subjective interest rate uncertainty and the macroeconomy a cross country analysis abstract we ask whether uncertainty about interest rates is important for economic activity the effects of interest rate uncertainty on the economy are examined through the lens of a small var where the assumption that uncertainty can affect real activity contemporaneously but not vice versa is indeed in line with the data our measure of uncertainty stems from professional forecasts of short and long term interest rates and accounts for both disagreement among forecasters and the perceived variability of future aggregate shocks studying a panel of countries we find that subjective interest rate uncertainty has large negative and persistent effects on the economy

macroeconomic uncertainty through the lens of professional forecasters abstractwe analyze the evolution of macroeconomic uncertainty in the united states based on the forecast errors of consensus survey forecasts of various economic indicators comprehensive information contained in the survey forecasts enables us to capture a real time measure of uncertainty surrounding subjective forecasts in a simple framework we jointly model and estimate macroeconomic common and indicator specific uncertainties of four indicators using a factor stochastic volatility model our macroeconomic uncertainty estimates have three major spikes has three major spikes aligned with the 1973 1975 1980 and 2007 2009 recessions while other recessions were characterized by increases in indicator specific uncertainties we also show that the selection of data vintages affects the estimates and relative size of jumps in estimated uncertainty series finally our macroeconomic uncertainty has a persistent negative impact on real economic activity rather than producing wait and see dynamics

nonlinear effects of mortgage spreads over the business cycle this paper provides robust evidence for the nonlinear effects of mortgage spread shocks during recessions and expansions in the united states estimating a smooth transition vector autoregression stvar model we show that mortgage spread shocks hitting in a recessionary phase create significantly deeper and more protracted declines in consumption and housing market variables in addition we provide evidence that these mortgage spread shocks could be largely interpreted as credit supply shocks in the mortgage market our empirical results imply that unconventional monetary policy such as the federal reserve s mortgage backed security purchase program would be a more effective tool for stabilizing the economy during recessions than in expansions

uncertainty matters evidence from close elections abstract this paper uses a data rich environment to produce direct econometric estimates of macroeconomic and financial uncertainty for 11 advanced nations these indices exhibit significant independent variation from popular proxies and provide a refinement of the influential work of jurado et al 2015 that results in improved real time performance we use this new data in combination with narrative evidence to jointly identify macro uncertainty and financial shocks macro uncertainty shocks are identified with close elections and financial shocks with financial stress during financial crises we find that macro uncertainty shocks matter for the majority of countries and that the real effects of macro uncertainty shocks are generally larger conditioning on close elections these results are robust to controlling for news shocks and global uncertainty as well as a variety of shocks considered to be important drivers of the business cycle

international macroeconomic policy coordination an overview this article which serves as an introduction to the oxford review of economic policy s issue on macroeconomic policy coordination global imbalances and global growth charts the evolution of international macroeconomic policy coordination from the end of the second world war until the present day the arrangements laid out at the bretton woods conference in 1944 provide an intellectual framework with which to assess the evolving need for and feasibility of international coordination across three historical periods the fixed but adjustable exchange rate arrangements of the bretton woods system the subsequent flexible exchanges period of the non system which led into the great moderation and finally the period since the global financial crisis of 2008 increased economic integration particularly through the capital account combined with asymmetries in exchange rate regimes between china and the us have shown that reliance on the automatic adjustment mechanisms of the non system are no longer feasible so that a return to policy cooperation is necessary in order to rebalance the world economy and reduce the adverse spill over impacts that uncoordinated rebalancing would entail the article explores the nature of this coordination and provides a context for other contributions to the issue analysing positive and normative aspects of macroeconomic policy coordination from a global perspective and from the prospective of key global players including china and the european union copyright 2013 oxford university press

uncertainty across volatility regimes we propose a nonrecursive identification scheme for uncertainty shocks that exploits breaks in the volatility of macroeconomic variables and is novel in the literature on uncertainty this approach allows us to simultaneously address two major questions in the empirical literature is uncertainty a cause or effect of decline in economic activity does the relationship between uncertainty and economic activity change across macroeconomic regimes results based on a small scale vector autoregression with us monthly data suggest that i uncertainty is an exogenous source of decline of economic activity and ii the effects of uncertainty shocks amplify in periods of economic and financial turmoil

investment in electricity networks with transmission switching we consider the application of dantzig wolfe decomposition to stochastic integer programming problems arising in the capacity planning of electricity transmission networks that have some switchable transmission elements the decomposition enables a column generation algorithm to be applied which allows the solution of large problem instances the methodology is illustrated by its application to a problem of determining the optimal investment in switching equipment and transmission capacity for an existing network computational tests on ieee test networks with 73 nodes and 118 nodes confirm the efficiency of the approach

the evolving impact of global region specific and country specific uncertainty we develop a dynamic factor model with time varying parameters and stochastic volatility estimate it using a large panel of macroeconomic and financial data for 22 countries and decompose the vari

understanding the costs of consumer durable adjustments this article examines whether adjustment frictions help account for the patterns of household consumption expenditures observed in the consumer expenditure survey namely that the variance of log durable expenditure is four times larger than that of log nondurable expenditure for annual data and this gap substantially widens for quarterly data estimating a structural model of household consumption with nondurable and durable goods with the simulated method of moments i find that the fixed costs associated with durable adjustments are important in matching the cross sectional moments using the estimated model i also examine the response of nondurable and durable expenditures to income shocks jel d12 d91 e21

