rising residential rents in chinese mega cities the role of monetary policy although there have been a large number of studies carried out on fluctuations in housing prices little is known about what causes changes in residential rents which are inextricably intertwined with urban living standards this is especially noteworthy in chinese cities which are now being challenged by the housing market frenzies shift share analysis is proposed to evaluate all possible triggers of residential rent inflation in three cities during the 2001 2013 period which covers two distinct monetary policy regimes in china it is found that the recent rise in residential rent comes as a result of aggregate inflation associated with an expansionary monetary policy since the 2008 global financial crisis and an all encompassing and stable policy stance should therefore be adopted

states and the business cycle abstract we model the us business cycle using a dynamic factor model that identifies common factors underlying fluctuations in state level income and employment growth we find three such common factors each of which is associated with a set of factor loadings that indicate the extent to which each state s economy is related to the national business cycle according to the factor loadings there is a great deal of heterogeneity in the nature of the links between state and national economies in addition to exhibiting geographic patterns the closeness of state economies to the national business cycle is related not only to differences in industry mix but also to non industry variables such as agglomeration and neighbor effects finally we find that the common factors tend to explain large proportions of the total variability in state level business cycles although again there is a great deal of cross state heterogeneity

real sectoral spillovers a dynamic factor analysis of the great recession abstract dynamic factor methods are used to identify the impact of common and idiosyncratic shocks on sixteen u s nonfarm business sectors this paper then studies changes in the transmission of these shocks across sectors during the great recession and evaluates the cross sectoral spillovers the great recession is found to be largely a time of heightened impact of common shocks which accounts for 3 4 of aggregate volatility and large spillovers of negative finance related shocks in addition prior to the recession aggregate fluctuations are mainly driven by sector specific shocks in contrast with findings from previous studies

monetary policy housing and heterogeneous regional markets we quantify the importance of heterogeneity for monetary policy using a new heterogeneous agent var havar model that integrates national monetary financial markets with regional housing markets via the mortgage rate although the havar model has linear regional vars its aggregate impulse responses exhibit two nonlinearities 1 time variation stemming from aggregation over heterogeneous regions and 2 state dependence on initial economic conditions in regions thus monetary policy has long and variable lags because monetary transmission depends on the extent and nature of regional heterogeneity which both vary over time the model is estimated with data for u s regions from 1986 to 1996 and simulated to show how coastal housing booms might influence the efficacy of monetary policy

risk sharing by households within and across regions and industries abstract cochrane 1991 journal of political economy 99 957 976 and mace 1991 journal of political economy 99 928 956 test if risk sharing across households is complete in the sense that household consumption moves one for one with aggregate consumption in their studies the source of income risk is idiosyncratic and agents can share risk across the entire economy using a sample of households from the panel study on income dynamics psid we explore whether households share the risk associated with their industries and regions across households in other regions and industries we find that a large fraction of risk faced by households is not shared across regions and industries

central bank independence a critical view from a developing country perspective abstract merely establishing an independent central bank may not bring about its professed benefits in developing countries with shallow financial markets where there is limited scope for a truly independent monetary policy the benefits of an independent central bank may be eroded by conflicts between fiscal and monetary policy and by inherent problems of central bank institutional design so that problems of dynamic inconsistency associated with monetary policy are not solved but merely transformed less developed countries wishing to establish a low inflation path should concentrate on instituting financial policy reforms that bolster opposition to inflation and institutional arrangements that force discipline on fiscal policy directly rather than indirectly through monetary policy

risk and return in an equilibrium apt application of a new test methodology abstract we use an asymptotic principal components technique to estimate the pervasive factors influencing asset returns and to test the restrictions imposed by static and intertemporal equilibrium versions of the arbitrage pricing theory apt on a multivariate regression model the empirical techniques allow for fairly arbitrary time variation in risk premiums we find that the apt provides a better description of the expected returns on assets than the capital asset pricing model capm however some statistically reliable mispricing of assets by the apt remains

currency misalignments and growth a new look using nonlinear panel data methods the aim of this article is to investigate the link between currency misalignments and economic growth relying on panel cointegration techniques we calculate real exchange rate rer misalignments as deviations of actual rers from their equilibrium values for a set of advanced and emerging economies estimating panel smooth transition regression pstr models we show that rer misalignments have a differentiated impact on economic growth depending on their sign whereas overvaluations negatively affect economic growth rer undervaluations significantly enhance it this result indicates that undervaluations may drive the exchange rate to a level that encourages exports and promotes growth

