic implications of the interaction spectral welfare cost functions are developed to provide a quantitative measure of the importance to economic agents of the temporal delivery of consumption volatility

the effect of the minimum wage on the fast food industry using a longitudinal survey of fast food restaurants in texas the authors examine the impact of recent increases in the federal minimum wage on a low wage labor market less than 5 of fast food restaurants were using the new youth subminimum wage in july august 1991 even though the vast majority paid a starting wage below the new hourly minimum wage immediately before it became effective although some restaurants increased wages beyond the level needed to comply with higher minimum wages in both 1990 and 1991 those federal minimum wage increases greatly compressed the distribution of starting wages in the texas fast food industry two findings at variance with conventional predictions are that 1 employment increased more in those firms likely to have been most affected by the 1991 minimum wage increase than in other firms and 2 price changes were unrelated to mandated wage changes

institutions and the resource curse countries rich in natural resources constitute both growth losers and growth winners we claim that the main reason for these diverging experiences is differences in the quality of institutions more natural resources push aggregate income down when institutions are grabber friendly while more resources raise income when institutions are producer friendly we test this theory building on sachs and warner s influential works on the resource curse our main hypothesis that institutions are decisive for the resource curse is confirmed our results contrast the claims of sachs and warner that institutions do not play a role

the minimum wage and the great recession evidence of effects on the employment and income trajectories of low skilled workers abstract we estimate the minimum wage s effects on low skilled individuals employment and income trajectories following the great recession our approach exploits two dimensions of the data we analyze first we compare individuals in states that were fully bound by the 2007 to 2009 increases in the federal minimum wage to individuals in states that were not second we use variation in the minimum wage s bite across skill groups to separate our samples into target and within state control groups using the 2008 panel of the survey of income and program participation we find that binding minimum wage increases had significant negative effects on the employment and income growth of targeted workers although there are important limitations to our research designs our estimates are robust to adopting a range of alternative strategies to construct our analysis samples and to account for variation in the great recession s underlying severity across states in aggregate our estimates suggest that this period s minimum wage increases reduced aggregate employment rates by at least half of a percentage point in states that were bound by the federal minimum wage increases because our estimates are large relative to what one would infer from past research we emphasize the relevance of the historical episode we analyze

regime switches agents beliefs and post world war ii u s macroeconomic dynamics the evolution of inflation and output over the last 50 years is examined through the lens of a micro founded model that allows for changes in the behavior of the federal reserve and in the volatility of structural shocks agents are aware of the possibility of regime changes and their beliefs have an impact on the law of motion underlying the macroeconomy the results support the view that there were regime switches in the conduct of monetary policy however the behavior of the federal reserve is identified by repeated fluctuations between a hawk and a dove regime instead of by the traditional pre and post volcker structure counterfactual simulations show that if agents had anticipated the appointment of an extremely conservative chairman inflation would not have reached the peaks of the late 70s and the inflation output trade off would have been less severe these beliefs counterfactuals are new in the literature finally the paper provides a bayesian algorithm to handle the technical difficulties that arise in a rational expectations model with markov switching regimes

the heterogeneous great moderation in this paper i show that a more accurate analysis of the great moderation leads to interesting and novel findings about macroeconomic volatility dynamics in the last decades the main empirical result of the paper is that the great moderation has diversely affected macroeconomic volatility at different horizons short run business cycle and medium run i refer to this phenomenon as the heterogeneous great moderation across frequencies i formally test these findings by defining a frequency domain structural break test that detects the presence of a break in the variance of real macroeconomic variables at different frequencies i derive its asymptotic and small sample properties and i apply it to u s macroeconomic variables to provide statistical evidence that the great moderation is mainly confined to short run fluctuations i finally use a dsge model to investigate which elements of the model can generate the heterogeneous great moderation i find that whereas just a decline of the magnitude of the shocks and a change in the monetary policy cannot replicate the stylized facts accounting for the increased persistence of the exogenous disturbances is the key feature for generating the heterogeneous great moderation

volatility and growth credit constraints and the composition of investment abstract how does uncertainty and credit constraints affect the cyclical composition of investment and thereby volatility and growth this paper addresses this question within a model where firms engage in two types of investment a short term one and a long term one which contributes more to productivity growth because it takes longer to complete long term investment has a relatively less cyclical return but it also has a higher liquidity risk the first effect ensures that the share of long term investment to total investment is countercyclical when financial markets are perfect the second implies that this share may turn procyclical when firms face tight credit constraints a novel propagation mechanism thus emerges through its effect on the cyclical composition of investment tighter credit can lead to both higher volatility and lower mean growth evidence from a panel of countries provides support for the model s key predictions

macroeconomic volatility and welfare in developing countries an introduction macroeconomic volatility both a source and a reflection of underdevelopment is a fundamental concern for developing countries their high aggregate instability results from a combination of large external shocks volatile macroeconomic policies microeconomic rigidities and weak institutions volatility entails a direct welfare cost for risk averse individuals as well as an indirect one through its adverse effect on income growth and development this article provides a brief overview of the recent literature on macroeconomic volatility in developing countries highlighting its causes consequences and possible remedies it then introduces the contributions of a recent conference on the subject sponsored by the world bank and pompeu fabra university barcelona

majority rule bargaining and the under provision of public investment goods abstract despite evidence that modern democracies systematically shortchange public investment goods relatively little theoretical work exists to explain this phenomenon we build on baron and ferejohn s american political science review 83 4 1989 1181 1206 bargaining model to describe public investments in a setting of budgetary politics specifically we show that underinvestment inherently arises from distributive politics within a majoritarian institution the inability of current majorities to contract with future ones drives a wedge between spending on consumption today and investing for future consumption extensions to the model demonstrate that earmarking future returns to specific players and or detaching consumption from investment decisions yields more efficient levels of public investment