the wealth distribution with durable goods in the united states the distribution of houses is less egalitarian than that of earnings for the total population but these two distributions are remarkably similar for homeowners additionally housing as a fraction of total wealth decreases with the level of wealth in order to understand the different factors that account for these wealth composition patterns we introduce illiquid houses and collateral credit in a general equilibrium model of heterogeneous agents with idiosyncratic uncertainty a combination of very persistent shocks to earnings frictions in the housing market and a rental market is necessary to obtain numbers in line with the evidence

fiscal policy and economic recovery the case of the 1936 veterans bonus conventional wisdom has it that in the 1930s scal policy did not work because it was not tried this paper shows that scal policy though inadvertent was tried in 1936 and a variety of evidence suggests that it worked a decit nanced veterans bonus provided 3 2 million world war i veterans with cash and bond payments totaling 2 percent of gdp the typical veteran received a payment equal to annual per capita personal income this paper uses time series and cross sectional data to identify the eects of the bonus i exploit four sources of quantitative evidence a detailed household consumption survey cross state and cross city regressions aggregate time series and a previously unused american legion survey of veterans the evidence paints a consistent picture in which veterans quickly spent the majority of their bonus spending was concentrated on cars and housing in particular narrative accounts support these quantitative results a simple calculation suggests that the bonus added 2 5 to 3 percentage points to 1936 gdp growth

adjustment costs durables and aggregate consumption abstract previous tests of the permanent income hypothesis pih have focused on either non durables or durables expenditures in isolation this paper studies consumer purchases of non durables and durables as the outcome of a single optimization problem it is shown that with non separability in utility the presence of adjustment costs of changing durables stocks may affect the time series properties of both components of expenditure an econometric test of the pih based on the model developed in the paper is both more efficient and less prone to bias than those in some previous studies however this test confirms earlier rejections of the pih in aggregate quarterly data

asset prices and asset quantities we propose an organizing framework that determines asset prices by equating household sector asset demand derived from an economic model to the observed supply of assets provided by other sectors we then use a specific model of household asset demand to decompose historical changes in asset positions into changes in new asset supply and household income as well as changes in return expectations our findings show that supply and income changes are important determinants of the wealth to gdp ratio and real estate positions and return expectations are the key determinant of equity positions jel g11 g12 e44 e21

consumer durables and inertial behaviour estimation and aggregation of s s rules for automobile purchases the s s model originally introduced in the study of inventories see arrow et al 1951 scarf 1959 has recently received renewed attention both in the durable consumption and in the investment and labour demand literatures caballero 1993 for instance appeals to these type of models to explain the time series properties of durable expenditure and in particular the persistence or slow adjustment of such a variable in this paper i model the purchase behaviour of automobiles by u s households as an s s rule i estimate a flexible specification of such a rule using a large microeconomic data set and study some of the aggregate implications of this type of inertial behaviour the paper is one of the first attempts at estimating directly the parameters of an s s rule using micro data because of this some of the methodological issues concerning the specification and the estimation of s s rules are relevant for many potential applications furthermore the paper is one of the first to discuss and quantify the aggregate implications of an s s rule estimated on micro data in the presence of non convex transaction costs a full and consistent characterization of individual behaviour is very hard and typically requires strong restrictions grossman and laroque 1991 prove that an s s rule is optimal for a consumption and investment problem under very special circumstances some of their results were extended by eberly 1991 and beaulieu 1993a b eberly 1991 in particular has derived some closed form solutions for durable consumption in the presence of transaction costs while caballero and engel 1994 construct a model of investment where an s s rule is optimal the main problem with these theoretical results is that it is only possible to show optimality of s s rules under very stringent conditions in particular a necessary condition to derive them is that the optimization problem faced by an individual consumer can be reduced to a problem with a single state variable unfortunately as pointed out by bar ilan and blinder 1992 even simple generalizations are extremely difficult to analyse

impact of economic uncertainty in a small open economy the case of chile we construct the first news based economic uncertainty index for chile which allowed us to rebuild 23 years of the history of economic uncertainty in the country and quantify its impact on the eco

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

one size fits all monetary policy and asymmetric household debt cycles in u s states i investigate the nonlinear effects of monetary policy through differences in household debt across u s states after constructing a novel indicator of inflation for the states i compute state specific monetary policy stances as deviations from an aggregate taylor rule i find that the effectiveness of monetary policy is curtailed during periods of large household debt imbalances moreover a common u s monetary policy does not fit all it may have asymmetric effects on the economic performance across states particularly at times of high dispersion in the household debt imbalances as it may have been the case around the great recession

regional heterogeneity and the refinancing channel of monetary policy we argue that the time varying regional distribution of housing equity influences the aggregate consequences of monetary policy through its effects on mortgage refinancing using detailed loan level data we show that regional differences in housing equity affect refinancing and spending responses to interest rate cuts but these effects vary over time with changes in the regional distribution of house price growth we build a heterogeneous household model of refinancing with mortgage borrowers and lenders and use it to explore the monetary policy implications arising from our regional evidence we find that the 2008 equity distribution made spending in depressed regions less responsive to interest rate cuts thus dampening aggregate stimulus and increasing regional consumption inequality whereas the opposite occurred in some earlier recessions taken together our results strongly suggest that monetary policy makers should track the regional distribution of equity over time

measuring macroeconomic uncertainty a historical perspective abstract using 100 years of data we provide a new macroeconomic uncertainty proxy for the us and other 14 major industrial countries we show macroeconomic uncertainty experiences an overall declining pattern in the century and the influential political and economic events two world wars and major recessions are associated with a dramatic surge in macroeconomic uncertainty meanwhile a global common component plays an important role in driving uncertainty fluctuations across countries

