the input output approach to instrument selection this article proposes a new method of selecting demand shift instruments for disaggregated industries i use prior information from input output tables to identify industries whose output fluctuations are likely to function as approximately exogenous demand shocks for other industries after motivating this idea theoretically i implement the input output approach using data from the 1977 detailed input output study i conduct a systematic instrument search for over 450 u s manufacturing industries and find over 200 industries possessing plausible instruments i conclude with a brief application showing how input output instruments can be used to estimate the short run supply curve of the cement industry

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

emissions cap or emissions tax a multi sector business cycle analysis abstract we develop a multi sector business cycle model to analyze stochastic implications of reducing co 2 emissions with carbon permits or with carbon taxes in the presence of multiple sources of macroeconomic uncertainty the model is calibrated to reflect the u s experience as in previous studies using a single sector version of our model we find that the cap regime generates lower volatility of real variables than the tax regime but the latter may be preferable from the welfare perspective still our multi sector analysis points to the importance of the origin of the shocks in the ranking of the two instruments and to the desirability of going beyond a single sector analysis in evaluating their merits we find no significant difference between the cap and the tax regimes when shocks come from non energy sectors in contrast the cap has lower volatility but higher welfare costs than the tax for the shocks to energy production

green electricity policies in the united states case study while there has been interest in promoting the use of renewable energy in electricity production for a number of years in the united states the market share of non hydro renewable energy sources in electricity production has remained at about 2 percent over the past decade the paper reviews the principal energy resources used for electricity production considers the changing regulatory environment for the electricity industry and describes government policies that have been used to promote green electricity in the united states with an emphasis on measures adopted by state governments factors influencing the development of green power markets are also discussed including underlying economic issues public policy measures the regulatory environment external costs and subsidies without significant increases in fossil fuel prices much more stringent environmental regulations or significant changes in electricity customer preferences green electricity markets are likely to develop slowly in the united states

the complex behavior of firms size dynamics abstract this paper s aim is to shed some light to the complex dynamics of firms size distribution fsd in particular we give an alternative explanation to the cabral and mata 2003 finding in that paper they show that the distribution of surviving firms tends to the log normal distribution as an explanation they consider the small firms selection argument and introduce the financial constraint model we give an alternative explanation based on a sample selection bias argumentation in other terms a cohort of surviving firms may have a positive average rate of growth this simple fact breaks the assumptions needed in order to have an asymptotic pareto fsd furthermore we show how a simple modification of a well known multiplicative process of firms growth taking into account common and idiosyncratic elements may reconcile an old aggregate sector puzzle quandt 1966 on firms size distribution reported in the literature the paper shows the possibility to have aggregate pareto distributed fsd and non pareto distributed sectors

measuring the systemic risk in interfirm transaction networks using a unique and massive dataset that contains information on interfirm transaction relationships this study examines default propagation in trade credit networks and provides direct and systematic evidence of the existence and relevance of such default propagation not only do we implement simulations in order to detect prospective defaulters we also estimate the probabilities of actual firm bankruptcies and compare the predicted defaults and actual defaults we find first that an economically sizable number of firms are predicted to fail when their customers default on their trade debt second these prospective defaulters are indeed more likely to go bankrupt than other firms third firms that have abundant external sources of financing or whose transaction partners have such abundant sources are less likely to go bankrupt even when they are predicted to default this provides evidence for the existence and relevance of firms called deep pockets by kiyotaki and moore 1997 that can act as shock absorbers

cyclical industrial dynamics in the global it sector origins and sequencing in this article we investigate the origins and dynamics of cyclical behaviour in the it sector our lead lag analysis shows the historical cyclical patterns involved in the global semiconductor industry the computer industry and the flat panel display industry based on the granger causality tests derived from a vector autoregressive var model we find that in the global semiconductor industry changes in capacity utilization precede changes in sales which in turn leads to changes in semiconductor price

money income prices and interest rates including data from the 1980s sharply weakens the postwar time series evidence indicating significant relationships between money however defined and nominal income or between money and either real income or prices separately focusing on data from 1970 onward destroys this evidence altogether evidence indicating cointegration of real income and real money balances with due allowance for the effect of interest rates also deteriorates when the sample extends through the 1980s a positive finding is that the spread between the commercial paper rate and the treasury bill rate consistently contains highly significant information about future movements in real income copyright 1992 by american economic association

