accounting for emerging market countries international reserves are pacific rim countries different abstract popular perception is that emerging market economies emes and asian pacific rim countries china indonesia korea malaysia philippines thailand and vietnam rims in particular have been rapidly accumulating reserves perhaps beyond what is justified by precautionary motives this paper compares and contrasts the determinants of the demand for international reserves in the rim countries with other emes over the last three decades based on current and capital account risks mercantilism and other motives our findings suggest that the motives for holding reserves has shifted from insurance against current account shocks mostly in the 1980s to insurance against capital account shocks in the 1990s and as the by product of possible mercantilism in the 2000s we also find some differences between country groups rim countries tend to hold more reserves against current account vulnerabilities and fewer reserves against capital account vulnerabilities but more reserves overall there is also greater evidence of mercantilist motives being at play for rim countries though this motive accounts for only a small fraction of the rise in reserve holdings in recent years peaking in 2004 and declining thereafter

analyzing u s output and the great moderation by simultaneous unobserved components this paper seeks to determine the causal interaction between structural trend and cycle innovations in an unobserved components framework of aggregate output for the purpose of identification i propose allowing for shifts in volatility this strategy provides good estimation precision when applied to u s industrial production in the early 1980s predominance of cycle shocks gives way to strong negative spillovers of trend impulses consistent with real business cycle theories the coincident reduction of macroeconomic volatility was mainly caused by pronounced dampening of transitory disturbances this is in accordance with an important role of macroeconomic policy in explaining the great moderation

hedging sudden stops and precautionary contractions abstract even well managed emerging market economies are exposed to significant external risk the bulk of which is financial at a moment s notice these economies may be required to reverse the capital inflows that have supported the preceding boom while capital flows crises are sudden nonlinear events sudden stops their likelihood fluctuates over time the question we address in the paper is how should a country react to these fluctuations depending on the hedging possibilities the country faces the options range from pure self insurance to hedging the sudden stop jump itself in between there is the more likely possibility to hedge the smoother fluctuations in the likelihood of sudden stops the main contribution of the paper is to provide an analytically and empirically tractable model that allows us to characterize and quantify optimal contingent liability management in a variety of scenarios we show with a concrete example that the gains from contingent liability management can easily exceed the equivalent of cutting a country s external liabilities by 10 of gdp

the structure of unemployment we test for a unit root in postwar unemployment rates for sixteen oecd countries when a one time structural break is incorporated the unit root hypothesis can be rejected for most of the countries and the measured persistence of unemployment falls dramatically we then test for multiple structural changes and find evidence of one or two breaks for those countries for which the unit root hypothesis could be rejected almost all of the breaks are positive reflecting the sustained rise in european unemployment the major exception is the united states where long term unemployment rose in the 1970s and fell in the 1980s

diffusion of technical change and the decomposition of output into trend and cycle in this paper we argue that modelling the trend component in real gnp as a random walk is inconsistent with its interpretation as productivity growth as an alternative we specify the trend as an arima whose impulse response function follows an s shaped pattern reflecting the process of diffusion of technical change such an arima is employed to build and estimate an ucarima using usa postwar quarterly data we find that our model although more parsimonious fits the data equally well than the standard random walk plus ar 2 cycle moreover our model has a very low cycle trend variance ratio

allocating decision rights on the shop floor a perspective from transaction cost economics and organization theory this paper explores the links that the allocation of decision rights on the shop floor maintains with labor transaction attributes and several structural traits of the firm the approach is based on the transaction cost apparatus and harnesses the theoretical and empirical background provided by organization theory data are presented from a wide field survey in the spanish food and electronics industries standard industry classification sic 20 and 36 evidence not only verifies the influence of firm size property age and unionism but also shows that the allocation of decision rights is related to a particular mix of labor transaction traits specifically one of the most important results is that employer opportunism offers greater explanatory power than employee opportunism

okun s law theoretical foundations and revised estimates okun s law has been accepted as an empirical regularity that predicts a 3 percentage point increase in output for every 1 point reduction in the unemployment rate but only because other facts such as weekly hours induced labor supply and productivity tend to rise as well when output gaps are estimated for the u s economy with a production function approach using two different data sets for potential output and nairu it is found that the marginal contribution of a 1 point reduction in unemployment is only about two thirds percent increase in output changes in weekly hours and capacity utilization have independent effects on the output gap copyright 1993 by mit press

