money and capital abstract the effects of money anticipated inflation on capital formation is a classic issue in macroeconomics previous papers adopt reduced form approaches putting money in the utility function or imposing cash in advance but using otherwise frictionless models we follow instead a literature that tries to be explicit about the frictions making money essential this introduces new elements including a two sector structure with centralized and decentralized markets stochastic trading opportunities and bargaining these elements matter quantitatively and numerical results differ from findings in the reduced form literature the analysis also reduces a gap between microfounded monetary economics and mainstream macro

cyclical and causal relations between real wages and employment in the eu this paper analyses and compares the joint behaviour of real wages and employment over the business cycle in the european union eu economies using both annual and quarterly data since 1960 further investigation of the cointegrating properties and the existence of causal effects in the real wage employment relation is undertaken by employing appropriate var models the evidence suggests weak procyclical or acyclic behaviour of real wages relative to cyclical employment in the quarterly data and stronger procyclicality in the annual data thus confirming the dunlop tarshis result for the majority of the eu economies with a few exceptions no cointegrating relations were detected while the granger causality tests suggest either weak or lack of unidirectional causality finally the sensitivity analysis showed that the filtering method has not much influence on the results but the choice of deflator may overturn them in certain cases

how robust are popular models of nominal frictions this paper analyzes three popular models of nominal price and wage frictions to determine which best ts post war u s data we construct a dynamic stochastic general equilibrium dsge model and use maximum likelihood to estimate each model s parameters because previous research nds that the conduct of monetary policy and the behavior of in ation changed in the early 1980s we examine two distinct sample periods using a bayesian pseudo odds measure as a means for comparison a sticky price and wage model with dynamic indexation best ts the data in the early sample period whereas either a sticky price and wage model with static indexation or a sticky information model best ts the data in the late sample period our results suggest that price and wage setting behavior may be sensitive to changes in the monetary policy regime if true the evaluation of alternative monetary policy rules may be even more complicated than previously believed

general equilibrium with nonconvexities and money in a general equilibrium economy with nonconvexities there are sunspot equilibria with good welfare properties sunspots can ameliorate the effects of the nonconvexities for these economies we show that agents act as if they have quasi linear utility functions we use this result to construct a new model of monetary exchange along the lines of lagos and wright where trade occurs in both centralized and decentralized markets but instead of quasi linear preferences we assume general preferences but with indivisible labor this suggests that modern monetary theory is more robust than one might have thought it also constitutes progress on the classic problem of integrating monetary economics and general equilibrium theory

the hazards of moral hazard comment on goff shughart and tollison i introduction in a recent study golf shughart and tollison 1997 demonstrate that the adoption of the designated hitter rule in the american league is associated with a sharp increase in the number of hit batsmen these authors suggest an intriguing economic explanation for this empirical regularity since pitchers in the american league no longer have to bat and risk being hit by pitches themselves they do not face the full cost of their actions when hitting opposing batters leading to a classic moral hazard problem it is important to note however that the reduced form empirical strategy used by those authors has no power to distinguish between such a moral hazard story and other competing explanations foremost among the other explanations is a simple compositional change in the type of batter faced pitchers are by and large very poor hitters making the marginal cost of a hit batsmen when a pitcher is at the plate high relative to that of other batters consequently pitchers are only roughly one third as likely to be hit by a pitch as are other batters with the adoption of the designated hitter rule pitchers are replaced at the plate by designated hitters who are far more effective batters and therefore more likely to be hit batsmen thus even if there is no change in the rate at which any batter of a given skill level is a hit batsmen i e no change in behavior on the part of pitchers the number of hit batsmen will rise when the designated hitter rule is put into effect using data from 1993 1996 i demonstrate in this paper that compositional effects alone explain over 80 of the observed cross league difference in hit batsmen in my sample excluding pitchers national league batters are hit by a pitch once every 115 4 at bats and american league batters are hit every 114 5 at bats suggesting little if any moral hazard once compositional differences are eliminated in fairness to goff et al however it should be stressed that the observed gap in hit batsmen between the leagues is smaller in my sample than in theirs so that it is unlikely that compositional effects alone can explain their entire finding 1 a number of other factors however further call into question the plausibility of the moral hazard argument first the very low rate of pitchers being hit by pitched balls when at the plate implies that only rarely are pitchers actually punished for hitting an opposing batter even if it were the case that every instance of a pitcher being hit by a pitch was retribution tabular data for table i omitted only one in 50 times would a pitcher be punished for hitting an opposing batsmen second there does not appear to be any correlation between the frequency with which pitchers hit opposing batsmen and the likelihood that the pitcher will himself be hit while at the plate if retaliation is the motivation for hitting pitchers when at bat as predicted by the moral hazard model then there should be a positive correlation between those two variables ii further exploration of the moral hazard argument table i presents relevant data by league for the years 1993 1996 in addition national league batting statistics are broken down into pitchers and non pitchers the first four columns provide aggregate totals the last three columns normalize by at bats for easier comparisons a number of important points emerge from table i first comparing american league and national league totals the elevated rate of hit batsmen in the american league demonstrated by goff shughart and tollison 1997 for the period up until 1990 is also present in the more recent data used here american league batters are hit an additional 131 times over the four year period 2 normalized by at bats american league batters are 5 more likely to be hit by pitches the difference between the leagues is somewhat smaller than that observed by goff et al in the earlier period roughly 50 additional hit batsmen per year

