time varying smooth transition autoregressive models nonlinear regime switching behavior and structural change are often perceived as competing alternatives to linearity in this article we study the so called time varying smooth transition autoregressive tv star model which can be used both for describing simultaneous nonlinearity and structural change and for distinguishing between these features two modeling strategies for empirical specification of tv star models are developed monte carlo simulations show that neither of the two strategies dominates the other a specific to general to specific procedure is best suited for obtaining a first impression of the importance of nonlinearity and or structural change for a particular time series a specific to general procedure is most useful in careful specification of a model with nonlinear and or time varying properties an empirical application to a large dataset of u s macroeconomic time series illustrates the relative merits of both modeling strategies

agricultural productivity and convergence europe and the united states this article applies the window malmquist index wmi approach to measure changes in agricultural total factor productivity tfp for the united states and a sample of nine european countries for the period 1973 to 1993 the dataset used in this article is obtained from ball et al 2001 the wmi is constructed by combining data envelopment analysis window analysis with the malmquist index approach furthermore the kruskal and wallis rank test is used for testing frontier shifts among observed periods the article also explores the question of convergence in tfp across the countries under consideration by testing for and convergence as well as for stochastic or long run convergence the results show wide variation in the rate of tfp growth across countries with an average trend growth rate of 1 62 the results indicate the presence of convergence but the absence of convergence for the full period under consideration but the presence of both and convergence for the sub period 1983 to

further evidence on business cycle asymmetries in g7 countries this paper tests for business cycle symmetry in g7 countries during the post world war ii period using a number of tests each reflecting alternative definitions of business cycle asymmetry the tests are applied to monthly coincident economic indicators of business cycles this found that business cycles in the us are characterized by both longitudinal deepness and transversal steepness and sharpness asymmetries further it is found that asymmetric transition probabilties and time irreversibility are due to nonlinearities on the contrary business cycles in germany exhibits a symmetric behaviour between these extremes are the other countries for which at least one of the tests here considered rejects the null of cyclical symmetry particularly business cycle is characterized by deepness and sharpness in canada asymmetry in persistence in france and japan and asymmetric transition probabilities in france and united kingdom

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

u s and canadian industrial production indices as coupled oscillators abstract this paper uses ozaki s 1985 variable amplitude coefficient model to explore the impact of different types of dynamical linkages coupling between the indices of industrial production for the u s and canada empirical analysis reveals that for each country the requisite lag structure extends for up to six years and that the coupling linkages are functions of lagged changes in growth rates incorporating these linkages leads to an increased degree of oscillation in the equilibrium paths a marginal improvement in stability and somewhat greater synchronization between the two series the out of sample forecasts for each series are improved by the coupling

further evidence on the asymmetric behavior of economic time series over the business cycle evidence has recently been presented by salih neftci to support the hypothesis that recessions in economic activity tend to be steeper and more short lived than recoveries in economic activity that evidence however was confined to the behavior of the unemployment rate in the united states in this paper it is shown that when neftci s methods are applied to analyze the behavior of real gross national product investment and productivity in the united states or when they are used to analyze industrial production abroad the asymmetry hypothesis seems to be less compelling

two sided uncertainty and up or out contracts a bilateral moral hazard problem provides a rationale for up or out employment contracts the employer sets a wage higher than opportunity cost to induce the worker to invest in firm specific capital if the individual does not make the grade it is in the firm s interest ex post to fire him had the initial arrangement not included provisions for firing individuals the firm would underreport the value of the employee wrecking the incentive scheme the basic model permits both firm and worker to be risk neutral therefore it admits a straightforward multiperiod extension which we also investigate