factor demand linkages technology shocks and the business cycle abstract this paper argues that factor demand linkages can be important for the transmission of both sectoral and aggregate shocks we show this using a panel of highly disaggregated manufacturing sectors together with sectoral structural vars when sectoral interactions are explicitly accounted for a contemporaneous technology shock to all manufacturing sectors implies a positive response in both output and hours at the aggregate level otherwise there is a negative correlation as in much of the existing literature furthermore we find that technology shocks are important drivers of the business cycle

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 great diversification and its undoing we investigate the hypothesis that macroeconomic fluctuations are primitively the results of many microeconomic shocks we define fundamental volatility as the volatility that would arise from an economy made entirely of idiosyncratic sectoral or firm level shocks fundamental volatility accounts for the swings in macroeconomic volatility in the major world economies in the past half century it accounts for the great moderation and its undoing the initial great moderation is due to a decreasing share of manufacturing between 1975 and 1985 the recent rise of macroeconomic volatility is chiefly due to the growth of the financial sector jel e23 e32 e44 this article explores the hypothesis that changes in the microeconomic composition of the economy during the postwar period can account for the great moderation and its unraveling both in the united states and in the other major world economies we call fundamental volatility the volatility that would be derived only from microeconomic shocks if aggregate shocks come in large part from microeconomic shocks augmented by amplification mechanisms then aggregate volatility should track fundamental volatility to operationalize this idea the key quantity we consider which constitutes one departure from other studies is the following definition of fundamental volatility

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

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

a standard measure of risk and risk value models in this paper we propose a standard measure of risk that is based on the converted expected utility of normalized lotteries with zero expected values this measure of risk has many desirable properties that characterize the notion of risk it is very general and includes many previously proposed measures of risk as special cases moreover our standard measure of risk provides a preference based and unified method for risk studies since the standard measure of risk is compatible with the measure of expected utility it can be used explicitly or implicitly in an expected utility model under a condition called risk independence a decision could be made by explicitly trading off between risk and value which offers an alternative representation of the expected utility model named the standard risk value model finally we discuss some other applications of the standard measure of risk and extensions of our risk value tradeoff framework for descriptive decision making

sectoral versus aggregate shocks a structural factor analysis of industrial production using factor methods we decompose industrial production ip into components arising from aggregate and sector specific shocks an approximate factor model finds that nearly all of ip variability is associated with common factors we then use a multisector growth model to adjust for the effects of input output linkages in the factor analysis thus a structural factor analysis indicates that the great moderation was characterized by a fall in the importance of aggregate shocks while the volatility of sectoral shocks was essentially unchanged consequently the role of idiosyncratic shocks increased considerably after the mid 1980s explaining half of the quarterly variation in ip

sources of output fluctuations in the united states during the inter war and post war years abstract this paper attempts to decompose the sources of fluctuations in industry output into 1 an aggregate national shock 2 industry group specific shocks and 3 idiosyncratic factors the empirical methodology is the engle watson dynamic mimic model the work is motivated as an attempt to compare empirically aggregate single factor theories of the cycle with real business cycle theories emphasizing technology shocks disaggregate data from the inter war and post war periods are examined conclusions on the relative importance of the various shocks seem to be dependent on the period being considered the single index theory of the cycle seems more appropriate for the inter war period

disappointment and dynamic consistency in choice under uncertainty the central proposition of disappointment theory is that an individual forms expectations about uncertain prospects and that if the actual consequence turns out to be worse than or better than that expectation the individual experiences a sensation of disappointment or elation generating a decrement or increment of utility which modifies the basic utility derived from the consequence by incorporating a simple disappointment elation function into a model of individual choice many observed violations of conventional expected utility axioms including violations of savage s sure thing principle and the isolation effect can be predicted and defended as rational and dynamically consistent behaviour