multivariate detrending under common trend restrictions implications for business cycle research abstract this paper outlines a methodology to detrend multiple time series under common trend restrictions the same filters used to construct the estimated trend in univariate exercises are shown to be appropriate in multivariate studies with a single common trend however to estimate the common trend in the multivariate case the filter is applied to a linear combination of series rather than to each series individually an empirical example and simulation exercises illustrate the implications of common trend detrending for measurement of business cycle properties

tax disturbances and real economic activity in the postwar united states abstract this paper investigates the macroeconomic effects of cyclical fluctuations in marginal tax rates it finds that systematically including tax variables in a standard real business cycle model substantially improves the model s ability to reproduce basic facts about postwar u s business cycle fluctuations in particular modeling fluctuations in personal and corporate income tax rates increases the model s predicted relative variability of hours and decreases its predicted correlation between hours and average productivity fluctuations in tax rates produce large substitution effects that alter the leisure labor supply decision

stock market conditions and monetary policy in a dsge model for the u s abstract this paper investigates the interactions between stock market fluctuations and monetary policy within a dsge model for the u s economy first we design a framework in which fluctuations in households financial wealth are allowed but not necessarily required to exert an impact on current consumption this is due to the interaction in the financial markets of long time traders holding wealth accumulated over time with newcomers holding no wealth at all importantly we introduce nominal wage stickiness to induce pro cyclicality in real dividends additional nominal and real frictions are modeled to capture the pervasive macroeconomic persistence of the observables employed to estimate our model we fit our model to post wwii u s data and report three main results first the data strongly support a significant role of stock prices in affecting real activity and the business cycle second our estimates also identify a significant and counteractive response of the fed to stock price fluctuations third we derive from our model a microfounded measure of financial slack the stock price gap which we then contrast to alternative ones currently used in empirical studies to assess the properties of the latter to capture the dynamic and cyclical implications of our dsge model the behavior of our stock price gap is consistent with the episodes of stock market booms and busts occurred in the post wwii as reported by independent analyses and closely correlates with the current financial meltdown typically employed proxies of financial slack such as detrended log indexes or growth rates show limited capabilities of capturing the implications of our model consistent index of financial stress cyclical properties of the model as well as counterfactuals regarding shocks to our measure of financial slackness and monetary policy shocks are also proposed

can fiscal spending stimulate private consumption abstract empirically government expenditure shocks seem to crowd in private consumption while neoclassical and new keynesian models predict crowding out we derive conditions under which a government in utility specification in a sticky price model helps to reconcile theory and evidence