testing rent sharing using individualized measures of rent evidence from domestic helpers wing suen the market for resident domestic helpers offers a rare opportunity where the surplus from employment relationship can be quantitatively measured for each individual employee using the difference between employer s cost of time and employee s wage as a measure of rent it is found that wages for domestic helpers are positively related to rent however the apparent sharing of rent is better explained by matching than by efficiency wage models rent sharing is observed even in households where monitoring or turnover costs are low rent sharing is not observed among newly arrived foreign domestic helpers whose ability remains to be revealed jel j41 i introduction this article studies the pattern of wages for resident domestic helpers in hong kong no one would lure economists into paying attention to this arcane labor market were it not for one feature of the market for housework a measure of employment rent can be plausibly assigned to each individual employee having an individualized measure of rent at the worker level instead of a general measure at the firm level will shed considerable light on the large and growing literature of rent sharing in wage determination since 1975 the hong kong government has allowed the importation of foreign domestic helpers into the territory because of large wage differences between hong kong and some of its asian neighbors the program is highly popular the census and statistics department 1995 estimates that 92 700 households or 5 6 of all domestic households in hong kong employed domestic helpers in 1993 the figure is even more dramatic for high income households 44 of households with monthly income of over hk 50 000 had one or more domestic helpers 1 one consequence of the availability of market procured housework is that women who employ helpers have more time for market work in suen 1994 i estimate that the probability of labor force participation among married women who had domestic helpers is 22 percentage points higher than that for women without domestic help other things equal if hiring a helper enables a married woman to engage in market work then a plausible measure for the rent or surplus from this employment relationship is the difference between the woman s wage and her helper s wage if a woman with a domestic helper decides to stay home nonetheless the size of the surplus can be measured by the difference between the shadow value of leisure and the helper s wage wage information is readily available from census data and shadow wages can be estimated using standard techniques this article utilizes this rare opportunity to impute a measure of rent for each employer employee pair studying how the wages of domestic helpers vary wi th the magnitude of rent will provide direct evidence for rent sharing in the labor market there is a large literature which documents the fact that the characteristics of the employer such as industry affiliation and firm size are significantly correlated with the employees wages krueger and summers 19881 brown and medoff 1989 groshen 1991 helwege 1992 and many others offer convincing evidence that inter industry wage differentials and employer wage effects exist rent sharing is often invoked to account for such wage patterns however few studies in the literature offer a plausible account for the existence of or a measure for the size of the rent that is supposedly shared 2 at the industry level dickens and katz 1987 use variables such as concentration ratio capital labor ratio research and development expenditures and average rate of return on capital as covariates in wage equations these variables provide at best an indirect and error prone measure of employment rent campbell 1993 makes use of firm level characteristics instead of industry characteristics but t here is no information on profits in his firm level data

an adjustment cost model of asset pricing an intertemporal asset pricing model is constructed incorporating an explicit adjustment cost technology the capital stock can be altered by investment but there are adjustment costs whi ch lower the marginal return of investment in a model involving an i nfinitely lived representative agent it is shown how changes in adju stment costs influence asset prices the term structure of real inter est rates and risk premia the results suggest that adjustment cost by causing an intertemporal consumption substitution raises the pri ces of risky stocks and risk premia and reduces long term real intere st rates copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a floor and ceiling model of us output abstract building on previous nonlinear time series models we further examine the form of nonlinearity in us output we develop a model of us output that allows for floor and ceiling effects to alter the dynamics of output growth the model estimated on post korean war quarterly data displays features similar to nonlinear trade cycle models of the 1940s and 1950s thus as predicted by many of the earlier theoretical models our empirical results suggest that the turning points of the business cycle provide new initial conditions for the ensuing growth process we also find important asymmetries in the responses of output to positive and negative shocks this history and shock dependence property is not present in linear or approximately linear models of the type that arise in the standard implementations of real business cycle theory

a note on a new class of solutions to dynamic programming problems arising in economic growth abstract we provide exact solutions for a class of stochastic dynamic programming problems in growth theory involving pairs of constant relative risk aversion utility functions and ces technologies this generalizes the solutions for the well known case of logarithmic utility coupled with cobb douglas production functions we are also able to incorporate depreciation schemes through a vintage capital approach