the output inflation tradeoff and central bank reform evidence from new zealand the 1989 reserve bank of new zealand act provides a natural experiment in which the effects of institutional change on economic relationships can be studied the act set price stability as the single objective of monetary policy and gave the bank great independence reforms of this nature may lead to a greater short run output inflation tradeoff by altering optimal stabilisation policy and wage indexation allowing for environments where learning about the new regime is assumed to be rapid as well as slow we find that a large rise in the new zealand tradeoff has occurre d since implementation of the act

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

the speculative efficiency hypothesis the hypothesis that forward prices are the best unbiased forecast of future spot prices is often presented in the economic and financial analysis of futures markets this paper considers the hypothesis independently of its implications for rational expectations or market efficiency and in order to stress this fact the term speculative efficiency is used to characterize the state envisaged under the hypothesis if a market is subject to efficient speculation the supply of speculative funds is infinitely elastic at the forward price that is equal to the expected future spot price the expected future spot price is a market price determined as the solution to the underlying rational expectations macroeconomic model although the paper is primarily concerned with testing this hypothesis in the foreign exchange market the methodology introduced in the paper is of general application to all futures markets this abstract was borrowed from another version of this item

did foreign exchange holding influence growth performance during the global financial crisis in a context of increased foreign exchange reserves holding from emerging and developing countries this paper investigates the diminishing return of reserves holding assumption over the most severe phase of the global financial crisis 2008q1 2010q4 relying on a panel smooth transition regression model we highlight the differential effect of the accumulation of foreign exchange reserves for a set of financial vulnerabilities variables specifically while reserve accumulation is effective above a critical threshold to cope with vulnerabilities related to the financial channel we show that it becomes less effective beyond a certain threshold for domestic bank vulnerabilities

the distributional effects of capital account liberalization abstract episodes of account liberalization increase the gini measure of inequality based on panel data estimates for 149 countries from 1970 to 2010 these episodes are also associated with a persistent increase in the share of income going to the top we investigate three channels through which these impacts could occur first the impact of liberalization on inequality is stronger where credit markets lack depth and financial inclusion is low positive impacts of liberalization on poverty rates also vanish when financial inclusion is low second the impact on inequality is also stronger when liberalization is followed by a financial crisis third liberalization seems to alter the relative bargaining power of firms and workers the labor share of income falls in the aftermath of capital account liberalization

time consistent collection of optimal seigniorage a unifying framework this paper reviews the existing literature on the time consistency problem of seigniorage collection when monetary policy is determined by optimal taxation considerations it develops a unifying accounting framework and suggests a general measure for seigniorage which encompasses the standard measures employed in the literature in addition the ex ante optimal solution to the optimal taxation problem is derived and interpreted in relation to the ramsey principle we show that the different recommendations of the public finance literature i e the friedman rule of optimal deflation moderately positive inflation and seigniorage maximizing inflation are specific solutions to the optimal taxation problem the paper continues with a formal illustration of the time consistency problem of the ex ante optimal policy and the characterization of the time consistent solution under discretion as possible solutions to the time consistency problem we consider reputational forces institutional reforms that establish central bank independence and specific ways of asset and debt management in particular it is formally shown that a modified version of the asset and debt management scheme suggested by persson persson and svensson is not only necessary but also sufficient for optimality although this did not hold in their model

borders and business cycles abstract we document that business cycles of u s census regions are substantially more synchronized than those of european countries data from regions within european countries confirm a european border effect within country correlations are substantially larger than cross country correlations these results continue to hold after controlling for exogenous factors such as distance and size we consider the role of four factors that have received attention in the debate about emu sectoral specialization the level of trade monetary policy and fiscal policy we find that the lower level of trade between european countries explains most of the observed border effect

how regions react to recessions resilience and the role of economic structure martin r sunley p gardiner b and tyler p how regions react to recessions resilience and the role of economic structure regional studies this paper examines how employment in the major uk regions has reacted to the four major recessions of the last 40 years namely 1974 76 1979 83 1990 93 and 2008 10 the notions of resistance and recoverability are used to examine these reactions the analysis reveals both continuities and significant changes in the regional impact of recession from one economic cycle to the next further while economic structure is found to have exerted some influence on the resistance and recoverability of certain regions in general region specific or competitiveness effects appear to have played an equally if not more significant role