monetary policy regime shifts and inflation persistence abstract using bayesian methods we estimate a markov switching new keynesian msnk model that allows shifts in the monetary policy reaction coefficients and shock volatilities with u s data we find that a more aggressive monetary policy regime was in place after the volcker disinflation and before 1970 than during the great inflation of the 1970s our estimates also indicate that a low volatility regime has been in place during most of the sample period after 1984 we connect the timing of the different regimes to a measure of inflation persistence

has monetary policy become more effective we investigate the implications of changes in the structure of the u s economy for monetary policy effectiveness estimating a vector autoregression over the pre and post 1980 periods we provide evidence of a reduced effect of monetary policy shocks in the latter period we estimate a structural model that replicates well the economy s response in both periods and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy s volatility we find that by responding more strongly to inflation expectations monetary policy has stabilized the economy more effectively in the post 1980 period

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

kleptocracy and divide and rule a model of personal rule many developing countries have suffered under the personal rule of kleptocrats who implement highly inefe cient economic policies expropriate the wealth of their citizens and use the proceeds for their own glorie cation or consumption we argue that the success of kleptocrats rests in part on their ability to use a divide and rule strategy made possible by the weakness of institutions in these societies members of society need to cooperate in order to depose a kleptocrat yet such cooperation may be defused by imposing punitive rates of taxation on any citizen who proposes such a move and redistributing the benee ts to those who need to agree to it thus the collective action problem can be intensie ed by threats which remain off the equilibrium path in equilibrium all are exploited and no one challenges the kleptocrat kleptocratic policies are more likely when foreign aid and rents from natural resources provide rulers with substantial resources to buy off opponents when opposition groups are shortsighted when the average productivity in the economy is low and when there is greater inequality between producer groups because more productive groups are more dife cult to buy off jel o12 h00

political foundations of the resource curse in this paper we argue that the political incentives that resource endowments generate are the key to understanding whether or not they are a curse we show 1 politicians tend to over extract natural resources relative to the efficient extraction path because they discount the future too much and 2 resource booms improve the efficiency of the extraction path however 3 resource booms by raising the value of being in power and by providing politicians with more resources which they can use to influence the outcome of elections increase resource misallocation in the rest of the economy 4 the overall impact of resource booms on the economy depends critically on institutions since these determine the extent to which political incentives map into policy outcomes countries with institutions that promote accountability and state competence will tend to benefit from resource booms since these institutions ameliorate the perverse political incentives that such booms create countries without such institutions however may suffer from a resource curse

the impact of minimum wages on labour market transitions we investigate dierences in labour market transition rates in high versus low minimum wage regimes using canadian data spanning 1979 to 2008 the data include consistent questions on job tenure and reason for job separation for the whole period over the same time frame there were over 140 minimum wage changes in canada we nd that higher minimum wages are associated with lower hiring rates but also with lower job separation rates importantly the reduced separation rates are due mainly to reductions in layos occur in the rst 6 months of a job and are present for unskilled workers of all ages our estimates imply that a 10 increase in the minimum wage generates a 3 9 reduction in the layo rate we present a search and matching model that ts with these patterns and test its implications overall our results imply

when good measurement goes wrong new evidence that new york state s minimum wage reduced employment hoffman s 2015 replication of sabia burkhauser and hansen sbh 2012 suggests that unlucky measurement error in low skilled employment in the current population survey outgoing rotation group

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

volatility and development why is gdp growth so much more volatile in poor countries than in rich ones we identify four possible reasons i poor countries specialize in more volatile sectors ii poor countries specialize in fewer sectors iii poor countries experience more frequent and more severe aggregate shocks e g from macroeconomic policy and iv poor countries macroeconomic fluctuations are more highly correlated with the shocks of the sectors they specialize in we show how to decompose volatility into these four sources quantify their contribution to aggregate volatility and study how they relate to the stage of development we document the following regularities first as countries develop their productive structure moves from more volatile to less volatile sectors second the level of specialization declines with development at early stages and slowly increases at later stages of development third the volatility of country specific macroeconomic shocks falls with development fourth the covariance between sector specific and country specific shocks does not vary systematically with the level of development we argue that many theories linking volatility and development are not consistent with these findings and suggest new directions for future theoretical work

policy volatility institutions and economic growth abstract in this paper we present evidence that policy volatility exerts a strong and direct negative impact on growth using data for 93 countries we construct measures of policy volatility based on the standard deviation of the residuals from country specific regressions of government consumption on output undisciplined governments that implement frequent and large changes in government spending unrelated to the state of the business cycle generate lower economic growth we employ both instrumental variables and panel estimation to address concerns of omitted variables and endogeneity a 1 standard deviation increase in policy volatility reduces long term economic growth by about 0 74 in the panel regressions and by more than 1 percentage point in the cross section

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

aggressive oil extraction and precautionary saving coping with volatility the effects of stochastic oil demand on optimal oil extraction paths and tax spending and government debt policies are analyzed when the oil demand schedule is linear and preferences quadratic without prudence optimal oil extraction is governed by the hotelling rule and optimal budgetary policies by the tax and consumption smoothing principle volatile oil demand brings forward oil extraction and induces a bigger government surplus with prudence the government depletes oil reserves even more aggressively and engages in additional precautionary saving financed by postponing spending and bringing taxes forward especially if it has substantial monopoly power on the oil market gives high priority to the public spending target is very prudent and future oil demand has high variance uncertain economic prospects induce even higher precautionary saving and if non oil revenue shocks and oil revenue shocks are positively correlated even more aggressive oil extraction in contrast prudent governments deliberately underestimate oil reserves which induce less aggressive oil depletion and less government saving but less so if uncertainty about reserves and oil demand are positively correlated