long and plosser meet bewley and lucas abstract we develop an n sector business cycle network model a la long and plosser 1983 featuring heterogenous money demand a la bewley 1980 and lucas 1980 despite incomplete markets and a well defined distribution of real money balances across heterogeneous households the bewley lucas long plosser model remains analytically tractable with closed form solutions relying on the tractability we establish several important results i the economy s input output network linkages become endogenously time varying over the business cycle thanks to the endogenous time varying distribution of money demand and its influence on cross sector allocations of commodities ii despite flexible prices transitory money injections can generate highly persistent effects on sectoral output also thanks to the time varying distribution of money demand and its effect on input output coefficients iii although money injection is distributed equally across households by design the real effects are asymmetric across production sectors e g the impact of money is strongest on downstream sectors that purchase intermediate goods from the rest of the economy but weakest on upstream sectors that supply intermediate goods to the other sectors in sharp contrast to the case of sectoral technology shocks and government spending shocks our model also provides a micro foundation for the labor wedge and shows that movements in the distribution of money demand can explain the cyclical behavior of the labor wedge

customer and supplier driven externalities the purpose of this paper is to provide empirical evidence helpful for distinguishing different types of externalities we pursue this by extending the productionfunction framework of robert e hall 1990 and caballero and lyons 1990 1992 to exploit two key dimensions of the data disaggregate input output relationships and differences between estimates emphasizing time series versus cross sectional aspects of the data we obtain three main results first from the within estimates using annual data which emphasize the time series properties common across sectors we find a strong reduced form relationship between industry productivity and the activity level input growth of customers in sharp contrast supplier activity levels are insignificant the second result derives from between estimates which emphasize the cross sectional dimension of the data here we find the opposite is true there is a strong reduced form relationship between industry productivity and the activity level of suppliers but no relationship with customer activity levels we interpret the first two results as suggesting that over shorter horizons the linkage between an industry and its customers is pivotal in the transmission of external effects while in the long run external effects are mostly related to intermediate goods linkages the third result concerns the transition from short to long run we find that as the number of periods over which the variables are averaged is incrementally increased from one year toward the full sample period 27 years the significance of customers versus suppliers smoothly reverses itself the remainder of the paper is organized in four sections section i presents the core model and the econometric methods for disentangling the external effects section ii describes the data and estimation section iii presents the main results and our conclusions are presented in section iv

targeted carbon tax reforms abstract in the presence of intersectoral linkages sector specific carbon tax changes can have complex general equilibrium effects in particular a carbon tax on the emissions of a sector can lead to an increase in aggregate emissions we analytically characterise how incremental taxes on the emissions of any set of sectors affect aggregate emissions we show that carbon tax reforms that target sectors based on their position in the production network can achieve a greater reduction in aggregate emissions than reforms that target sectors based on their direct emissions alone we illustrate the effects of carbon tax reforms by calibrating our intersectoral network model to the economies of two countries

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

shift share designs theory and inference we study inference in shift share regression designs such as when a regional outcome is regressed on a weighted average of sectoral shocks using regional sector shares as weights we conduct a placebo exercise in which we estimate the effect of a shift share regressor constructed with randomly generated sectoral shocks on actual labor market outcomes across u s commuting zones tests based on commonly used standard errors with 5 nominal significance level reject the null of no effect in up to 55 of the placebo samples we use a stylized economic model to show that this overrejection problem arises because regression residuals are correlated across regions with similar sectoral shares independent of their geographic location we derive novel inference methods that are valid under arbitrary cross regional correlation in the regression residuals we show using popular applications of shift share designs that our methods may lead to substantially wider confidence intervals in practice

do all sectoral shocks lead to aggregate volatility empirics from a production network perspective abstract productive diversification has long been acknowledged as a volatility reducing strategy yet recent theoretical contributions have shown that in strongly diversified economies idiosyncratic shocks could translate into aggregate volatility via the network of inter industry linkages by exploiting exogenous cross country sector variations in demand shocks during the 2008 great recession we provide empirical evidence that the network properties of a sector affected by an individual shock determine its propensity to transmit volatility to the rest of the economy more precisely shocks to sectors that are located in denser parts of a production network fade out over a large number of alternative paths of propagation due to substitution effects whereas shocks to sectors that are more influential within the network generate aggregate fluctuations through contagion effects we also find that the impact of sectoral shocks on aggregate volatility 1 is not conditional on sector level differences in trade intensity and 2 is larger for developing countries because they tend to have more isolated influential sectors and larger structural holes in their production network our results thus help consolidate the two opposite views in the literature on the impact of productive diversification on aggregate volatility

consumer choice strategies for comparing noncomparable alternatives research on consumer choice has focused on easily comparable alternatives a subset of the choices consumers regularly face this paper outlines the problem and two general strategies for comparing noncomparable alternatives a subset of choices that has been overlooked in the literature experiments are reported that support use of the strategies