sources of employment fluctuations in taiwan s industries and regions this empirical study explores the sources of employment fluctuations in taiwan s industries and regions over the period 1978 to 2004 the quarterly growth rates of employment in nine industries and four regions are modelled with a structural vector autoregression var and the employment shocks are measured by var residuals the covariance matrix of the var residuals is decomposed using system estimation method that selects the parameters to make the error model close to the covariance matrix and in turn to estimate the relative importance of national as well as industry specific and region specific shocks the empirical results show that industry specific shocks account for the major fluctuations in industries and regions on average about 83 95 of an industry s cyclical variations and 56 28 of the volatility in a region may be attributed to industry specific shocks national shocks account for little employment volatility in industries only the finance and personal service industries are highly s

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

twister employment responses to the 3 may 1999 oklahoma city tornado this research examined the impact of the 3 may 1999 tornado on the oklahoma city labour market we estimated time series models that allow for time varying variance in employment growth the models include intervention variables designed to capture the tornado s effect at initial impact as well as over the post tornado period in terms of total employment growth the oklahoma city metropolitan statistical area msa experienced an increase in employment growth and a reduction in labour market risk in the sample period following the tornado the analysis also examined the effect of the weather event on eight industrial sectors five of eight sectors experienced significant decreases in labour market risk after the tornado our evidence suggests that oklahoma city and surrounding communities that make up the metropolitan statistical area survived the disaster without suffering any extended adverse labour market effects our results indicate that at least in the aggregate the labour market improved what

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

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

modelling with flexibility through the business cycle using a panel smooth transition model to test for the lipstick effect consumer spending typically declines during periods of economic distress but observers have noted that lipstick purchases appear to increase during recessions which is often referred to as the li

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

predicting u s recessions financial variables as leading indicators this paper examines the out of sample performance of various financial variables as predictors of u s recessions series such as interest rates and spreads stock prices and monetary aggregates are evaluated individually and in comparison with other financial and nonfinancial indicators the analysis focuses on out of sample performance from one to eight quarters ahead results show that stock prices are useful with one to three quarter horizons as are some well known macroeconomic indicators beyond one quarter however the slope of the yield curve emerges as the clear individual choice and typically performs better by itself out of sample than in conjunction with other variables

complementarities and comovements short run interindustry comovement may be due either to common shocks or to complementarities that progagate shocks across sectors this paper assesses the importance of input output linkages aggregate activity spillovers and local activity spillovers to comovement in postwar u s manufacturing i find that input output linkages and local activity spillovers are important to comovement while aggregate activity spillovers are not important i find that complementarities are important to aggregate volatility even after i remove observable aggregate shocks from the data local spillovers are particularly important explaining between 15 and 36 percent of manufacturing employment volatility the importance of local spillovers stems from the fact that industries that cluster together in space also comove through time contrary to the marshallian idea that industries with negatively correlated fluctuations should cluster together in order to stabilize local demand

statistical evidence about libor manipulation a sherlock holmes investigation this paper contributes to the crucial problem of libor malfunctioning due to its manipulation by banks a phenomenon described clearly in the fsa inquiry report published in september 2012 after applying classical tests of non stationarity to a series of participating banks libor quotes we detected some significant breaks in the data that correspond to significant economic events namely lehman brothers bankruptcy or central banks decisions our conclusion is that a possible manipulation confirmed ex post in the fsa report can be deduced throughout the crisis period as a result of the behavior of the coefficients in a linear three regime threshold regression model finally we applied an original procedure to detect those banks most likely to build cartels or at least homogeneous groups during the important period of turmoil under review namely august 2007 through november 2012 this method called hierarchical clustering analysis helped us to precise the conclusions of the abovementioned fsa inquiry

employment fluctuations in u s regions and industries the roles of national region specific and industry specific shocks this study quantifies the roles of national region specific and industry specific shocks in aggregate employment fluctuations in u s regions and industries variation among the growth rates of major regions and industries is decomposed into unobserved national region and industry specific components the results reject the view that any heterogeneity in regional fluctuations is attributable to differences in industry composition after controlling for industry mix effects roughly 40 of the variance of the cyclical innovation in any region s growth rate is particular to that region in addition region specific shocks appear to propagate across regions over time