a nonlinear approach to us gnp a univariate nonlinear model is estimated for us gnp that on many criteria outperforms standard linear models the estimated model is of the threshold autoregressive type and contains evidence of asymmetric effects of shocks over the business cycle in particular the nonlinear model suggests that the post 1945 us economy is significantly more stable than the pre 1945 us economy

can wage increases pay for themselves tests with a production function efficiency wage theories predict that companies that pay high wages will have higher productivity from high work effort low turnover and other efficiency enhancing effects this paper uses the pims line of business data set to test whether high wage businesses are more productive relative wages were measured by managers assessments of their relative compensation holding worker quality constant a positive relation was found between changes in relative wages and changes in total factor productivity the elasticity of output with respect to wages was of the magnitude predicted by efficiency wage theories also consistent with efficiency wage theories the relationship between changes in wages and changes in productivity was weaker at businesses with high unionization results from two additional data sets imply that high wages are not merely measuring high human capital copyright 1992 by royal economic society

quality over quantity reexamining the link between entrepreneurship and job creation although much has been written about the quantity of jobs created by entrepreneurs scholars have yet to examine the quality of these jobs in this article the authors begin to address this important issue by examining nearly 5 000 businesses that began operations in 2004 they investigate the extent to which nascent employers provide what many think of as quality jobs those offering health care coverage and a retirement plan the authors find that because of small scale constrained resources and protection from institutional pressures start up companies do not provide their employees with either of these proxies for job quality and their likelihood of offering health or retirement benefits increases only marginally over their first six years of operation the finding that entrepreneurs impressive record of job creation is not matched by a similarly impressive outcome with respect to job quality challenges policymakers to ensure that entrepreneurs are encouraged to create quality employment opportunities in the course of creating new businesses abstract from author

cointegration and threshold adjustment this article proposes an extension to the engle granger testing strategy by permitting asymmetry in the adjustment toward equilibrium in two different ways we demonstrate that our test has good power and size properties over the engle granger test when there are asymmetric departures from equilibrium we consider an application namely whether there exists cointegration among interest rates for instruments with different maturities this issue has been widely tested with mixed results we argue that either cautious policy or possibly opportunistic behavior on the part of the federal reserve implies that an equilibrium relationship between short and long term interest rates exists but that adjustments from disequilibrium are asymmetric in nature empirical tests using u s yields confirm the asymmetric nature of error correction among interest rates of different maturities

modeling nonlinearity of business cycles choosing between the cdr and star models nonlinear modeling has become popular in applied macroeconomics successful attempts include beaudry and koop s cdr current depth of the recession model of real gnp and various star smooth transition autoregression models of industrial production however these models have not been directly compared we compare cdr and star models of u s real gnp and industrial production we find i within sample the cdr model fits slightly better than the star model ii out of sample the cdr model forecasts better than the star model and iii the cdr model generates very different dynamics than the star model

self enforcing contracts shirking and life cycle incentives he labor market is a rich and complicated place when a worker takes a job he expects to earn a wage but will also care about rates of wage growth fringe benefits levels of risk retirement practices pensions promotion and layoff rules seniority rights and grievance procedures in return the worker must give up some time but he is also asked to upgrade his skills train other workers provide effort and ideas and defer to authority in questions of how his time is spent great changes are occurring in the way labor market institutions such as these are modelled central to the new approach is the concept of a self enforcing implicit contract this is the latest in a series of variations on the ideas of azariadis 1975 baily 1974 and gordon 1974 and is one of the more exciting new developments in the theory of labor markets this essay will outline this approach and evaluate some of its accomplishments the ideas will be presented in the context of an incentive model that is of some independent interest the model was introduced by becker and stigler 1974 and was extended by lazear 1979 to account for wage growth and mandatory retirement in these papers the workers retire at a fixed age lending the name life cycle incentives to the approach more recently shapiro and stiglitz 1984 have used a version without a fixed retirement date to account for unemployment this version is often called the shirking model these models have generated some controversy but much of it can be resolved when the models are presented in the framework of self enforcing contracts in fact this simple incentive model can do even more it can provide a rationale for competitive hierarchies where firms place their workers in competition with

a monte carlo study of the forecasting performance of empirical setar models in this paper we investigate the multi period forecast performance of a number of empirical selfexciting threshold autoregressive setar models that have been proposed in the literature for modelling exchange rates and gnp amongst other variables we take each of the empirical setar models in turn as the dgp to ensure that the non linearity characterises the future and compare the forecast performance of setar and linear autoregressive models on a number of quantitative and qualitative criteria our results indicate that non linear models have an edge in certain states of nature but not in others and that this can be highlighted by evaluating forecasts conditional upon the regime

persistent wage dispersion and involuntary unemployment it is costly for firms offers to workers to be turned down both because firms must make additional offers and making offers is costly and because capital is underused or unused provided that workers apply to at least two firms for jobs there will be wage dispersion in equilibrium and some workers will randomly fail to receive any wage offers firms in the same industry with access to the same technology may nevertheless choose different levels of capital intensity firms using capital intensive technologies will pay higher wages

employer size wage effects evidence from matched employer employee survey data in the uk this paper employs a random sample of matched employer employee data from the uk to test seven possible explanations for the positive relationship between employer size and pay individual wage equations show a large employer size wage premium we then control for a range of establishment level variables based on seven hypotheses typically advanced to explain this premium each establishment level factor reduces the wage premium but a sizeable premium nonetheless remains in adjudicating on these hypotheses we find a strong association between the internal labour market and the employer size wage premium this finding supports the theory that the employer size wage effect may be due to the higher costs of turnover or monitoring in larger firms however we find contrasting effects for public versus private sector establishments

long memory and persistence in aggregate output abstract we examine persistence in u s aggregate output by estimating fractionally integrated arima models these models provide better low frequency approximations to the wold representation than previous stochastic specifications and earlier results on the importance of a permanent component emerge as special cases we find evidence of long memory which induces persistence though this long memory need not be associated with a unit root our point estimates indicate that macroeconomic shocks while persistent are distinctly less persistent than many earlier studies suggest however confidence intervals associated with the long run response are quite wide

equilibrium wage dispersion and interindustry wage differentials this paper develops a search theoretic explanation of interindustry wage differentials given coordination problems in the labor market the probability of filling a vacancy is an increasing function of the wage offered in equilibrium firms that find vacancies more costly will offer higher wages the model thus explains the persistence of interindustry wage differentials and their correlation with industry average capital labor ratio and profitability additionally the model predicts that high wage firms will receive more applications per job opening and that wages in the labor market will behave as strategic complements

efficiency wages and employment rents the employer size wage effect in the job market for lawyers the efficiency wage hypothesis offers an explanation for employment rents according to this hypothesis firms pay wages above the opportunity cost of labor to elicit productivity or quality enhancing behaviors from employees firms pursue this strategy when alternative incentive schemes are unavailable or too costly thus firms will not pay premium wages when employees post sufficiently large performance bonds this article examines employment rents in a setting where employees post sizable performance bonds large law firms contrary to the efficiency wage hypothesis we find that associates in these large firms post substantial performance bonds while also receiving substantial ex ante rents

are business cycles asymmetric a correction neftci 1984 proposed a nonparametric test procedure for determining whether business cycles are asymmetric in the sense that contractions are steeper than expansions he found evidence of this type of asymmetry in postwar quarterly u s unemployment variables this comment identifies a probable error in neftci s empirical work that reverses the significance of his results for the unemployment rate and it suggests that this test may have low power and be sensitive to measurement error

misperception driven chaos theory and policy implications abstract in a large economy it is extremely difficult if not impossible to immediately grasp the state of our surrounding environment with precision since we normally have access only to a subset of relevant information in this paper we introduce this information imperfection into an ordinary model of endogenous business cycles and examine how it would affect the dynamic nature of the model we in particular present a mechanism by which observation errors result in chaotic fluctuations in a model that would behave regularly otherwise thereby indicating the importance of potential misperception about the current state in a qualitative sense also our model is tractable enough to explicitly derive a policy index of chaotic fluctuations under some conditions this feature of the model allows us to draw some policy implications regarding the observability of macroeconomic state variables

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

volatility transmission and volatility impulse response functions in crude oil markets abstract using daily data from july 2005 to february 2011 for wti dubai and brent futures contracts we employ a var bekk model to investigate crude oil markets integration on the second moment we also quantify the size and persistence of these connections through the analysis of volatility impulse response functions virf for two historical shocks namely the 2008 financial crisis and the bp deepwater horizon oil spill we observe that brent and dubai crude are highly responsive to market shocks whereas wti crude shows the least responsiveness of the three benchmarks which creates questions about its predominance as a benchmark crude oil furthermore we fit the density of the virf at different forecast horizons these fitted distributions are asymmetric showing that the probability of observing a large impact of a shock is lower while the probability of a relatively smaller impact is much higher finally we simulate the virf for a given probability of a random shock the virf shows that only a large shock derived from a smaller probability will result in an increase in expected conditional volatilities these results provide useful insights into the volatility transmission mechanism in crude oil markets and their associated risk estimation and may have significant implications for various market participants and regulators

output growth the real wage and employment fluctuations this paper is an attempt to contribute to the integration of business cycle analysis with long term growth a real business cycle model with endogenous growth is developed and estimated with u s data in the present framework wage movements do not have to be transitory to generate fluctuations in labor effort the reduced form is a constrained bivariate output hours or real wage hours vector autoregressive process the bivariate setup provides a useful framework for analyzing the persistence of output fluctuations given that the theory implies that hours of work contain information about future output movement copyright 1991 by american economic association

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

a selectivity model of employer size wage differentials this article investigates wage differentials for employees of different size firms utilizing an econometric methodology that allows the size of employer to be treated as endogenous in the context of discrete ordered employer size data as a result we are able to estimate i employer size wage gaps which are corrected for selectivity bias and ii the magnitude and direction of the selection bias decompositions of the resulting wage differentials are computed with comparisons of the conditional on sorting across employer size and unconditional wage gaps

income distribution dynamics among italian provinces the role of bank foundations this paper investigates the convergence process and the distribution dynamics of income among italian nuts 3 provinces between 2003 and 2011 findings show the existence of multiple steady state eq

work incentives hierarchy and internal labor markets this paper argues that contracts with payment based on a ranking of employee performance can provide performance incentives even under asymmetric information that prevents payment based on individual performance only being enforceable such contracts also fit with five features of labor markets that have aroused considerable interest 1 hierarchical wage structures 2 internal promotion 3 wage rates that rise with seniority and experience more than productivity 4 the variance of earnings increasing with experience and 5 wage rates attached to jobs rather than individuals with differentials set by administrative procedures rather than by reference to external market wages

are economic time series asymmetric over the business cycle it has long been argued that major cyclical variables such as the unemployment rate display an asymmetric behavior over various phases of the business cycle the paper provides a statistical test for this hypothesis using the framework of finite state markov processes i implement a test to see if the behavior of the unemployment rate is characterized by sudden jumps and slower drops it is argued that the framework provided in the paper can also be used to test other sample path properties of economic time series

characterizing nonlinearities in business cycles using smooth transition autoregressive models during the past few years investigators have found evidence indicating that various time series representing business cycles such as production and unemployment may be nonlinear in this paper it is assumed that if the time series is nonlinear then it can be adequately described by a smooth transition autoregressive star model the paper describes the application of these models to quarterly logarithmic production indices for 13 countries and europe tests reject linearity for most of these series and estimated star models indicate that the nonlinearity is needed mainly to describe the responses of production to large negative shocks such as oil price shocks

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

do recessions permanently change output abstract this paper examines whether negative innovations to gnp are more or less persistent than positive innovations we find that once we allow for the impulse response of gnp to be asymmetric negative innovations to gnp are observed to be much less persistent than positive ones in particular the effect of a recession on the forecast of output is found to be negligible after only eight to twelve quarters while the effect of a positive shock is estimated to be persistent and amplified over time our results may therefore help reconcile two antagonistic views about the nature of business cycle fluctuations

partnerships as insurance devices theory and evidence we model partnerships as mutual insurance associations in which individuals band together to insure themselves against idiosyncratic shocks to their human capital as with most forms of insurance this generates a tradeoff between efficiency and risk sharing since partners keep only a fraction of the profits they generate they will supply less than optimal effort we show that in equilibrium participants in larger partnerships keep a smaller share of their own proceeds we test and confirm this prediction using a sample of partners in law firms

european business cycles new indices and their synchronicity this article presents a new business cycle index that allows for cycle to cycle comparisons of the depth of recessions within a country cross country comparisons of business cycle correlation and simple aggregation to arrive at a measure of a european business cycle the data augmentation implied by gibbs sampling generates posterior distributions for a latent coincident business cycle index subsample correlations between an aggregated europe index and the national business cycle indices from france germany and italy are consistent with the claim that the european economies are becoming more harmonized

a theory of dual labor markets with application to industrial policy discrimination and keynesian unemployment this paper develops a model of dual labor markets based on employers need to motivate workers in order to elicit effort from their workers employers may find it optimal to pay more than the going wage this changes fundamentally the character of labor markets the model is applied to a wide range of labor market phenomena it provides a coherent framework for understanding the claims of industrial policy advocates it also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces finally the model provides the basis for a theory of involuntary unemployment

on the dynamic properties of asymmetric models of real gnp there is now a substantial body of evidence that suggests business cycles are asymmetric however the evidence has been accumulated using a wide array of statistical techniques and consequently is based on various definitions of asymmetry this paper examines several parametric models that have been used to study asymmetries in real gnp although these models capture asymmetries in very different ways their dynamic properties are remarkably similar

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

the canadian macroeconomy and the yield curve an equilibrium based approach les auteurs elaborent et estiment un modele d equilibre general de la structure des taux d interet canadiens dans lequel la dynamique des principales variables macroeconomiques est representee sous une forme vectorielle autoregressive et reliee a celle de la structure des taux

threshold nonlinearities in output some international evidence the empirical adequacy of linear ar and nonlinear setar models of trend stationary and difference stationary representations of output for canada germany japan the uk and the us are appraised test results suggest the presence of linear model residual structure of some form for all series and nonlinearities of specifically threshold form in trend stationary data for canada germany japan and the us and difference stationary data for germany japan and the us with the exception of canada estimated threshold nonlinear models imply asymmetric dynamics are able to account for all nonlinear structure in the data on the basis of bds statistics and provide sizeable reductions in residual variance in several cases most notably for germany

markov switching models with evolving regime specific parameters are postwar booms or recessions all alike abstract in this paper we relax the assumption of constant regime specific mean growth rates in hamilton s 1989 two state markov switching model of the business cycle we introduce a random walk hierarchy prior for each regime specific mean growth rate and impose a cointegrating relationship between the mean growth rates in recessionary and expansionary periods by applying the proposed model to postwar u s real gdp growth 1947 q4 2011 q3 we uncover the evolving nature of the regime specific mean growth rates of real output in the u s business cycle additional features of the postwar u s business cycle that we uncover include a steady decline in the long run mean growth rate of real output over the postwar sample and an asymmetric error correction mechanism when the economy deviates from its long run equilibrium