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

measuring us sectoral shocks in the world input output network i measure the importance of sectoral shocks in us aggregate output by using the world input output table wiot the wiot allows me to correct potential sub graph bias in previous literature caused by using only the us industrial production input output table i report results from three closely related models to show how sensitive the analyses are to different specifications the estimates vary from 10 to 45

inventories and the propagation of sectoral shocks this paper contrasts the dynamic properties of an imperfectly competitive economy with a representative agent real business cycle model for both economies inventories are the important dynamic linkage the predictions of these models with regards to the comovement of employment across sectors may differ empirical evidence on the comovement of employment over the business cycle is consistent with the model of imperfect competition with inventory holdings copyright 1990 by american economic association

comparability and hierarchical processing in multialternative choice consumer choice research recently moved beyond brand based decisions to study the more noncomparable choices consumers often face noncomparable choice processing in choices involving multiple products is discussed in experiment 1 consumers used attribute based processing at an abstract level and alternative based processing at a concrete level to evaluate more noncomparable alternatives independent of choice set size in experiment 2 the choices from experiment 1 were compared with choices within which products varied in comparability the results suggest that comparability variance within a multialternative choice set facilitates consumers use of product categories and hierarchical processing to eliminate choice alternatives

aggregate fluctuations and the industry structure of the us economy abstract in a two sector economy changes in intermediate input trade as reflected in cost share fluctuations are key to determining the amplification properties of investment specific and neutral shocks i document that the cost shares of intermediate inputs produced by the investment sector correlate positively with gdp whereas those of inputs produced by the consumption sector correlate negatively with gdp the two sector model of greenwood et al 1988 is extended to allow for trade of intermediate goods and to show that the documented correlations discipline heterogeneous elasticities of substitution in intermediate inputs across sectors shock amplification that is the effect of a sectorial shock on aggregate value added depends on the degree of heterogeneity in these elasticities of substitution for a calibrated economy to that of the united states i find that shock amplification is stronger than in a unitary elasticity economy it is also stronger than in an economy with a common non unitary elasticity that is either inferred from data via reduced form estimates or calibrated to match the same targets as our benchmark economy

real business cycles and the animal spirits hypothesis abstract we calibrate a quantitative equilibrium macroeconomic model with an aggregate technology that is subject to increasing returns and show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy these fluctuations are due to the self fulfilling beliefs of investors which we call animal spirits we compare the impulse response functions predicted by our model and by two other more standard models with a four variable vector autoregression on u s data our animal spirits economy is the most successful of the three at matching broad features of the dynamic responses in the data journal of economic literature classification numbers e00 e3 e32

dynamics of sectoral business cycle comovement abstractsectoral comovement accounts for a considerable share of the variance of aggregate variables however little is known about its time varying aspects by now in this article a multivariate dcc garch framework is employed to study dynamics of sectoral comovement across manufacturing sectors both in the united states and in germany to account for possible nonlinearities asymmetric effects in conditional volatilities as well as in conditional correlations are being assessed we find that comovement across sectors is not stable but shows irregular movements particularly contractions tend to be more synchronized than expansions in manufacturing sector moreover we examine the role of various aggregate factors for the fluctuations in conditional correlations our findings reveal that both the non constant variability of common factors and the changes in the effects of these factors play role for the fluctuations in sectoral comovement