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

note on cyclical employment in the consumption goods sector abstract the basic neoclassical growth model makes the counterfactual prediction that the consumption share of employment is countercyclical when endogenous growth from a formal training sector is added to this model the consumption share of employment becomes procyclical owing to the additional margin of adjustment in the allocation of time

the limits of business cycle research assessing the real business cycle model the real business cycle model dominates business cycle research in the new classical tradition typically real business cycle modelers both offer the bold conjecture that business cycles are equilibrium phenomena driven by technology shocks and also novel strategies for assessing the success of the model this article critically examines the real business model and the assessment strategy surveys the literature supporting and opposing the model and evaluates the evidence on the empirical success of the model it argues that on the preponderance of the evidence the real business cycle model is refuted copyright 1997 by oxford university press

government spending and the international business cycle in this paper the author develops a stochastic general equilibrium model of the world economy it differs from previous multicountry models in the introduction of the government sector the author assumes that countries produce a nonspecialized traded good and that households derive utility from the consumption of private and public goods and services this simple modification has a potential explanation for the low cross country correlations in private consumption and output and the countercyclical trade balances that are observed empirically

validation in agent based models an investigation on the cats model abstract in this paper we deal with some validation experiments on the complex adaptive trivial system cats model proposed in gallegati et al gallegati m giulioni g palestrini a delli gatti d 2003a financial fragility patterns of firms entry and exit and aggregate dynamics journal of economic behavior and organization 51 79 97 gallegati m delli gatti d di guilmi c gaffeo e giulioni g palestrini a 2005 a new approach to business fluctuations heterogeneous interacting agents scaling laws and financial fragility journal of economic behavior and organization 56 489 512 in particular starting from a sample of italian firms included in the aida database we perform several ex post validation experiments over the simulation period 1996 2001 in the experiments the model parameters have been estimated using actual data and the initial set up consists of a sample of agents in 1996 the cats model is then simulated over the period 1996 2001 using alternative validation techniques the simulations results are ex post validated respect to the actual data

human capital formation and business cycle persistence abstract in this paper we examine the role of the formation of human capital in propagating shocks over the business cycle we show that a two sector equilibrium business cycle model with human capital is able to generate persistence in the growth of output and other aggregate variables comparable to that observed in the post war us data a key feature is the relatively low elasticity of substitution between skilled and unskilled labor in the production of human capital

market consumption and hidden consumption a test for substitutability in this paper an empirical analysis is performed on the relationship between private consumption and underground economy for the italian case it is found that private market consumption and underground or hidden consumption may be defined as complementary goods an increase in underground consumption tends to increase family market consumption and increase its marginal utility an implication of this result is that the nonmarket sector does not offer hedging opportunities to the consumer worker as stressed by busato and chiarini s 2004 artificial economy moreover wealth effects associated with a change in underground consumption are negative a statistical model confirms this structural interpretation

labor hoarding and the business cycle this paper investigates the sensitivity of solow residual based measures of technology shocks to labor hoarding behavior using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption we estimate the fraction of the variability of the solow residual that is due to technology shocks our results support the view that a significant proportion of movements in the solow residual are artifacts of labor hoarding behavior specifically we estimate that the variance of innovations to technology is roughly 50 percent less than that implied by standard real business cycle models in addition our results suggest that existing real business cycle studies substantially overstate the extent to which technology shocks account for the variability of postwar aggregate u s output

estimating and testing rational expectations models when the trend specification is uncertain abstract this paper explores various strategies for estimating and testing rational expectations models when the trend specification is uncertain one approach seeks to make estimators and tests robust to trend misspecification by reducing the influence of low frequency dynamics however contrary to intuition the effects of trend specification errors are not confined to low frequencies but are spread across the entire frequency domain thus operations that damp low frequency components do not remove trend specification errors and are not sufficient for constructing robust estimators and tests another approach seeks representations of approximating models that do not condition on a specification of the trend and it uses gmm to estimate parameters and test over identifying restrictions because these methods do not condition on assumptions about trends they are robust to errors in that part of the approximating model

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

home production with endogenous growth abstract benhabib et al 1991 and greenwood and hercowitz 1991 demonstrate that general equilibrium beckerian home production models that incorporate separate technology shocks to the home and market production functions are able to explain either the comovements in employment across consumption and investment sectors of the economy or the comovement in output across market and home investment sectors but not both simultaneously this paper demonstrates that these comovements can be resolved by introducing endogenous growth into the model while retaining only a single technology shock to market production the additional margin for allocating time between formal training and market activities is sufficient to bring about the observed positive comovements in employment and output across sectors

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite