political cycles in oecd economies this paper studies whether the dynamic behaviour of gnp growth unemployment and inflation is systematically affected by the timing of elections and of changes of governments the sample include the last three decades in 18 oecd economies we explicitly test the implication of several models of political cycles both of the opportunistic and of the partisan type also we confront the implication of recent rational models with more traditional approaches our results can be summarized as follows a the political business cycle hypothesis as formulated in nordhaus 1975 on output and unemployment is generally rejected by the data b inflation tends to increase immediately after elections perhaps as a result of pre electoral expansionary monetary and fiscal policies c we find evidence of temporary partisan differences in output and unemployment and of long run partisan differences in the inflation rate as implied by the rational partisan theory by alesina 1987 d we find virtually no evidence of permanent partisan differences in output growth and unemployment

a comparison of autoregressive univariate forecasting procedures for macroeconomic time series the actual performance of several automated univariate autoregressive forecasting procedures applied to 150 macroeconomic time series are compared the procedures are the random walk model as a basis for comparison long autoregressions with three alternative rules for lag length selection and a long autoregression estimated by minimizing the sum of absolute deviations the sensitivity of each procedure to preliminary transformations data periodicity forecast horizon loss function employed in parameter estimation and seasonal adjustment procedures is examined the more important conclusions are that akaike s lag length selection criterion works well in a wide variety of situations the modeling of long memory components becomes important for forecast horizons of three or more periods and linear combinations of forecasts do not improve forecast quality appreciably

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

analyzing time varying effects of potential output growth shocks abstract employing a state space model we find for the united states economy that potential output growth rate can deviate from its steady state level for substantially long periods

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

is the response of output to monetary policy asymmetric evidence from a regime switching coefficients model this paper investigates regime switching in the response of u s output to a monetary policy action we find substantial statistically significant time variation in this response that corresponds to high response and low response regimes we then investigate whether the timing of the regime shifts are consistent with three particular manifestations of asymmetry by modeling the transition probabilities governing the switching process as functions of state variables we find strong evidence that policy actions taken during recessions have larger effects than those taken during expansions we find less evidence of asymmetry related to the direction or size of the policy action

multivariate estimates of the permanent components of gnp and stock prices the economic assumption that a present value relation holds between consumption and income and between stock prices and dividends or the statistical assumption that the consumption income ratio and the dividend price ratio are stationary imply that the permanent or random walk component in each series of a pair must be the same as the permanent component in the other series of a pair either assumption then allows us to estimate the variance of the permanent component of one series gnp stock prices from the variance of the permanent component of the other consumption dividends or from the covariance of the two series permanent components this paper presents such estimates and finds that the permanent components are about half those estimated by similar univariate methods a series of recent papers has examined the importance of a potential unit root to the behavior of real gnp campbell and mankiw 1986 1987 cochrane 1986 clark 1987 and stock prices fama and french 1986 lo and mai if by 0 the series is stationary the response can be any real number which is the innovation in these estimates instead of forcing us to ask the dichotomous question is there a unit root or not they allow us to continuously measure the importance of a potential unit root the actual estimating technique used in these papers varied somewhat cochrane poterba and summers and lo and mai if a series is stationary the variance of k differences will tend to a precursor to this paper appeared under the title spectral density estimates of unit roots we thank masanao aoki lam hansen masao ogaki and chris sims for helpful suggestions the computer programs and data used in this paper are available on request from the authors

the influence of financial status on the effectiveness of environmental enforcement abstract this paper analyzes the influence of financial status on the effectiveness of environmental enforcement it considers multiple dimensions of both enforcement and financial status regarding enforcement the paper considers both the likelihood of enforcement as captured by the likelihood of inspections conducted at regulated facilities and the severity of enforcement as captured by the size of sanctions imposed on polluting facilities found violating their effluent limits as indicators of corporate financial status the paper considers measures of liquidity solvency and profitability a proxy for corporate managerial skill all of which can influence the likelihood that a firm faces liquidity and or bankruptcy constraints the paper first develops a theoretical model of optimal abatement in the presence of liquidity and bankruptcy constraints and uses the model to investigate the impact of financial status on optimal abatement and the effectiveness of enforcement then the paper empirically examines the interactions between enforcement and financial status using data on wastewater discharges from us chemical manufacturing facilities for the years 1995 to 2001 empirical results suggest that the financial status dimensions considered here in general play an important role in determining the incentives created by enforcement as the most striking result we show theoretically and empirically that when financial dimensions are included in the analysis the conventional wisdom regarding the effect of enforcement likelihood on abatement no longer holds i e increased enforcement can actually lead to worse environmental performance

the great depression and output persistance the persistence of shocks to aggregate output has been the subject of continuing investigation since nelson and plosser 1982 suggested they are largely permanent recent literature reaches mixed conclusions largely due to disagreement about how to treat the great depression we estimate output persistence based on a parametric bootstrap of a markov switching model for gdp 1870 1994 in which the economy can switch in and out of a turbulent state our results suggest that real shocks persist indefinitely if we drop the maintained assumption of homoskedasticity in favor of a markov switching representation of the great depression

reconciling output gaps unobserved components model and hodrick prescott filter abstract this paper reconciles two widely used trend cycle decompositions of gdp that give markedly different estimates the correlated unobserved components model yields output gaps that are small in amplitude whereas the hodrick prescott hp filter generates large and persistent cycles by embedding the hp filter in an unobserved components model we show that this difference arises due to differences in the way the stochastic trend is modeled moreover the hp filter implies that the cyclical components are serially independent an assumption that is decidedly rejected by the data by relaxing this restrictive assumption the augmented hp filter provides comparable model fit relative to the standard correlated unobserved components model

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

trends and cycles in macroeconomic time series two structural time series models for annual observations are constructed in terms of trend cycle and irregular components the models are then estimated via the kalman filter using data on five u s macroeconomic time series the results provide some interesting insights into the dynamic structure of the series particularly with respect to cyclical behavior at the same time they illustrate the development of a model selection strategy for structural time series models

the public and private marginal product of capital lowe gratefully acknowledges financial support from esrc award number es i02476x 1 and perez sebastian from ministerio de economia y competitividad and fondo europeo de desarrollo regional eco2015 70540 p mineco feder and the generalitat valenciana prometeo 2013 037 papageorgiou acknowledges financial support from the uk department for international development

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

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

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

forecasting output gaps in the g 7 countries the role of correlated innovations and structural breaks trend gdp and output gaps play an important role in fiscal and monetary policy formulation often including the need for forecasts in this article we focus on forecasting trend gdp and output gaps with beveridge nelson trend cycle decompositions trend cycle decompositions and investigate how these are affected by assumptions concerning correlated innovations and structural breaks we evaluate expanding window one step ahead forecasts indirectly for the g 7 countries on the basis of real gdp growth rate forecasts we find that correlated innovations affect real gdp growth rate forecasts positively while allowing for structural breaks works for some countries but not for all in the face of uncertainty the evidence supports that in making forecasts of trends and output gap policy makers should focus on allowing for the correlation of shocks as an order of priority higher than unknown structural breaks

job creation through infrastructure investment in the middle east and north africa in the next 10 years or so the infrastructure sector has the potential to generate significant employment this paper estimates annual job creation of about 2 0 million in direct jobs and 2 5 million in direct indirect and induced infrastructure related jobs just by meeting the infrastructure investment needs of about 6 9 percent of gross domestic product about us 106 billion for the middle east and north africa region on average the breakdown in expected needs is 11 percent in developing oil exporters 6 percent in oil importing countries and 5 percent in the gulf cooperation council oil exporters needs are particularly high in electricity and roads while important infrastructure job creation will not resolve the region s unemployment problem alone and its job creation potential varies greatly across countries moreover the current ability to finance and hence meet the infrastructure needs varies significantly across countries oil importers are likely to fall short under business as usual scenarios in a region in which the public sector is the main source of infrastructure financing fiscal choices will thus matter to job creation through infrastructure but there are more challenges including the governance of job creation and the proper targeting and costing of subsidies for job creation and the re training programs needed managing expectations will also matter as infrastructure jobs will help but will not solve the region s unemployment and underemployment problems

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

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

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

is cyclical real gnp really more persistent than the trend using an observed components decomposition to estimate permanent and temporary components of us real gnp campbell and mankiw 1987 found that the estimated temporary component displays greater persistence than the estimated permanent component this suggests that attempts to estimate separate permanent and temporary components in real gnp are unlikely to succeed this finding is re examined here using a longer real gnp series and a different decomposition which guarantees that the estimated temporary component will be stationary the resulting estimates of permanent and temporary output suggests that the temporary component displays no persistence and that the permanent component exhibits almost precisely the persistence of a random walk with drift cyclical real gnp is not more persistent than the trend

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 earnings trend using unobserved components framework abstract regressions for predicting long term stock returns often use moving averages of earnings as the earnings trend we show that the earnings trend can be directly estimated using unobserved components models the estimated trends improve the fit of predictive regressions

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

hours per capita and productivity evidence from correlated unobserved components models recent studies debate the effect of a permanent productivity shock on hours per capita within a structural var context this paper examines the issue using a correlated unobserved components uc framework the estimates show that permanent shocks to productivity are negatively correlated with transitory shocks to hours this result is robust for non stationary or levels stationary specifications of hours model comparisons indicate that the data do not favor imposing var type restrictions on the uc models copyright 2008 john wiley sons ltd

international evidence on output persistence from postwar data abstract this paper reports some international evidence on output persistence based on postwar data using fractional differencing analysis we find evidence of fractional integration in output for the u s and u k but not for the other g 7 countries implying that these two countries show much less persistence in output fluctuations than the others

testing for excess sensitivity in consumption a state space unobserved components approach this paper tests the joint rational expectations permanent income hypothesis using a state space unobserved components model to specify anticipated and unanticipated elements of permanent transitory and seasonal components of the income path and measure their relationships with consumption the results do not find significant excess sensitivity however a similar test that accounts for seasonality using x 11 adjusted data does thus indicating that seasonal filtering may be responsible for previous empirical rejections of the theory since the model includes consumption information in estimating the different components of income it also improves upon univariate investigations of the relative magnitudes of permanent and transitory disturbances to the income path

what have we learned from three decades of research on the productivity of public capital the last three decades have witnessed a great deal of research effort devoted to measuring the private output elasticity of public capital the wide range of available estimates have precluded any consensus so far however this paper reconciles the empirical findings of the literature by quantitatively analyzing a sample of 578 estimates collected from 68 studies for the 1983 2008 period using meta regression analysis we show how study design characteristics and publication bias can explain a large fraction of the variation across estimates we find a short run output elasticity of public capital supplied at the central government level of 0 083 which increases to 0 122 in the long run if in addition only core infrastructure at a regional local level of government is considered these estimates are almost doubled the average output elasticity of public capital amounts to 0 106 our results suggest that public capital is undersupplied in oecd economies