an unobserved components model that yields business and medium run cycles we generalize the unobserved components uc model to allow the permanent component to have different dynamics than the transitory components when decomposing u s economic activity using a multivariate uc model of log output consumption and investment we find that these proposed dynamics in the permanent component are statistically significant and distinct from those of the transitory components our approach provides an alternative explanation for the growth cycles identified by comin and gertler 2006 that is related to the cyclical movements in technology in a framework consistent with the beveridge and nelson 1981 decomposition

the time varying nairu and its implications for economic policy the nairu the unemployment rate consistent with a constant rate of inflation is estimated in this paper as a parameter allowed to vary over time value is determined in an econometric model where the inflation rate depends on its past values demand and supply shocks the nairu estimated for the gdp deflator varies over the past forty years within 5 4 to 6 5 percent its estimated value for the most recent quarter 1996 q2 is 5 6 percent the nairu has declined in recent years in response to global competition immigration other factors weakening labor s bargaining position and the rapidly declining prices of computers and other electronics

the function of authority in transaction cost economics abstract this paper questions the transaction cost characterization of observed authority relations as efficient governance structures various inadequacies in the transaction cost account of work organization and the limits of firm size are traced to its neglect of the possibility that authority may be abused opportunistically this exemplifies a more general propensity in the transaction cost literature that of explaining economic organization in functionalist terms with little attention to the causal mechanisms through which efficient governance structures might actually arise three such mechanisms are considered but none is found to provide an adequate rationale for the imputation of efficiency to observed structures

tying the manager s hands constraining opportunistic managerial intervention we discuss and examine empirically a firm level equivalent of the ancient problem of tying the king s hands namely how to avoid managerial intervention that is undertaken to reap private benefits but is harmful to overall value creation that is managerial opportunism the link from managerial intervention to firm level value creation is moderated by employee motivation thus intervention in the form of managers overruling employees or reneging on delegation may demotivate employees particularly when the intervention is perceived as being unfair undertaken for personal gain etc we argue that a number of mechanisms such as managers staking their personal reputation employees controlling important assets strong trade unions etc may function as constraints on managerial proclivities to intervene thus reducing the problem of managerial opportunism we derive four hypotheses from these ideas and test them using path analysis on a rich dataset based on 329 firms in the spanish food and electric electronic industries

estimating the natural rate of unemployment and testing the natural rate hypothesis how should one measure the natural rate of unemployment this paper proposes a systems procedure as an alternative to nairu the natural rate is treated as an unobserved state variable in a system that includes measurement equations for the unemployment rate the rate of wage growth and the rate of inflation the model is derived from a version of the wage bargaining model of blanchard and embodies a version of the natural rate hypothesis the model is estimated by embedding the kalman filter within the full information maximum likelihood procedure for us data the estimated model implies substantial post war variation in the natural rate and a negative but weak effect of inflation surprises on unemployment copyright 1999 john wiley sons ltd

the german unemployment since the hartz reforms permanent or transitory fall the hartz reforms were designed to make the german labor market more flexible in order to reverse the increasing trend of unemployment this paper employs unobserved components models in order to distinguish permanent from transitory movements in the german unemployment rate our results show that the permanent component of the german unemployment was reduced in the range of 1 1 and 2 6 percentage points after the hartz reforms

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

new measures of the output gap based on the forward looking new keynesian phillips curve abstract forward looking versions of the new keynesian phillips curve imply that the output gap the deviation of the actual output from its natural level due to nominal rigidities drives the dynamics of inflation relative to expected inflation we exploit this to set up a bivariate unobserved component model for extracting new estimates of the output gap in the us the gap estimates are large and persistent even after allowing for correlated trend and cycle shock we then augment our model to use the information in the unemployment rate the estimates confirm the presence of a large and persistent cyclical component