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

employment risk diversification and unemployment this paper studies determinants of the geographic distribution of unemployment in the united states since 1950 we argue that equilibrium differences in unemployment among markets are partially supported by corresponding differences in the covariance structure of sectoral demands for labor when workers are mobile greater diversification of sectoral demands reduces unemployment we confirm this point using pooled time series cross section data on state unemployment and employment by industry we also find evidence for nonneutrality of aggregate disturbances based on geographic differences in industrial composition and that permanent changes in the sectoral composition of employment lead to transitory fluctuations in unemployment

a generalized utility model of disappointment and regret effects on post choice valuation in this paper we show that performance information about forgone alternatives i e alternative that were considered but not chosen can have a significant impact on post choice valuation our approach introduces a new and parsimonious way of looking at satisfaction that combines the literature on post choice valuation with research regarding generalized expected utility theory while the post valuation literature focuses on the selected brand as the valuation s basis e g anderson and sullivan anderson e w m w sullivan 1993 the antecedents and consequences of customer satisfaction for firms marketing sci 12spring 125 143 bolton and drew bolton r j drew 1991 a multistage model of customers assessments of service quality and value j consumer res 17 375 384 we draw on a stream of research in generalized expected utility theory that considers both chosen and forgone alternatives as the basis for valuation e g bell bell d 1983 risk premiums for decision regret management sci 29 1156 1166 and bell d 1985 disappointment in decision making under uncertainty oper res 33 1 27 loomes and sugden loomes g r sugden 1982 regret theory an alternative theory of rational choice under uncertainty the econom j 92 805 824 and loomes g r sugden 1986 disappointment and dynamic consistency in choice under uncertainty rev econom stud 53 271 282 the result is a combined model of post choice valuation that explicitly incorporates both concepts specifically we extend the existing paradigm of post choice valuation to include buyers regret concerning forgone alternatives proposing a generalized utility theory based treatment of post choice product assessment that uses the intuitively appealing concepts of disappointment and regret as the basis we propose a model for conceptualizing post choice valuation that is consistent with the existing literature discuss how this model extends the construct to consider the influence of forgone alternatives and report results of an empirical test that contrasts our model to important recent work in the area e g boulding et al boulding w a kalra r staelin v a zeithaml 1993 a dynamic process model of service quality from expectations to behavioral intentions j marketing res 30february 7 27 our generalized model of post choice valuation is based on the sum of three components that represent factors that may contribute to consumers assessment of a chosen product or service the first component is expected performance the second component is disappointment which captures the discrepancy between actual and expected performance much as the disconfirmation construct in traditional satisfaction research the third component is regret which captures the difference between the performance of the chosen product service and the performance of a forgone product service this perspective is useful in that risk is captured by the disappointment and regret terms providing an intuitively appealing decomposition of post choice valuation and offering several advances over previous representations of disappointment and regret we test our model via a choice experiment participants in the empirical study were asked to make choices between successive lottery pairs they were then given outcome feedback on the forgone alternative as well as on the chosen alternative in each lottery pair immediately following outcome feedback for each choice subjects were asked to evaluate their decision our results clearly suggest an effect of regret on post choice valuation information about the forgone alternative influenced subjects valuation of the chosen alternative we also find evidence that as predicted the effects of disappointment and regret on post choice valuation are asymmetric specifically the negative effect of disappointment on post choice valuation was greater than the positive effect of elation similarly the negative effect of regret was greater than the positive impact of rejoicing our research offers five contributions to the literature on post choice valuation first our results illustrate the advantage of using generalized utility theory as the basis for conceptualizing and modeling post choice valuation we derive a model of post choice valuation that formally captures the components of disappointment and regret and show that the outcome of both the chosen alternative through disappointment and a forgone alternative through regret can influence the chosen alternative s valuation second we formally integrate the concepts of disappointment and regret which have been examined separately for many years into a single model based on a multiattribute preference structure third we argue that the effects of disappointment and regret on post choice valuation are asymmetric and present empirical evidence in this regard fourth our results suggest that word of mouth regarding forgone alternatives may affect post choice valuation extending research that has not heretofore considered forgone outcomes role in this process finally our development provides a preconsumption measure of potential disappointment and regret in modeling choice at the time of choice consumers may visualize the feelings of disappointment and or regret that will be derived at consumption taking into account both the chosen brand and forgone brands our generalized utility theory based approach to the post choice valuation construct can be useful in examining the role of disappointment and regret as preconsumption constructs