interest rate changes mortgages and consumption evidence from italy summaryusing the italian survey of household income and wealth we study whether the drop in interest rates following the great recession was associated with an increase in consumption for households with adjustable rate mortgages arm relative to those with fixed rate mortgages frm after the reduction in mortgage payments consumption of arm holders increases relative to frm but the implied marginal propensity to consume is not statistically different from zero we suggest three explanations for the weak consumption response to the income shock first cash on hand and debt heterogeneity may attenuate the consumption response second borrowers believe that the income shock was short lasting and that interest rates would likely increase in the future implying a small effect on consumption third the shock is offset partly by a reduction in income from financial assets owned by mortgagors the findings have implications for the conduct of monetary policy interventions and the credibility of the future path of interest rates pass through of monetary policy and design of the mortgage market

durable goods an explanation for their slow adjustment at the microeconomic level durable purchases are often discontinuous and relatively large this feature has the potential to explain why aggregate expenditure on durables responds only slowly relative to the frictionless permanent income model to wealth and other aggregate innovations in this paper i develop new results on the problem of dynamic aggregation of stochastically heterogeneous units which help to characterize the connection between microeconomic behavior and aggregate dynamics in the presence of nonconvex adjustment costs using these results and splitting postwar u s aggregate durable purchases into different subcategories and time periods i provide further support for the view that lumpy microeconomic purchases play an important role in explaining the time series behavior of aggregate expenditure on durable goods

cyclical drivers of euro area consumption what can we learn from durable goods abstract we study the cyclical dynamics of consumption in the euro area ea and the large ea countries by distinguishing durable from nondurable expenditures we adopt a theoretical partial equilibrium framework to justify the identification strategy of our empirical model a time varying parameter structural vector autoregression tvp svar following the main insight from the theoretical model that liquidity constraints induce important interactions between durables and nondurables we distinguish durable specific demand and supply shocks while taking into account monetary and credit conditions our main findings are i durables react faster and more strongly than nondurables after monetary shocks in the euro area and in the largest ea countries a confirmation of an outcome commonly reported for the us ii there is a large degree of cross country heterogeneity in how different factors including durable specific ones explain consumption iii the strength of spillovers from durable to nondurable consumption as predicted by theory is empirically correlated with how much households across countries are likely to be liquidity constrained

can stock volatility be benign new measurements and macroeconomic implications we find nonsynchronized movements of two new measures of financial market uncertainty good and bad volatility which are based on the maximum and minimum stock prices within a month good bad volatility is associated with better worse expectations about the future economic situation and clearly signals acceleration deceleration in economic activity the var results indicate that i output employment and stock price plummet rapidly in response to a bad volatility shock while their responses to a good volatility shock are modest and ii bad volatility shocks explain the bulk of economic activity and stock price fluctuations in the medium run

uncertainty shocks and asymmetric dynamics in korea a non linear approach this study investigates the impact of uncertainty shocks on macroeconomic activity in korea for this purpose a smooth transition var model is employed to document the state dependent dynamics of

durables nondurables down payments and consumption excesses abstract we examine a model that generalizes the standard buffer stock model of saving to accommodate durables nondurables down payment requirements and adjustment costs in the durables market we find that nondurable consumption becomes more volatile relative to income as down payments decrease at the individual and at the aggregate level moreover for plausible parameter values the model can explain the excess smoothness and excess sensitivity observed in u s aggregate data the result follows from a gradual adjustment of consumption to permanent income shocks when agents attempt to spread out the burden of down payments over time compounded by slow adjustment due to transaction costs

mortgage debt consumption and illiquid housing markets in the great recession using a model with housing search endogenous credit constraints and mortgage default this paper accounts for the housing crash from 2006 to 2011 and its implications for aggregate and cross sectional consumption during the great recession left tail shocks to labor market uncertainty and tighter down payment requirements emerge as the key drivers an endogenous decline in housing liquidity amplifies the recession by increasing foreclosures contracting credit and depressing consumption balance sheets act as a transmission mechanism from housing to consumption that depends on gross portfolio positions and the leverage distribution low interest rate policies accelerate the recovery in housing and consumption

dynamic asymmetries in u s unemployment we examine dynamic asymmetries in u s unemployment using nonlinear time series models and bayesian methods we find strong statistical evidence in favor of a two regime threshold auto regressive model empirical results indicate that once we take into account both parameter and model uncertainty there are economically interesting asymmetries in the unemployment rate one finding of particular interest is that shocks that lower the unemployment rate tend to have a smaller effect than shocks that raise the unemployment rate this finding is consistent with unemployment rises being sudden and falls gradual

lumpy investment lumpy inventories the link between the physical micro environment frictions and heterogeneity and the macroeconomic dynamics in general equilibrium macro models is influenced by the details of how exactly general equilibrium closes such a model we make this general observation concrete in the context of the recent literature on how important nonconvex capital adjustment costs are for aggregate investment dynamics specifically we introduce inventories into a two sector lumpy investment model we find that with inventories nonconvex capital adjustment costs dampen and propagate the reaction of investment to shocks the initial response of fixed capital investment to productivity shocks is 50 higher with frictionless adjustment than with the calibrated capital adjustment frictions once inventories are introduced the reason for this result is that with two means of transferring consumption into the future fixed capital and inventories the tight link between aggregate saving and fixed capital investment is broken in contrast in the case the literature has focussed on with only one type of capital good to save and invest in fixed capital investment dynamics are more tightly linked to consumption dynamics which in turn are determined by the euler equation of a representative household which holds regardless of whether fixed capital investment is costly or not