macroeconomic uncertainty precautionary saving and the current account abstract the relationship between current account developments and changes in the macroeconomic environment is a key issue in open economy macroeconomics this paper extends the standard intertemporal model of the current account to incorporate the effects of macroeconomic uncertainty on external saving behavior it is shown that the greater the uncertainty in national cash flow defined as output less investment less government consumption the greater will be the incentive for precautionary saving and ceteris paribus the larger the current account surplus empirical support for the model is found using post war quarterly data for the united states japan and the united kingdom as well as a long time series 1919 1990 for the united states

the industrial organization of congress or why legislatures like firms are not organized as markets this paper provides a theory of legislative institutions that parallels the theory of the firm and the theory of contractual institutions like market institutions legislative institutions reflect two key components the goals or preferences of individuals here representatives seeking reelection and the relevant transactions costs we present three conclusions first we show how the legislative institutions enforce bargains among legislators second we explain why given the peculiar form of bargaining problems found in legislatures specific forms of nonmarket exchange prove superior to market exchange third our approach shows how the committee system limits the types of coalitions that may form on a particular issue

a knowledge based theory of the firm the problem solving perspective in this paper we develop a knowledge based theory of the firm while existing knowledge based theory focuses on the efficiency of hierarchy in economizing on knowledge exchange we develop a theory of the firm that focuses on the efficiency of alternative organizational forms ingenerating knowledge or capability our theory begins with the problem as the basic unit of analysis arguing that a problem s complexity influences the optimal method of solution search and the optimal means of organizing that search the distinguishing feature that differentiates among organizational alternatives is the different way each resolves conflict over the selection of solution trials that is the way it chooses the path of search our theory predicts that efficiency demands that these governance alternatives be matched in a discriminating way to problems based on their associated benefits and costs in governing solution search thus our theory is among the first to simultaneously treat both the boundary choice i e internal versus external and the choice among alternative internal approaches to organizing

testing for volatility changes in u s macroeconomic time series we test for a change in the volatility of 214 u s macroeconomic time series over the period 1959 1999 we find that approximately 80 of these series have experienced a break in unconditional volatility during this period even though more than half of the series experienced a break in conditional mean most of the reduction in volatility appears to be due to changes in conditional volatility our results are robust to controlling for business cycle nonlinearity in both mean and variance volatility changes are more appropriately characterized as instantaneous breaks than as gradual changes nominal variables such as inflation and interest rates experienced multiple volatility breaks and witnessed temporary increases in volatility during the 1970s on this evidence we conclude that the increased stability of economic fluctuations is widespread

comovement in gdp trends and cycles among trading partners abstract it has long been recognized that business cycle comovement is greater between countries that trade more intensively with one another however nations face shocks to both the cyclical and trend components of their gdp series contrary to the result for cyclical fluctuations we find comovement of shocks to the trend component of real gdp is weaker among countries that trade more intensively with one another we simulate changes in ten year output growth correlations corresponding to the estimated effects of trade and show that the impact of trade on trend comovement is quantitatively more important than its effect on cyclical comovement

selective intervention and internal hybrids interpreting and learning from the rise and decline of the oticon spaghetti organization infusing hierarchies with elements of market control has become a much used way of simultaneously increasing entrepreneurialism and motivation in firms however this paper argues that such internal hybrids particularly in their radical forms are inherently hard to successfully design and implement because of a fundamental incentive problem of establishing credible managerial commitments to not intervene in delegated decision making this theme is developed and illustrated using the case of the world leading hearing aids producer oticon in the beginning of the 1990s oticon became famous for its radical internal hybrid the spaghetti organization recent work has interpreted the spaghetti organization as a radical attempt to foster dynamic capabilities by organizational means neglecting however that about a decade later the spaghetti organization has given way to a more traditional matrix organization in contrast an organizational economics interpretation of oticon organizational changes is developed this lens suggests that a strong liability of the spaghetti organization was the above incentive problem frequent managerial meddling with delegated rights led to a severe loss of motivation and arguably caused the change to a more structured organization refutable implications are developed and the discussion is broadened to more general issues of economic organization

in search of the natural rate of unemployment abstract the natural rate of unemployment can be measured as the time varying steady state of a structural vector autoregression for post war us data the natural rate implied by this approach is more volatile than most previous estimates with its movements accounting for the bulk of the variation in the unemployment rate as well as substantial portions of the variation in aggregate output and inflation these movements in turn can be related to variables associated with labor market search theory including unemployment benefits labor productivity real wages and sectoral shifts in the labor market there is also a strong negative relationship between inflation and the corresponding measure of cyclical unemployment supporting the existence of a short run phillips curve

do exchange rate shocks have asymmetric effects on reserve accumulation evidence from emerging markets it is generally argued that central banks in emerging market countries motivated by a desire to defend export competitiveness tend to intervene in foreign exchange markets to limit currency appreciations rather than depreciations using panel data from 13 emerging market countries for the period 1998 m1 to 2016 m12 we find that exchange rate shocks play an important role in determining the accumulation of international reserves moreover we find evidence that central banks in emerging markets tend to follow a leaning against the depreciation wind policy rather than the appreciation wind i e we provide evidence of a fear of depreciation

estimating and accounting for the output gap with large bayesian vector autoregressions we consider how to estimate the trend and cycle of a time series such as real gross domestic product given a large information set our approach makes use of the beveridge nelson decomposition based on a vector autoregression but with two practical considerations first we show how to determine which conditioning variables span the relevant information by directly accounting for the beveridge nelson trend and cycle in terms of contributions from different forecast errors second we employ bayesian shrinkage to avoid overfitting in finite samples when estimating models that are large enough to include many possible sources of information an empirical application with up to 138 variables covering various aspects of the us economy reveals that the unemployment rate inflation and to a lesser extent housing starts aggregate consumption stock prices real money balances and the federal funds rate contain relevant information beyond that in output growth for estimating the output gap with estimates largely robust to substituting some of these variables or incorporating additional variables

regional growth and unemployment in the medium run asymmetric cointegrated okun s law for uk regions this article tests for the presence of a medium run asymmetric okun s law relationship between regional output and regional unemployment rate in uk regions the test is performed with a panel data version of the hidden cointegration technique suggested by granger and yoon a novelty of the article is to combine the method of hidden cointegration with a panel data method of removing cross sectional dependence the medium run okun relationship for regions in the uk appears to confirm results found elsewhere in the literature on countries as a whole although the coefficients tend to be smaller

testing for time variation in an unobserved components model for the u s economy abstract this paper analyzes the amount of time variation in the parameters of a reduced form empirical macroeconomic model for the u s economy we decompose output inflation and unemployment in their stochastic trend and business cycle gap components with the latter linked through the phillips curve and okun s law a novel bayesian model selection procedure is used to test which parameters vary over time and which components exhibit stochastic volatility using data from 1959q2 to 2014q3 we find substantial time variation in okun s law while the phillips curve slope appears to be stable stochastic volatility is found to be important for cyclical shocks to the economy while the volatility of permanent shocks remains stable

does empowerment lead to higher quality and profitability abstract this paper examines the implications of alternative empowerment regimes on a firm s product quality and profitability when ownership and management of the firm are separated and it faces environmental uncertainties the analyses of a three stage game highlight the circumstances under which empowering a manager to make quality investment decisions results in higher profitability and or product quality when delegation reduces a manager s disutility either monitored or complete empowerment arise as the preferred management system if delegation increases the manager s disutility of effort and uncertainties about consumers preferences are small forcing may become the preferred management system

the asymmetric business cycle abstract the business cycle is a fundamental yet elusive concept in macroeconomics in this paper we consider the problem of measuring the business cycle first we argue for the output gap view that the business cycle corresponds to transitory deviations in economic activity away from a permanent or trend level then we investigate the extent to which a general model based approach to estimating trend and cycle for the u s economy leads to measures of the business cycle that reflect models versus the data we find empirical support for a nonlinear time series model that produces a business cycle measure with an asymmetric shape across nber expansion and recession phases specifically this business cycle measure suggests that recessions are periods of relatively large and negative transitory fluctuations in output however several close competitors to the nonlinear model produce business cycle measures of widely differing shapes and magnitudes given this model based uncertainty we construct a mode

integrating the internal and external labour markets evidence of shifts towards atomized relations in the labor market appears to conflict with economic theories of the internal labor market the problem however lies not with the irrelevance of internal labor market systems and broader institutional structures but rather with the misspecification of theoretical analysis new institutional and labor market segmentation models are typically restricted to a static dualistic framework of comparative forms of work organization this paper outlines a dynamic approach to the study of internal labor markets the authors argue that internal and external competitive pressures mutually interact to shape employer strategy and the relative labor market positions of employees copyright 1998 by oxford university press