multicriteria decision aid in financial management abstract the financial decisions of an organization are usually included in the context of optimization concerning a long term period there are decisions related to the optimal allocation of funds and decisions related to the optimal financial structure in the short term case the decisions are related to the optimization of stocks cash accounts receivable current liabilities etc the financial theory analyzes these decisions mainly from an optimal point of view the optimal character of such decisions has led researchers to propose operations research techniques to solve the problems that are inherent in such decisions this paper examines the contribution of multicriteria analysis in solving financial decision problems in a realistic context the paper also includes an extensive bibliography on the subject

let s get real a factor analytical approach to disaggregated business cycle dynamics this paper develops a method for analysing the dynamics of large cross sections based on a factor analytic model we use law of large numbers arguments to show that the number of common factors can be determined by a principal components method the economy wide shocks can be identified by means of simple structural var techniques and that the parameters of the unobserved factor model can be estimated consistently by applying ols equation by equation we distinguish between a technological and a non technological shock identification is obtained by minimizing the negative realizations of the technology shock empirical results on 4 digit industrial output and productivity for the u s economy from 1958 to 1986 show that 1 at least two economy wide shocks both having a long run effect on sectoral output are needed to explain the common dynamics 2 although the technological shock accounts for at least 50 of the aggregate dynamics of output it cannot by itself explain dynamics at business cycle frequencies 3 sector specific shocks explain the main bulk of total variance but generate mainly high frequency dynamics 4 both the technological and the non technological component of output show a peak for positive sectoral comovements of output at business cycle frequencies 5 technological shocks are strongly correlated with the growth rates of the investment in machinery and equipment sectors and their inputs many interesting questions about cyclical fluctuations and economic growth can be answered only by studying the dynamic behaviour of sectoral variables when data contain information on time for a large cross section of sectors traditional econometric techniques used in the macroeconomic literature such as vector autoregressive var and vector autoregressive moving average varma models are not appropriate since they require the estimation of too many parameters this is why new methods which allow for the reduction of the parameter space need to be developed the objective of this paper is both methodological and descriptive at the methodological level we develop a simple framework for the dynamic analysis of large cross sections the basic model is a dynamic factor analytic model as in sargent and sims 1977 the sectoral variables are decomposed into two unobservable components a common component driven by macroeconomic shocks and a purely sectoral component when

multiple criteria decision making combined with finance a categorized bibliographic study abstract this paper provides a categorized bibliography on the application of the techniques of multiple criteria decision making mcdm to problems and issues in finance a total of 265 references have been compiled and classified according to the methodological approaches of goal programming multiple objective programming the analytic hierarchy process etc and to the application areas of capital budgeting working capital management portfolio analysis etc the bibliography provides an overview of the literature on mcdm combined with finance shows how contributions to the area have come from all over the world facilitates access to the entirety of this heretofore fragmented literature and underscores the often multiple criterion nature of many problems in finance

which comes first jobs or people an analysis of the recent stylized facts abstract in contrast to previous studies that only examined employment growth and migration to determine whether people or jobs move first this paper uses an integrative labor market framework the integrative approach leads to additional labor market variables being examined such as wages labor productivity unemployment and labor force participation

seigniorage and political instability the importance of seigniorage relative to other sources of government revenue differs markedly across countries this paper tries to explain this regularity by studying a political model of tax reform the model implies that countries with a more unstable and polarized political system will have more inefficient tax structures and thus will rely more heavily on seigniorage this prediction of the model is tested on cross sectional data for seventy countries the authors find that after controlling for other variables political instability is positively associated with seigniorage copyright 1992 by american economic association

the political economy of monetary institutions in recent decades countries have experimented with a variety of monetary institutions including alternative exchange rate arrangements and different levels of central bank independence political economists have analyzed the choice of these institutions emphasizing their role in resolving both the time inconsistency problem and dilemmas created by an open economy this first generation work however suffers from a central limitation it studies exchange rate regimes and central bank institutions in isolation from one another without investigating how one monetary institution affects the costs and benefits of the other by contrast the contributors to this volume analyze the choice of exchange rate regime and central bank independence together and in so doing present a second generation of research on the determinants of monetary institutions the articles incorporate both economic and political factors in explaining the choice of monetary institutions investigating how political institutions democratic processes political party competition and interest group pressures affect the balance between economic and distributional policy objectives

perceived inflation under loss aversion building on prospect theory we apply the concept of loss aversion to the formation of inflation perceptions and test empirically for nonlinearities in the inflation perceptions relation for a panel of 10 euro area countries specifically under the assumption of loss aversion inflation changes above a certain reference rate will be perceived more strongly rejecting rationality of inflation perceptions in general under symmetric loss and in a majority of cases under flexible loss functions panel smooth transition models give evidence of nonlinearities in the inflation perceptions relation regarding both actual inflation and time this result is confirmed by dynamic fixed effects estimates where the slope of the estimated value function is significantly steeper in the loss region and the implied average reference inflation rate is found close to 2

growth effect of foreign direct investment in developing economies the role of institutional quality this paper investigates the effect of foreign direct investment fdi on economic growth conditional on the institutional quality of host countries we first develop several theoretical arguments to show that institutional heterogeneity may be an explanation for the mixed results of previous empirical studies second using a panel smooth regression model on a large sample of developing countries we show that fdi has a positive effect on growth only beyond a certain threshold of institutional quality to benefit from fdi led growth institutional reforms should thus precede fdi attraction policies additionally some reforms seem to promote faster marginal effects of fdi while institutional complementarities may lead to an incremental effect on growth

political and economic determinants of interest rate behavior are central banks different i introduction do politicians manipulate the instruments of macroeconomic policy to improve their electoral prospects or in response to the preferences of their own party these questions are addressed but not yet resolved by the literature on political business cycles 1 to generate a political business cycle politicians must control the instruments of macroeconomic policy monetary policy plays an important role in the determination of inflation output and employment the objects of concern to politicians and voters yet politicians do not directly control the instruments of monetary policy in industrialized countries instead these instruments are controlled by the central banks which vary widely across countries in their degree of statutory independence we wish to examine empirically whether monetary policy is influenced by the timing of elections or a change in the party in power after controlling for unexpected changes in economic fundamentals our paper assesses therefore one aspect of independence namely whether a central bank makes monetary policy decisions without measurable political influence 2 in this study we attempt to look at what central banks actually do as opposed to what they are legislated to do to distinguish between the form and substance in discussions of central bank independence as in mayer 1976 3 our paper enlarges and improves on cowart 1978 and woolley 1983 both of whom studied the role of political factors in monetary policy for a sample of industrialized countries our methodology is to compare the responsiveness of interest rate changes to economic and political factors in seventeen countries as we discuss below there are differences in opinion about whether an interest rate variable or a monetary aggregate is a better representation of monetary policy actions we compare the results of qualitative measures of differences in central bank design e g rankings of banks in order of independence as determined by legislative criteria with the results of a quantitative comparison of differences in central bank behavior this exercise should help identify the important qualitative features in the reform of existing central banks or in the design of new central banks 4 in our empirical work the relevant relationships are estimated with a recursive vector autoregression technique to control for temporal instability in the economy between 1960 and 1990 and the endogeneity of the variables in question this methodological innovation has important consequences for the understanding of reaction functions and more generally for measuring the impact of macroeconomic shocks on monetary policy we also stress results for separate subsamples of fixed and flexible exchange rates as well as for the full sample our methodology measures the influence of politics on monetary policy relative to the choices and information actually available to the central bank when the monetary policy decision was made our study does not measure the influence of politics on the instruments of fiscal policy as in alesina et al 1991 our study also does not measure the direct influence of fiscal variables on the instruments of monetary policy although there is some evidence on this issue in for example parkin 1986 and burdekin and wohar 1990 burdekin and wohar estimate the relationships between deficits money base growth and inflation for a sample of countries and time period comparable to ours all these studies find some evidence that central banks do accommodate fiscal policy by financing deficits via money growth especially since the end of bretton woods we return to the issue of fiscal policy in considering the interpretation of our results but stress that the effects of fiscal policy are partly captured in our specifications because we measure monetary policy relative to the state of the economy 5 a brief review of the literature which measures statutory central bank independence is given in section ii

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

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

inflation and central bank independence a meta regression analysis using 59 studies we perform a meta regression analysis of studies examining the relationship between inflation and central bank independence cbi the studies considered are very different with respect to the cbi indicator used the sample of countries and time periods covered model specification estimators used and publication outlet we conclude that there is a significant publication bias however we also find a significant genuine effect of cbi on inflation differences between studies are not caused by differences in cbi indicators used

seigniorage and tax smoothing in the united states 1914 1986 abstract when monetary and fiscal authorities cooperate to minimize the distortionary costs of financing an exogenous stream of government expenditures barro s tax smoothing model implies a long run relationship between tax revenues and inflation previous empirical tests of this relationship are reinterpreted in light of recent work on cointegration and are shown to hold only when stochastic temporal variation in the excess burden of taxes and seigniorage is transitory in nature a new test that holds in the presence of nonstationary disturbances is developed and applied annual u s data from the period 1914 to 1986 reject the revenue smoothing hypothesis

the disadvantage of tying their hands on the political economy of policy commitments incumbents are more likely to be re elected if they have a comparative advantage in the eyes of voters on some central issue this paper argues that incumbents have an incentive to avoid reforms that reduce the government s role in deciding these issues in order to increase their chances of re election this point is illustrated in the context of the choice of an exchange rate regime in an economy characterized by an inflation bias a flexible exchange rate allows the government to use monetary policy as a stabilization tool while fixed exchange rates remove the inflation bias of the economy on the one hand it is shown that a more inflation averse government may refrain from choosing fixed exchange rates in order to capitalize on the inflationary reputation of its opponent this incentive is contrasted with the opposite incentive to tie the hands of the future government should be incumbent be defeated on the other hand it is shown that electoral considerations may reinforce the incentive of the more inflationary government to tie its own hands with fixed exchange rates

asymmetric shocks among u s states abstract the paper applies a factor model to the study of risk sharing among u s states the factor model makes it possible to disentangle movements in output and consumption due to national regional or state specific business cycles from those due to measurement error the results of the paper suggest that some findings of the previous literature which indicate a substantial amount of inter state risk sharing may be due to the presence of measurement error in output when measurement error is properly taken into account the evidence points towards a lack of inter state smoothing

money debt and deficits in a dynamic game this paper analyzes a dynamic linear quadratic game between the fiscal and monetary authorities the equilibrium outcome of the game determines the time path of money creation fiscal deficits and public debt the game is solved for different equilibrium concepts the equilibria are then compared and interpreted with reference to alternative institutional arrangements the main results are i coordination increases the speed of adjustment towards the steady state and takes the steady state value of public debt closer to the desired target ii precommitments take the non cooperative equilibrium closer to the coordinated outcome iii increasing the weight that each policymaker assigns to his own private objectives slows down the adjustment process places more burden on the opponent but has ambiguous effects on the steady state value of public debt

business cycles under monetary union a comparison of the eu and us reserve districts in the usa and the 15 countries that make up the eu the comparison is suggestive of what might be expected to emerge in the way of business cycle synchronization from a monetary union between the member states of the eu now simply non decimal denominations of the euro and the national central banks of the 11 are branches of the european system of central banks many prominent observers doubted that europe would ever reach this stage and many continue to believe that monetary union between such a large and dispar ate group of countries is fundamentally unsound a key element in the argu ments of many critics of emu is the degree of business cycle asynchronicity between the member states of the eu this paper contributes to the ongoing debate by documenting key differences and similarities between business cycles in the eu and business cycles in the 12 federal reserve districts in the united states the practice of looking to the us experience for insights into the problems and functioning of a monetary union has a long precedent in the literature on fixed exchange rates in general and in the literature on emu in particular for example in making an argument for fixed exchange rates rolnick and weber 1994 note that the usa can be viewed as having a system of fixed exchange rates between currencies issued by the 12 regional federal reserve banks they argue that the notes issued by the 12 banks are not strictly ident ical and that the difference between the notes creates the possibility that the united states could have a system of floating exchange rates among the 12 federal reserve districts 1 rolnick and weber go on to examine the features of the relationship among the 12 regional federal reserve banks that make a system of fixed exchange rates between them feasible in the process drawing lessons for how a monetary union among the countries of the eu might work the analysis in this paper complements earlier analyses in a number of ways the resurgence of interest in business cycle research over the past 20

a bargaining model of partisan appointments to the central bank abstract in this paper a bargaining model is developed to analyze the appointment of central bankers in a two party political system the major results of the paper are 1 the party in power will appoint partisans early on but later appointments will be increasingly moderate in their views concerning monetary policy 2 changing the timing of the appointment of the board chairman from the end of a president s term in office to the first period of the president s term will lead to more partisan monetary policy 3 in equilibrium nominations to the board are not rejected thus confirmation hearings appear to be nothing more than a rubber stamp process 4 lengthening the terms on the board relative to the electoral cycle will lead to more moderate appointments to the central bank and a reduction in partisan policymaking

an inquiry into the sources of macroeconomic fluctuations abstract this paper attempts to decompose the sources of fluctuations in quarterly employment by industry and region into 1 an aggregate national shock 2 region specific shocks 3 industry specific shocks and 4 idiosyncratic factors the empirical analysis is motivated by a dynamic theory of the business cycle the empirical methodology is the engle watson dynamic mimic model implemented via the em algorithm the work is motivated as an attempt to compare empirically aggregate single factor theories of the cycle with real business cycle theories emphasizing industrial or regional shocks

inter regional spillovers of policy shocks in china groenewold n chen a and lee g inter regional spillovers of policy shocks in china regional studies inter regional output spillovers from policy shocks are analysed in a three region vector autoregressive var based model of china using investment as the policy variable the contemporaneous effect of policy is greater in the coastal region than in the other two regions and the effect in the central region is larger than in the western region suggesting that at least part of the expenditure boosts in the poorer inland regions find their way to the coastal provinces these results are confirmed when the effects of the policy shocks are simulated over time and are found to be generally robust to alternative model specifications groenewold n chen a et lee g les retombees regionales des chocs politiques en chine regional studies a partir d un modele de la chine a trois regions du type var on analyse les retombees interregionales de production qui resultent des chocs politiques employant l inve

business cycle phases in u s states the u s aggregate business cycle is often characterized as a series of distinct recession and expansion phases we apply a regime switching model to state level coincident indices to characterize state business cycles in this way we find that states differ a great deal in the levels of growth that they experience in the two phases recession growth rates are related to industry mix whereas expansion growth rates are related to education and age composition further states differ significantly in the timing of switches between regimes indicating large differences in the extent to which state business cycle phases are in concord with those of the aggregate economy

understanding gross worker flows across u s states abstract the main cross sectional and time series properties of state level gross and net worker flows wages and rents are characterized using micro data from the u s census a dynamic general equilibrium model of worker migration is introduced to explain the stylized facts in the model a location may experience simultaneous inflows and outflows of workers recent migrants choose to migrate more often than incumbent workers thus locations that attract high numbers of migrants also tend to experience high outflow rates this pattern is a robust feature of the data and cannot be explained by models of net flows only

strategic discipline in monetary policy with private information optimal targeting periods this paper analyzes a multiperiod monetary targeting procedure as a possible resolution to the credibility problem in pol icy when the monetary authority has some private information by limitin g the degree of flexibility permitted in policy this procedure mitiga tes the credibility problem as the length of the targeting horizon decreases the severity of the credibility problem falls but at the expense of weakening the monetary authority s ability to pursue its stabilization goals based on model simulations the analysis studi es the determinants of the optimal targeting horizon that balances the benefits of flexibility and discipline in policy copyright 1993 by american economic association

entry exit and diffusion with learning by doing early entry has the advantage of higher revenues per unit of output early on late entry has the benefit of learning from the experience of earlier entrants and hence lower production costs the advantages are balanced off in a continuous time perfect foresight equilibrium competition generates s shaped diffusion and staggered entry and exit a monopolist will innovate less than a competitive industry but the innovation that he does do he will do sooner copyright 1989 by american economic association

how strong is co movement in employment over the business cycle evidence from state sector data abstract this study measures the extent of co movement in employment across states and sectors at business cycle frequencies the strength of co movement is quantified using the cohesion measure developed by croux forni and reichlin rev econ statist 83 2001 232 the data indicate that cohesion is generally positive for the state sector pairs although the distributions mass around relatively low values the results suggest that cohesion has risen over time and that cohesion increases with spatial aggregation evidence reveals that the measured degree of co movement is sensitive to the chosen periodicity of the data and that there is much greater cohesion across states for a given sector than across different sectors within a state an investigation into the sources of cross state variation in cohesion reveals that important determinants include the share of state employment in manufacturing the different effects of monetary policy actions on each state s employment and the degree of sectoral diversity within a state

sectoral shocks and metropolitan employment growth abstract in this paper we study the sources of industry employment growth in each of five metropolitan statistical areas msas the objective is to understand the relative importance of aggregate disturbances versus local sectoral shocks in generating observed employment fluctuations at the msa level the empirical evidence presented in this paper derives from structural vector autoregressions svars estimated for each of the five msas estimations use monthly employment data covering nine one digit industrial categories for the period 1951 1 1999 8 as well as two variables that capture the influences of aggregate i e national shocks on msas we find that within msa industry shocks explain considerably more of the forecast error variance in industry employment growth than do aggregate shocks sectoral shocks account for between 87 and 94 of the 36 month ahead forecast error variance among individual local sectors shocks to msa specific government manufacturing and service sector employment growth are the predominate sources of variability

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models

the implications of heterogeneous habit in consumer beverage purchases on soda and sin taxes abstract in this article we study the heterogeneity of habit strength in households demand for regular carbonated sweetened beverages csbs and beer in the united states a demand model that nests a smooth transition function is used to describe habit based consumption patterns revealing heterogeneous strengths of habits among households we find that more habitual consumers those with a strong preference for a particular product are not as sensitive to price or expenditure as the aggregate population this finding is further supported by simulations of the potential effects of soda and beer taxes we find the aggregate response to soda and beer taxes is smaller than when the influence of habit is assumed to be homogeneous

regional income fluctuations common trends and common cycles this paper investigates trend and cycle dynamics in per capita income for the major u s regions during the 1956 1995 period cointegration and serial correlation common features information are used in jointly decomposing the series into trend and cycle components we find considerable differences in the volatility of regional cycles controlling for differences in volatility we find a great deal of comovement in the cyclical response for all regions but the far west possible sources underlying differences in regional cycles are explored such as the share of a region s income accounted for by manufacturing defense spending as a proportion of a region s income oil price shocks and the stance of monetary policy somewhat surprisingly we find that the share of manufacturing in a region seems to account for little of the variation in regional cycles relative to national cycles but manufacturing share differentially affects trend growth for four of the seven regions studied

a new look at variation in employment growth in canada the role of industry provincial national and external factors we examine fluctuations in employment growth using canadian data from 1976 to 2010 we consider a wide range of models and examine the sensitivity of our findings to modelling assumptions the results from our most preferred model which we selected using the bayesian information criteria indicate that most of the variance in employment growth that is not due to the idiosyncratic error comes from domestic sources with most of this coming from industry and provincial factors overall we find that external and national factors play a much smaller role in employment fluctuations than in earlier research we provide some possible explanations for these differences and discuss the implications of our findings for public policy and theory

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

on the importance of sectoral and regional shocks for price setting summary we use novel disaggregate sectoral regional euro area data to investigate the sources of price changes introducing a new method to extract factors from overlapping data blocks that allows for estimation of aggregate sectoral country specific and regional components of price changes our sectoral component explains much less variation in disaggregate inflation rates and exhibits much less volatility and more persistence than previous findings for the us indicate country and region specific factors play an important role emphasizing heterogeneity of inflation dynamics along both sectoral and geographical dimensions our results are incompatible with basic sticky information or calvo type price setting models but require multi sector multi country models copyright 2015 john wiley sons ltd

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

financial planning for the multinational corporation with multiple goals this paper presents a methodology for analyzing the financing problems raised by uncertain exchange rates and the various barriers to free capital flows the stochastic goal programming model developed allows a way to improve the efficiency with which alternative combinations of corporate strategies various environmental assumptions and financing mechanisms can be evaluated

a multi level panel star model for us manufacturing sectors we introduce a multi level smooth transition model for a panel of time series which can be used to examine the presence of common nonlinear business cycle features across many variables the model is positioned in between a fully pooled model which imposes such common features and a fully heterogeneous model which allows for unrestricted nonlinearity we introduce a second stage model linking the parameters that determine the timing of the switches between business cycle regimes to observable explanatory variables thereby allowing for lead lag relationships across panel members we discuss representation estimation by concentrated simulated maximum likelihood and inference we illustrate our model using quarterly industrial production in 19 us manufacturing sectors and document that there are subtle differences across sectors in leads and lags for switches between business cycle recessions and expansions copyright 2005 john wiley sons ltd