are the effects of monetary policy asymmetric huntley schaller by building on the hamilton 1989 markov switching model we examine questions like does monetary policy have the same effect in expansions and recessions given that the economy is currently in a recession does a fall in interest rates increase the probability of an expansion does monetary policy have an incremental effect on the growth rate within a given state or does it only affect the economy if it is sufficiently strong to induce a state change e g from recession to expansion as suggested by models with sticky prices or finance constraints interest rate changes have larger effects during recessions jel e52 e32 much of the recent work in macroeconomics has proceeded under the assumption that variables follow linear stochastic processes with constant coefficients as a result some of the richness of the burns mitchell analysis such as its focus on asymmetries between recessions and expansions may well have been lost blanchard and fischer 1989 7 i introduction for decades macroeconomists have debated whether monetary policy has the same effect on real output in expansions and recessions as far back as the 1930s keynes and pigou debated whether monetary policy would have less effect on output during a severe economic downturn in the 1960s there were active debates on a very different proposition namely whether the rightward portion of the aggregate supply curve was vertical so that monetary policy would have less effect on real output during expansions in this article we provide a new type of evidence on whether monetary policy has different effects depending on whether the economy is in an expansion or recession empirical evidence on this issue is particularly relevant in light of new theoretical work in macroeconomics that predicts asymmetric effects of demand shocks conditional on the state of the economy two examples of this work are s s type models of price adjustment and models in which there are agency costs of financial intermediation 1 the intuition for the latter class of models is simple 2 when there is information asymmetry in financial markets agents may behave as if they were constrained for a variety of reasons these finance constraints are more likely to bind during recessions when the net worth of agents is low an increase in interest rates will then have two effects on investment the standard effect of increasing the cost of capital and therefore reducing investment demand and an additional effect of reducing liquidity e g by increasing debt service obligations and thus reducing investment demand for constrained agents as a result monetary policy actions that change interest rates will have greater effects during a recession 3 the s s type price adjustment models of ball and mankiw 1994 caballero and engel 1992 and tsiddon 1993 lead to a convex aggregate supply curve and therefore also imply that monetary policy will have stronger effects during recessions one of the more frequently cited empirical papers on the potentially asymmetric effects of monetary policy is cover 1992 which finds evidence that positive monetary shocks have different effects from negative monetary shocks we are looking at a different type of asymmetry namely between booms and recessions we study asymmetries using an extension of the markov switching model developed by hamilton 1989 estimated over the period 1955 93 in hamilton s econometric specification the growth rate of output depends on a state variable that corresponds to an expansion or recession this approach has several advantages first unlike linear projections it allows for nonlinearities and asymmetries second in estimating the recession coefficients it gives greater relative weight to observations that most clearly correspond to recessions and similarly for the expansion coefficients

stock prices and fundamentals a macroeconomic perspective this paper compares the predictions for the market value of firms from the gordon growth model with those from a dynamic general equilibrium model the predictions for movements in the market value of firms following shifts in preferences growth prospects and risk are quantitatively and qualitatively different across the models while previous research illustrated how a drop in the required return or an increase in the growth rate of the economy can explain the run up in equity values in the 1990s in the gordon growth model the general equilibrium model suggests that such results are misleading

an empirical characterization of the dynamic effects of police spending on violent and property crime the study estimates the dynamic effects of shocks to police expenditures on measures of violent and property crime rates using annual u s state level data for the period 1960 2015 we employ a structural panel var model and achieve identification by imposing the restriction that police spending responds to structural shocks to crime with at least a lag of 1 year results indicate that a shock to police spending leads to a persistent and significant decreases in violent and property crime rates and b significant and persistent negative impacts on crime rates in periods of high crime but little impacts in periods of low crime variance decompositions show that shocks to police spending account for moderate to large proportions of the variability of u s state level crime rates our findings are robust across separate measures of violent and property crime rates as well as to the inclusion of additional variables to the baseline panel var model jel k42

threshold nonlinearities and asymmetric endogenous business cycles abstract this paper presents a model of endogenous business cycles in the presence of knowledge spillovers and a time to build restriction there are two key assumptions that characterize the model i the payoff to each firm depends on the aggregate state of knowledge and ii the innovation of a project is time consuming under those assumptions a simple structure is shown to be described by a piecewise linear difference equation with a discontinuity we show that the resulting dynamics generated by such a dynamical system leads to an asymmetric periodic cycle of arbitrary period that appears to switch repeatedly between different regimes

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

ownership agency and wages an examination of franchising in the fast food industry this paper estimates the difference in compensation between company owned and franchisee owned fast food restaurants the contrast is of interest because contractual arrangements give managers of company owned outlets less of an incentive to monitor and supervise employees estimates based on two data sets suggest that employee compensation is slightly greater at company owned outlets than at franchisee owned outlets the earnings gap is 9 percent for assistant and shift managers and 2 percent for full time crew workers furthermore the tenure earnings profile is steeper at company owned restaurants these findings suggest that monitoring difficulties influence the timing and generosity of compensation

a new approach to the study of jobless recoveries this article is concerned with the measurement of jobless recoveries and the elements that may explain their emergence we first introduce a measure that maps the various elements that define a jobless recovery into a single number that we label the jobless recovery depth we then construct a database of 389 state level observations and study the cross sectional variations that emerge we find that jobless recoveries in the united states are not a nation wide phenomena but a local event confined within a cluster of states that expands slowly between 1975 and 2015 we find the state level evidence to be consistent with theories that link jobless recoveries to unusually long expansionary periods less dynamic labor markets and the advent of the great moderation the evidence is not consistent with theories that link them to decreases in union power increases in income inequality or increases in health care costs

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

fiscal multipliers in recessions standard business cycle models have difficulties generating large state dependent fiscal multipliers employing a model of costly financial intermediation based on curdia woodford we show that fiscal multipliers can be strongly state dependent fiscal expansions during recessions may lead to multiplier values exceeding two while similar expansions during economic booms would produce values falling short of unity this pattern obtains if the spread the financial friction is more sensitive to fiscal policy during recessions than during expansions a feature that is present in the data our results are consistent with recent empirical work documenting the state contingency of multipliers

a nonparametric investigation of duration dependence in the american business cycle does the termination probability of a business expansion or contraction increase with age this question may be formally addressed by analyzing the nature of duration dependence in aggregate economic activity our null hypothesis is that there is no duration dependence which we test via intentionally nonparametric procedures we also argue that common notion of business cycle periodicity can be usefully interpreted in terms of whole cycle duration dependence we find some evidence for duration dependence in whole cycles and in prewar expansions but little evidence elsewhere

can non linear time series models generate us business cycle asymmetric shape abstract fifteen univariate non linear time series models of us output are evaluated by their ability to reproduce the asymmetric shape of the us business cycle two models account for the growth being faster after a trough and slower before a peak

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

are health expenditures and gdp characterized by asymmetric behaviour evidence from 11 oecd countries in this article we examine whether per capita health expenditures and per capita gdp for 11 oecd countries can be characterized by asymmetric behaviour we achieve this goal by using the nonparametric triples test suggested by randles et al 1980 we examine two forms of asymmetries namely deepness and steepness our main finding is that for 6 out of 11 countries namely for the usa the uk japan spain finland and iceland either per capita health expenditures or per capita gdp are characterized by asymmetric behaviour this finding to some extent casts doubt on those studies that model the relationship between health and gdp using unit root and cointegration tests that assume symmetric disturbances

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

business cycle asymmetries characterisation and testing based on markov switching autoregressions tests for business cycle asymmetries are developed for markov switching autoregressive models the tests of deepness steepness and sharpness are wald statistics which have standard asymptotics for the standard two regime model of expansions and contractions deepness is shown to imply sharpness and vice versa whereas the process is always nonsteep two and three state models of u s gnp growth are used to illustrate the approach along with models of u s investment and consumption growth the robustness of the tests to model misspecification and the effects of regime dependent heteroscedasticity are investigated

animal spirits through creative destruction we show how a schumpeterian process of creative destruction can induce rational herd behavior by entrepreneurs across diverse sectors as if fueled by animal spirits consequently a multisector economy in which productivity improvements are made by independent profit seeking entrepreneurs exhibits regular booms slowdowns and downturns as part of the long run growth process our cyclical equilibrium has higher average growth but lower welfare than the corresponding acyclical one we show how a negative relationship can emerge between volatility and growth across cycling economies and assess the extent to which our model matches several features of actual business cycles