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

estimating the u s output gap with state level data this paper develops a method to estimate the u s output gap by exploiting the cross sectional variation of state level output and unemployment rate data the model assumes that there are common output and unemployment rate trend and cycle components and that each state s output and unemployment rate are subject to idiosyncratic trend and cycle perturbations i estimate the model with bayesian methods using quarterly data from 2005 q1 to 2018 q2 for the 50 states and the district of columbia results show that the u s output gap reached about negative 4 6 around the years of the great recession and was about 0 9 in 2018 q2

an output gap measure for the euro area exploiting country level and cross sectional data heterogeneity abstract this paper proposes a methodology to estimate the euro area output gap by taking advantage of two types of data heterogeneity on the one hand the method uses information on real gdp inflation and the unemployment rate for each member state on the other hand it jointly considers this information for all the euro area countries to extract an area wide output gap measure the setup is an unobserved components model that theorizes common output trend and cyclical components across euro area economies in addition to country specific counterparts i estimate the model with bayesian methods using data for the 19 countries of the euro area from 2000 q1 through 2018 q3 and perform model comparisons across different specifications of the output trend the estimation of the model preferred by the data indicates that because of negative shocks to trend output during the global financial crisis output was only slightly below potential in that period but an output gap of about negative 3 emerged during the european debt crisis at the end of the sample period output is estimated to be 3 5 above potential output which is growing at an average annual pace of only 0 5 in recent years

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

inventory shocks and the great moderation why did the volatility of u s real gdp decline by more than the volatility of final sales with the great moderation in the mid 1980s one explanation is that firms shifted their inventory behavior towards a greater emphasis on production smoothing we investigate the role of inventories in the great moderation by estimating an unobserved components model that identifies inventory and sales shocks and their propagation in the aggregate data our estimates provide no support for increased production smoothing instead smaller transitory inventory shocks are responsible for the excess volatility reduction in output compared to sales these shocks behave like informational errors related to production that must be set in advance and their reduction also helps explain the changed forecasting role of inventories since the mid 1980s our findings provide an optimistic prognosis for a continuation of the great moderation despite the dramatic movements in output during the recent economic crisis

a bayesian model comparison for trend cycle decompositions of output we compare a number of widely used trend cycle decompositions of output in a formal bayesian model comparison exercise this is motivated by the often markedly different results from these decompositions different decompositions have broad implications for the relative importance of real versus nominal shocks in explaining variations in output using us quarterly real gdp we find that the overall best model is an unobserved components model with two features 1 a nonzero correlation between trend and cycle innovations 2 a break in output growth in 2007 under this specification annualized trend output growth decreases from about 3 4 to 1 5 after the break the results also indicate that real shocks are more important than nominal shocks

the relationships between permanent and transitory movements in u s output and the unemployment rate this paper estimates the permanent and transitory movements in u s output and the unemployment rate and the relationships between them the results suggest that permanent movements in u s output and the unemployment rate are important for explaining overall fluctuations further the correlation between changes in these series arises in large part due to the relationship between their permanent components

the rise of dollar credit in emerging market economies and us monetary policy this paper examines the hypothesis that the boom in dollar credit in the emerging market economies is associated with excessively low interest rate in the us for this purpose we use a multivariate correlated unobserved component model that allows for correlation between shocks to dollar credit interest rates and dollar index both in the short run and in the long run in addition it also provides us a quantitative estimate of the permanent and transitory movements in dollar credit in emerging markets us interest rate and the dollar index the results from this model do suggest that a temporary decline in interest rate and dollar index below their long run levels are associated with an increase in dollar credit with a very high degree of negative correlation the estimate of the cyclical component of the dollar credit in emerging market from our model captures the recent boom and bust in this market and compares favorably to a univariate trend cycle decomposition benchmark