expenditure on durable goods a case for slow adjustment for more than a half a decade the fact that expenditure on durables can be well approximated by a random walk has remained a hidden puzzle challenging almost any theory in which agents smooth the use of their wealth this paper shows that once a nonparsimonious approach is used or lower frequencies of the data are examined the fact itself disappears changes in expenditures on durables reveal a degree of reversion consistent with the permanent income hypothesis pih although this reversion occurs at a rate significantly slower than what is suggested by a frictionless pih model

measuring the sensitivity of parameter estimates to estimation moments we propose a local measure of the relationship between parameter estimates and the moments of the data they depend on our measure can be computed at negligible cost even for complex structural models we argue that reporting this measure can increase the transparency of structural estimates making it easier for readers to predict the way violations of identifying assumptions would affect the results when the key assumptions are orthogonality between error terms and excluded instruments we show that our measure provides a natural extension of the omitted variables bias formula for nonlinear models we illustrate with applications to published articles in several fields of economics

a dynamic model of housing demand estimation and policy implications in the u s macroeconomic policy makers are concerned about how consumers will respond to falling incomes nominal home prices falling income rising mortgage interest rates and tightening credit standards in order to address these questions we estimate and simulate a dynamic structural model of housing demand in the model consumers maximize expected discounted lifetime utility from housing services and a composite consumption good the model allows for realistic features of the housing market including non convex adjustment costs from buying and selling a home and credit constraints from minimum downpayment requirements we use the forward simulation procedure of bajari benkard and levin 2007 to estimate the structural parameters especially the elasticity of substitution between consumption and housing services using data from the panel study of income dynamics given the estimated model parameters we simulate the partial equilibrium consumption and housing and

consumption dynamics during recessions when will durable expenditures respond strongly to economic stimulus we build from micro evidence and show that in a heterogeneous agent business cycle model with xed costs of durable adjustment responsiveness is substantially dampened during recessions our model estimates imply that during the great recession durable expenditures were half as responsive to additional stimulus as during the boom in the 1990s this procyclical responsiveness is driven by changes in the distribution of households desired durable holdings over the cycle we directly test our model by estimating this distribution empirically using psid micro data and nd that the distribution in the data moves cyclically as predicted in addition to this micro evidence we also provide support for our model s procyclical responsiveness using aggregate time series data and we show this time series evidence is inconsistent with simpler models featuring smooth adjustment costs

stimulating housing markets we study temporary fiscal stimulus designed to support distressed housing markets by inducing demand from buyers in the private market using difference in differences and regression kink research designs we find that the first time homebuyer credit increased home sales by 490 000 9 8 median home prices by 2 400 1 1 per standard deviation increase in program exposure and the transition rate into homeownership by 53 the policy response did not reverse immediately instead demand comes from several years in the future induced buyers were three years younger in 2009 than typical first time buyers the program s market stabilizing benefits likely exceeded its direct stimulus effects

the emergence of cooperation among egoists this article investigates the conditions under which cooperation will emerge in a world of egoists without central authority this problem plays an important role in such diverse fields as political philosophy international politics and economic and social exchange the problem is formalized as an iterated prisoner s dilemma with pairwise interaction among a population of individuals results from three approaches are reported the tournament approach the ecological approach and the evolutionary approach the evolutionary approach is the most general since all possible strategies can be taken into account a series of theorems is presented which show 1 the conditions under which no strategy can do any better than the population average if the others are using the reciprocal cooperation strategy of tit for tat 2 the necessary and sufficient conditions for a strategy to be collectively stable and 3 how cooperation can emerge from a small cluster of discriminating individuals even when everyone else is using a strategy of unconditional defection

credit crises precautionary savings and the liquidity trap we use a model a la bewly huggett ayagari to explore the eects of a credit crunch on consumer spending households borrow and lend to smooth idiosyncratic income shocks facing an exogenous borrowing constraint we look at the economy response after an unexpected permananent tightening of this constraint the interest rate drops sharply in the short run and then adjusts to a lower steady state level this is due to the fact that after the shock a large fraction of agents is far below their target holdings of precautionary savings and this generates a large temporary positive shock to net lending we then look at the eects on output here two opposing forces are present as households can deleverage in two ways by consuming less and by working more we show that under a reasonable parametrization the eect on consumer spending dominates and precautionary behavior generates a recession if we add nominal rigidities two things happen i supply side responses are muted and ii there is a lower bound on the interest rate adjustment these two elements tend to amplify the recession caused by the credit tightening

foreign policy uncertainty shocks and us macroeconomic activity evidence from china this paper investigates the spillover effects of economic policy uncertainty epu from china on us real macroeconomic variables in both expansion and recession periods we use monthly data and estimate a smooth transition var stvar model over the recent period we find robust evidence that chinese uncertainty significantly affects us economic activity during busts while no effect is perceptible during booms the results also underline that chinese epu is a determinant of policy uncertainty unemployment and industrial production in us

a dynamic model of housing demand estimation and policy implications a dynamic model of housing demand using data from the panel study of income dynamics psid we specify estimate and simulate a dynamic structural model of housing demand our model generalizes previous applied econometric work by incorporating realistic features of the housing market including non convex adjustment costs from buying and selling a home credit constraints from minimum downpayment requirements and uncertainty about the evolution of incomes and home prices we argue that these features are critical for capturing salient features of housing demand observed in the psid after estimating the model we use it to simulate how consumer behavior responds to house price and income declines as well as tightening credit these experiments are motivated by the u s recession starting in december of 2007 that saw large falls in home prices large negative income shocks for many households and tightening credit standards in the short run relatively few households adjust their housing stock households respond instead by reducing non housing consumption and reducing wealth because they wish to avoid losing their home and the associated adjustment costs households that adjust in the short run are those hit with a series of bad shocks such as a negative income shock and a home price decline a larger proportion of households do adjust their consumption in the long run increasing their housing stock since housing is less expensive however such changes may occur several years after the shocks listed above

transmission switching in expansion planning transmission switching ts is introduced to add flexibility to the transmission and generation capacity expansion planning problem ts could improve the performance of the capacity expansion planning model and reduce the total planning cost the capacity expansion planning problem is decomposed into a master problem and two subproblems the master problem utilizes the candidate set for additional generating unit and transmission capacity investments to find the optimal plan throughout the planning horizon the subproblems use the optimal plan apply transmission switching to relieve any transmission flow violations and calculate the optimal dispatch of generating units the transmission network contingencies are also considered in the subproblems the case studies exhibit the effectiveness of the proposed expansion planning approach

economic policy uncertainty and unemployment in the united states a nonlinear approach we model us post wwii monthly data with a smooth transition var model and study the effects of an unanticipated increase in economic policy uncertainty on unemployment in recessions and expansions we find the response of unemployment to be statistically and economically larger in recessions a state contingent forecast error variance decomposition analysis confirms that the contribution of epu shocks to the volatility of unemployment at business cycle frequencies is markedly larger in recessions

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

inventories and the three phases of the business cycle this article demonstrates that recessions typically are followed by high growth recovery phases that push output back to its prerecession level thus postwar fluctuations in real output in the united states have consisted of three sequential phases rather than two contractions high growth recoveries and moderate growth periods following recoveries data from before world war ii also exhibit this pattern for the postwar period the three phase pattern is shown to reflect swings in inventory investment and suggests that output fluctuations have an important transitory component the evidence in this article supports delong and summers s output gaps view and friedman s plucking model view of fluctuations

economic policy uncertainty in the us does it matter for the euro area abstract we investigate the effects of a us economic policy uncertainty shock on some euro area macroeconomic aggregates via structural vars we model the indicators of economic policy uncertainty recently developed by baker et al 2013 jointly with the aggregate price indexes and alternative indicators of the business cycle for the two above indicated economic areas according to our svars a one standard deviation shock to us economic policy uncertainty leads to a statistically significant fall in the european industrial production and prices of 0 12 and 0 06 respectively the contribution of the us uncertainty shock on the european aggregates is shown to be quantitatively larger than the one exerted by an euro area specific uncertainty shock

the changing transmission of uncertainty shocks in the u s this article investigates if the impact of uncertainty shocks on the u s economy has changed over time to this end we develop an extended factor augmented vector autoregression var model that simultaneously allows the estimation of a measure of uncertainty and its time varying impact on a range of variables we find that the impact of uncertainty shocks on real activity and financial variables has declined systematically over time in contrast the response of inflation and the short term interest rate to this shock has remained fairly stable simulations from a nonlinear dynamic stochastic general equilibrium dsge model suggest that these empirical results are consistent with an increase in the monetary authorities antiinflation stance and a flattening of the phillips curve supplementary materials for this article are available online

liquidity traps and large scale financial crises this paper estimates a nonlinear threshold var to investigate if a keynesian liquidity trap due to a speculative motive was in place in the u s great depression and the recent great recession we find clear evidence in favor of a breakdown of the liquidity effect after an unexpected increase in m2 in the 1921 1940 period this evidence which is consistent with the keynesian view on a liquidity trap is shown to be state contingent in particular it emerges only when a speculative regime identified by high realizations of the dow jones index is considered a standard linear framework is shown to be ill suited to test the hypothesis of a keynesian liquidity trap an investigation performed with the same data for the period 1991 2010 confirms the presence of a liquidity trap just in the speculative regime this last result emerges significantly only when we consider the federal funds rate as the policy instrument and we model the divisia m2 measure of liquidity

price stickiness in ss models new interpretations of old results abstract what is the relation between infrequent price adjustment and the dynamic response of the aggregate price level to monetary shocks the answer to this question ranges from a one to one link calvo g 1983 prices in a utility maximizing framework journal of monetary economics 12 383 398 to no connection whatsoever caplin a spulber d 1987 menu costs and the neutrality of money quarterly journal of economics 102 703 726 the purpose of this paper is to provide a unified framework to understand the mechanisms behind this wide range of results in doing so we propose new interpretations of key results in this area which in turn suggest the kind of ss model that is likely to generate substantial price rigidity among these new interpretations we revisit caplin and spulber s monetary neutrality result we show that when price stickiness is measured in terms of the impulse response function this result is not a consequence of aggregation as is often assumed but is due instead to the absence of price stickiness at the microeconomic level we also show that the selection effect according to which units that adjust their prices are those that benefit the most is neither necessary nor sufficient to account for the higher aggregate flexibility of ss type models compared to calvo models instead the key concept is the contribution of the extensive margin of adjustment to the aggregate price response the aggregate price level is more flexible than suggested by the microeconomic frequency of adjustment if and only if this term is positive

google it up a google trends based uncertainty index for the united states and australia we develop uncertainty indices for the united states and australia based on freely accessible real time google trends data our google trends uncertainty gtu indices are found to be positively correlated to a variety of alternative proxies for uncertainty available for these two countries var investigations document an economically and statistically significant contribution to unemployment dynamics by gtu shocks in the united states in contrast the contribution of gtu shocks to unemployment dynamics in australia is found to be much milder and substantially lower than that of monetary policy shocks

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

pricing in inflationary times the penny drops how does the frequency and magnitude of micro price rises and falls relate to macroeconomic crisis as well as moderation weekly micropricing behaviour in british groceries was investigated across three leading retailers over the moderation period 2004 7 and the crisis period 2008 10 we find significant price flexibility sharply distinguished from behaviour observed in most previous works downward price flexibility increased markedly in 2008 overall basket prices rise but significantly more individual prices fall than rise in the latter period tests of obfuscation in price setting suggested that large numbers of small price falls were used to disguise the basket price rises

firm leverage consumer demand and employment losses during the great recession this article argues that firms balance sheets were instrumental in the transmission of consumer demand shocks during the great recession using micro level data from the u s census bureau we find that establishments of more highly levered firms experienced significantly larger employment losses in response to declines in local consumer demand these results are not driven by firms being less productive having expanded too much prior to the great recession or being generally more sensitive to fluctuations in either aggregate employment or house prices likewise at the county level we find that counties with more highly levered firms experienced significantly larger declines in employment in response to local consumer demand shocks accordingly firms balance sheets also matter for aggregate employment our results suggest a possible role for employment policies that target firms directly besides conventional stimulus

aggregate employment dynamics building from microeconomic evidence this paper studies quarterly employment flows of approximately 10 000 u s manufacturing establishments the authors use establishments hours week to construct measures of the deviation between desired and actual employment and use these as the establishments main state variables the main findings are 1 microeconomic adjustment functions are nonlinear with plants adjusting disproportionately to large shortages 2 adjustments are often either large or nil suggesting the presence of nonconvexities in the adjustment cost technologies 3 the bulk of average employment fluctuations is accounted for by aggregate rather than reallocation shocks and 4 microeconomic nonlinearities amplify the impact of large aggregate shocks copyright 1997 by american economic association

house prices and consumer spending recent empirical work shows large consumption responses to house price movements this is at odds with a prominent theoretical view which using the logic of the permanent income hypothesis argues that consumption responses should be small we show that in contrast to this view workhorse models of consumption with incomplete markets calibrated to rich cross sectional micro facts actually predict large consumption responses in line with the data to explain this result we show that consumption responses to permanent house price shocks can be approximated by a simple and robust rule of thumb formula the marginal propensity to consume out of temporary income times the value of housing in our model consumption responses depend on a number of factors such as the level and distribution of debt the size and history of house price shocks and the level of credit supply each of these effects is naturally explained with our simple formula

internationalization of the renminbi what it means for the stability and flexibility of the international monetary system the central question this paper addresses is whether internationalization of the rmb would be sufficient for the international monetary system ims to provide greater stability and flexibility than today s ims whether chinese efforts to internationalize the rmb culminate in the currency achieving reserve status will be for china to realize the path to reserve currency status however is not one that the chinese can pursue unilaterally internationalization entails an interaction between private and public decision making and is a function of private sector confidence as much as public policy the outcome will be the result of strategic interplay involving public policies across systemically important countries and confidence building among global savers and investors the paper argues that international cooperation especially among reserve currency countries on policy frameworks to achieve the common objectives of economic growth full employment price stability and sustainable fiscal positions will define a coherent and well functioning ims copyright 2013 oxford university press

optimal investment plan for dynamic thermal rating using benders decomposition abstract the dynamic thermal rating is a new technology that utilizes the capacity of power transmission lines based on the ambient factors and the line condition it usually offers higher thermal capacity than the traditional static rating we propose a multi stage mixed integer programming model and find the optimal investment plan for the dynamic ratings using benders decomposition the investment plan includes when and which line should be upgraded to dynamic rating and which line should be switched out of service the problem is decomposed into a master problem and three sub problems the master problem explores the candidate lines for both the investment plan and the switching plan throughout the planning horizon the sub problems evaluate the proposed plans in terms of unmet demand and generation cost generation and transmission contingencies are also included in the model we use our model on garver s system and ieee 118 bus power systems to demonstrate our solution approach we conduct sensitivity analyses and study the uncertainty in real time thermal ratings loads and the discounting rate our studies show that the utilization of the dynamic ratings and the practice of transmission switching are complementary and can reduce the cost on the 118 bus system up to 30 percent

fragility and the effect of international uncertainty shocks abstract when economic systems are fragile even modest shocks for example a shock to international capital movements can have strong negative effects on key macroeconomic fundamentals this paper proposes a large scale bayesian vector autoregression with factor stochastic volatility to investigate the macroeconomic consequences of international uncertainty shocks in g7 countries and shows that uncertainty increases fragility the factor structure enables us to identify an international uncertainty shock by assuming that it is the joint volatility process that determines the dynamics of the variance covariance matrix of the common factors to allow for first and second moment shocks we moreover assume that the uncertainty factor enters the var equation as an additional regressor our findings suggest that an international uncertainty shock has negative effects across all economies and variables under consideration leading to strong declines in output prices exports interest rates and equity prices the precise degree of fragility varies across countries a simple correlation exercise suggests that structural differences may be partially responsible for the observed differences

grappling with global imbalances when does international cooperation pay this article assesses the circumstances under which countries agree to engage in policy cooperation assuming that each country aims to maximize its own welfare we argue that cooperation needs to be necessary feasible and to produce a clearly superior outcome than unilateral action not every situation requires policy coordination there are cases where unilateral and conventional policy measures achieve the necessary readjustment in a welfare optimizing way when rebalancing does not automatically happen and the resulting situation is a source of macroeconomic instability and of welfare losses in the aggregate internationally coordinated policy action could lead to solutions that generate a better outcome in terms of relative welfare these solutions however are not necessarily stable and players should pre commit to binding arrangements with sanctions for defection to ensure stability we conclude that these pre arrangements can only work if countries trust each other or they trust a supranational body that monitors the implementation of the arrangements and sanctions defection copyright 2013 oxford university press

consumer durables evidence on the optimality of usually doing nothing the authors argue that lumpy nonconvex transaction costs are the norm for a wide range of economic decisions which are thus characterized by inertial behavior application of this idea to the consumption of durable goods yields an s s decision rule which when aggregated highlights the different expected behavior of average expenditure per purchase versus the number of purchases the empirical implications of this rule are presented and compared to other theories a battery of empirical tests generally supports the predictions of the model in particular it does a good job of explaining the time pattern of response of spending on durables to a change in income copyright 1992 by ohio state university press

measuring how fiscal shocks affect durable spending in recessions and expansions we estimate how durable expenditures respond to government spending shocks at different points in the business cycle using a nonlinear var approach that allows for the durable multiplier to vary smoothly with the state of the economy we find strong evidence that the aggregate durable spending response to fiscal shocks is substantially larger during expansions than during recessions in contrast to what has been has been observed for the aggregate multiplier we argue that these results are consistent with the theoretical predictions of the fixed cost model of durable demand in berger and vavra 2012

uncertainty shocks and unemployment dynamics in u s recessions abstract what are the effects of uncertainty shocks on unemployment dynamics we answer this question by estimating non linear smooth transition vars with post wwii u s data the relevance of uncertainty shocks is found to be much larger than that predicted by standard linear vars in terms of i magnitude of the reaction of the unemployment rate to such shocks and ii contribution to the variance of the prediction errors of unemployment at business cycle frequencies the ability of different classes of dsge models to replicate our results is discussed

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

asymmetric reactions of the us natural gas market and economic activity this paper provides new empirical evidence on the asymmetric reactions of the us natural gas market and us economy to its market fundamental shocks we find that results based on a smooth transition vector autoregressive stvar model provides a plausible and robust explanation to the behavior of the us natural gas market which asymmetrically reacts in bad times and good times during times of recession natural gas production shrinks in response to a positive oil price shock while the corresponding response is found to be positive in times of expansion the positive relationship between the price of natural gas and crude oil is found to be more prominent in expansions especially in the long run in addition the results also reveal that us economic activity is much more sensitive to oil and natural gas price shocks occurring in bad times than in good times

the effects of fiscal stimulus evidence from the 2009 cash for clunkers program we evaluate the impact of the 2009 cash for clunkers program on short and medium run auto purchases our empirical strategy exploits variation across u s cities in ex ante exposure to the program as measured by the number of clunkers in the city as of summer 2008 we find that the program induced the purchase of an additional 370 000 cars in july and august 2009 however we find strong evidence of reversal high clunker counties bought fewer autos in the 10 months after the program expired which offset most of the initial purchases we find no evidence of an effect on employment house prices or household default rates in cities with higher exposure to the program jel codes h20 e62 copyright 2012 oxford university press

can non linear time series models generate us business cycle asymmetric shape abstract fifteen univariate non linear time series models of us output are evaluated by their ability to reproduce the asymmetric shape of the us business cycle two models account for the growth being faster after a trough and slower before a peak

risk management driven policy rate gap abstract we employ real time data available to the us monetary policy makers to estimate a taylor rule augmented with a measure of financial uncertainty over the period 1969 2008 we find evidence in favor of a systematic response to financial uncertainty over and above that to expected inflation output gap and output growth however this evidence regards the greenspan bernanke period only focusing on this period the risk management approach is found to be responsible for monetary policy easings for up to 75 basis points of the federal funds rate

idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics we examine a model of lumpy investment wherein establishments face persistent shocks to common and plant specific productivity and nonconvex adjustment costs lead them to pursue generalized s s investment rules we allow persistent heterogeneity in both capital and total factor productivity alongside low level investments exempt from adjustment costs to develop the first model consistent with available evidence on establishment level investment rates reassessing the implications of lumpy investment for aggregate dynamics in this setting we find that they remain substantial when factor supply considerations are ignored but are quantitatively irrelevant in general equilibrium the substantial implications of general equilibrium extend beyond the dynamics of aggregate series while the presence of idiosyncratic shocks makes the time averaged distribution of plant level investment rates largely invariant to market clearing movements in real wages and interest rates we show that the dynamics of plants investments differ sharply in their presence thus model based estimations of capital adjustment costs involving panel data may be quite sensitive to the assumption about equilibrium our analysis also offers new insights about how nonconvex adjustment costs influence investment at the plant when establishments face large and weakly persistent idiosyncratic productivity shocks consistent with existing estimates we find that nonconvex costs do not cause lumpy investments but act to eliminate them

the timing of purchases and aggregate fluctuations we study the cyclical effects of the timing of durable goods purchases in a general equilibrium model in which both durable and non durable goods are consumed and the durable good is lumpy at the microeconomic level the timing of durable goods purchases supplies some insulation for nondurable consumption over the cycle at the macroeconomic level the timing decisions tend to amplify and propagate wealth and income shocks our model also allows for endogenous price determination when the price of the durable changes due to inflexibility of workers between sectors the effect of adverse shocks is even stronger and longer copyright 2005 wiley blackwell

consumption dynamics under time varying unemployment risk abstract in response to an adverse labor market shock a calibrated heterogeneous agent model predicts that aggregate spending on durable goods falls mainly due to the ex ante increase in income uncertainty caused by higher unemployment risk in contrast aggregate spending on nondurable goods falls mainly due to the ex post income losses associated with realized unemployment spells when households hold little liquid assets the nondurable spending response is amplified whereas the durable spending response is dampened these differences stem from micro level adjustment frictions involved in purchases of durable goods the model is corroborated with evidence from micro survey data

uncertainty and consumer durables adjustment we characterize infrequent durables stock adjustment by consumers who also derive utility from non durable consumption flows in the presence of idiosyncratic income uncertainty the data we analyse include subjective future income uncertainty measures which we use as instruments in the estimation of relevant parameters of heterogeneous consumers dynamic adjustment problems the data feature two conceptually distinct sources of variation cross sectional heterogeneity of the sampled households dynamic problems and history dependent heterogeneity in their situation during the observation period we note that the latter should affect the likelihood but not the size of stock adjustment decisions and find broad support for theoretical predictions in formal selection controlled regressions based on this insight

adjustment of consumers durables stocks evidence from automobile purchases this paper tests an optimal s s rule in household durable purchases and examines directly the resulting aggregate expenditure dynamics the observed decision rule responds to income uncertainty and growth as predicted by an s s model resulting from transactions costs tests against liquidity constraints find that about half the households purchase according to an optimal s s rule aggregating the s s rule over households produces a cross section distribution of durables holdings the empirical distribution is similar to that predicted theoretically as is its response to aggregate shocks furthermore simulations of aggregate expenditure based on the household distribution exhibit dynamics consistent with those observed in the 1980s

the effects of asset purchases and normalization of u s monetary policy this paper examines changes in the effects of unconventional monetary policies in the united states to this end we estimate a markov switching var model with absorbing regimes to capture possible structural changes our results detect regime changes around the beginning of 2011 and the middle of 2013 before 2011 the u s large scale asset purchases lsaps had relatively large impacts on the real economy and prices but after the middle of 2013 their effects were weaker and less persistent in addition after the middle of 2013 which includes the monetary policy normalization period the asset purchase or balance sheet shocks had slightly weaker effects than during the early stage of the lsaps but stronger effects than during the late stage of the lsaps while interest rate shocks had insignificant effects on the real economy and prices finally our results suggest that the positive responses of durables and capital goods expenditures to interest rate shocks weakened the negative impacts of interest rate hikes after the middle of 2013 including the period of monetary policy normalization jel c32 e21 e52

estimating fiscal multipliers news from a non linear world we estimate non linear vars to assess to what extent fiscal spending multipliers are countercyclical in the us we deal with the issue of non fundamentalness due to fiscal foresight by appealing to sums of revisions of expectations of fiscal expenditures this measure of anticipated fiscal shocks is shown to carry valuable information about future dynamics of public spending results based on generalised impulse responses suggest that fiscal spending multipliers in recessions are greater than one but not statistically larger than those in expansions however non linearities arise when focusing on extreme events that is deep recessions versus strong expansionary periods

shocks stocks and socks smoothing consumption over a temporary income loss we investigate how households in temporarily straitened circumstances due to an unemploy ment spell cut back on expenditures and how they spend marginal dollars of unemployment insurance ui benefit our theoretical and empirical analyses emphasize the importance of allowing for the fact that households buy durable as well as non durable goods the theoretical analysis shows that in the short run households can cut back significantly on total expenditures without a significant fall in welfare if they concentrate their budget reductions on durables we then present an empirical analysis based on a canadian survey of workers who experienced a job separation exploiting changes in the unemployment insurance system over our sample period we show that cuts in ui benefits lead to reductions in total expenditure with a stronger impact on clothing than on food expenditures our empirical strategy allows that these expenditures may be non separable from employment status the effects we find are particularly strong for households with no liquid assets before the spell started these qualitative findings are in precise agreement with the theoretical predictions jel d11 d12 d91 j65 2009 by the european economic association

sufficient information in structural vars abstract necessary and sufficient conditions under which a var contains sufficient information to estimate the structural shocks are derived on the basis of this theoretical result we propose two simple tests to detect informational deficiency and a procedure to amend a deficient var a simulation based on a dsge model with fiscal foresight suggests that our method correctly identifies and fixes the informational problem in an empirical application we show that a bivariate var including unemployment and labor productivity is informationally deficient once the relevant information is included into the model technology shocks appear to be contractionary

inflation dynamics and time varying volatility new evidence and an ss interpretation is monetary policy less effective at increasing real output during periods of high volatility than during normal times in this article i argue that greater volatility leads to an increase in aggregate price flexibility so that nominal stimulus mostly generates inflation rather than output growth to do this i construct price setting models with volatility shocks and show these models match new facts in cpi micro data that standard price setting models miss i then show that these models imply that output responds less to nominal stimulus during times of high volatility furthermore because volatility is countercyclical this implies that nominal stimulus has smaller real effects during downturns for example the estimated output response to additional nominal stimulus in september 1995 a time of low volatility is 55 larger than the response in october 2001 a time of high volatility jel codes e10 e30 e31 e50 d8 copyright 2014 oxford university press