macroeconomic implications of production bunching factor demand linkages abstract existing empirical evidence suggests that output is more variable than consumption so that production smoothing is not apparently present in this paper we investigate some macroeconomic implications of the proposition that the empirical evidence reflects the presence of some firms in the economy that produce with nonconvex technologies overall when activities are sufficiently complementary and inventory holding is sufficiently costly nonconvexities at the firm level can generate a pattern of output and sales such that the variance of output exceeds that of sales at an aggregate level in this way nonconvexities at the individual firm level may have macroeconomic consequences

transaction costs in the theory of unemployment this paper addresses the problem of accounting theoretically for the persistence of large scale unemployment it briefly reviews some of the well known shortcomings of the keynesian account based upon sticky wages and prices and upon robert clower s 1965 concept of effective demand arguing that these shortcomings can be seen as a failure explicitly to integrate transaction costs into the theory of unemployment the main constructive contribution of the paper is an example of a simple macro model along the lines of robert barro and herschel grossman 1971 in which transaction costs are made explicit an essential part of this example is an externality of the sort suggested by peter diamond 1982 the example provides an account of persistent unemployment with many keynesian features yet without some of the keynesian shortcomings in particular it assumes perfect wage and price flexibility

business cycles theory evidence and policy implications this paper looks at recent advances in the study of aggregate fluctuations the emphasis is on three prominent areas of research the stochastic growth model economies which exhibit macroeconomic complementarities and models that emphasize heterogeneity each section of the paper outlines the theory examines relevant empirical evidence and then discusses some policy implications of the analysis

liquidity effects and the monetary transmission mechanism several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment existing quantitative general equilibrium models which allow for capital accumulation are inconsistent with this view there does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates output and employment to a money supply shock however a key shortcoming of these models is that they cannot rationalize persistent liquidity effects this paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence we argue that once a simplified version of the model in christiano and eichenbaum 1991 is modified to allow for extremely small costs of adjusting sectoral flow of funds positive money shocks generate long lasting quantitatively significant liquidity effects as well as persistent increases in aggregate economic activity

production function regressions returns to scale and externalities a number of recent papers have used simple linear regressions in an attempt to identify market structure the extent of returns to scale and possible external effects in u s manufacturing industries the results obtained from these regressions have important implications for several branches of modern macroeconomics as a result the macro literature frequently cites specific numerical evidence from caballero and lyons 1992 and hall 1990 which suggests that there are quantitatively significant increasing returns to scale or external effects in u s manufacturing in contrast it is the argument of this paper that this evidence is not convincing the most robust evidence suggests that the typical u s manufacturing industry displays constant returns with no external effects on the other hand there is significant heterogeneity across industries

procyclical labor productivity and competing theories of the business cycle some evidence from interwar u s manufacturing industries we study the phenomenon of short run increasing returns to labor srirl in a sample of 10 interwar u s manufacturing industries our main findings are that srirl was common in the interwar period and that the pattern of srirl across industries was similar to that observed in the postwar period we argue that since presumably the depression was not caused by technical regress these findings are inconsistent with the claim of real business cycle theorists that srirl is in general due to procyclical technical shocks we propose tests for discriminating between two other leading explanations of srirl but find that our conclusions differ by industry

a time series analysis of representative agent models of consumption andleisure choice under uncertainty this paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime separable the nonseparability of preferences accommodates intertemporal substitution or complementarity of leisure and thereby affects the comovements in aggregate compensation and hours worked these cross relations are examined empirically using postwar monthly u s data on quantities real wages and the real return on the one month treasury bill the estimated values of the parameters governing preferences differ significantly from the values assumed in several studies of real business models several possible explanations of these discrepancies are discussed

a search theoretic approach to monetary economics the essential function of money is its role as a medium of exchange the authors formalize this idea using a search theoretic equilibrium model of the exchange process that captures the double coincidence of wants problem with pure barter one advantage of the framework described here is that it is very tractable the authors also show that the model can be used to addre ss some substantive issues in monetary economics including the potenti al welfare enhancing role of money the interaction between specializat ion and monetary exchange and the possibility of equilibria with multip le fiat currencies copyright 1993 by american economic association

economic determinants of the nominal treasury yield curve abstract macroeconomic shocks account for most of the variability of nominal treasury yields inducing parallel shifts in the level of the yield curve we develop a new approach to identifying macroeconomic shocks that exploits model based empirical shock measures technology shocks shift yields through their effect on expected inflation and the term premium shocks to preferences for current consumption affect yields through their impact on real rates and expected inflation for both shocks the systematic reaction of monetary policy is an important transmission pathway we find little evidence that fiscal policy shocks are an important source of interest rate variability

seasonal solow residuals and christmas a case for labor hoarding and increasing returns in aggregate unadjusted data measured solow residuals exhibit large seasonal variations total factor productivity grows rapidly in the fourth quarter at an annual rate of 16 percent and regresses sharply in the first quarter at an annual rate of 24 percent how much of the total seasonal variation in the measured solow residual can be explained by christmas the answer to this question is surprising with increasing returns and time varying labor effort christmas is sufficient to explain the seasonal variation in the solow residual consumption average productivity and output in all four quarters our analysis of seasonally unadjusted data uncovers important roles for labor hoarding and increasing returns that are difficult to identify in adjusted data prescott 1986 has argued that the variability of solow s residual is a reasonable estimate of the variability of exogenous technology shocks when solow s residual is measured using seasonally unadjusted data for the postwar u s economy it exhibits large seasonal variations growing rapidly in the fourth quarter at an annual rate of 16 percent and falling sharply in the first quarter at an annual rate of 24 percent this paper starts from the premise that it is implausible to attribute seasonal variation of this magnitude to changes in the state of technology we present a model in which all seasonal fluctuations arise from a single demand shift christmas this demand shift together with misspecification of the traditional production function leads to large seasonal variation in the solow residual we consider two candidates for misspecification labor hoarding and external increasing returns to scale even when technological growth is aseasonal either candidate in isolation can induce spurious seasonality in the solow residual our general equilibrium analysis indicates that 1 the economy s seasonal patterns in all four quarters may be a response simply to a fourth quarter consumption demand shift and 2 a combination of labor hoarding and external increasing returns is important for replicating these patterns in aggregate quantity variables for the postwar u s economy since our analysis identifies important roles for labor hoarding and increasing returns these results have implications for nonseasonal macroeconomic models indeed our analysis im

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

the short run and long run effects of behavioral interventions experimental evidence from energy conservation we document three remarkable features of the opower program in which social comparison based home energy reports are repeatedly mailed to more than six million households nationwide first initial reports cause high frequency action and backsliding but these cycles attenuate over time second if reports are discontinued after two years effects are relatively persistent decaying at 10 20 percent per year third consumers are slow to habituate they continue to respond to repeated treatment even after two years we show that the previous conservative assumptions about post intervention persistence had dramatically understated cost effectiveness and illustrate how empirical estimates can optimize program design jel d12 d83 l94 q41

lumpy consumer durables market power and endogenous business cycles in this paper we show that lumpy consumer durables and market power can generate endogenous cycles consistent with the facts past sales determine the current market size of durable goods larger past sales ceteris paribus thus naturally result in a smaller current market size and income in this manner the seeds of a downturn are sown in an upturn jel classification e32 e13 biens de consommation durables en gros morceaux pouvoir de marche et cycles d affaires endogenes ce memoire montre que des biens de consommation durables en gros morceaux et du pouvoir de marche peuvent engendrer des cycles endogenes qui se calquent sur les chroniques observees les ventes passees determinent la taille du marche present pour les biens durables de plus grandes ventes dans le passe toutes choses etant egales par ailleurs resultent naturellement en un marche present plus petit et des revenus moindres de cette maniere le germe du declin est deja contenu dans l expansion

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

heterogeneity and output fluctuations in a dynamic menu cost economy when firms face menu costs the relation between their output and money is highly non linear at the aggregate level however this needs not be so in this paper we study the dynamic behaviour of a menu cost economy where firms are heterogeneous in the shocks they perceive and the demands and adjustment costs they face in this context we i generalize the caplin and spulber 1987 steady state monetary neutrality result ii show that uniqueness of equilibria depends not only on the degree of strategic complementarities but also on the degree of dispersion of firms positions in their price cycle iii characterize the path of output outside the steady state and show that as strategic complementarities become more important expansions become longer and smoother than contractions and iv show that the potential impact of monetary shocks is an increasing function of the distance of the economy from its steady state but that an uninformed policy maker will have no effect on output on average

optimal fiscal policy in a business cycle model this paper develops the quantitative implications of optimal fiscal policy in a business cycle model in a stationary equilibrium the ex ante tax rate on capital income is approximately zero there is an equivalence class of ex post capital income tax rates and bond policies that support a given allocation within this class the optimal ex post capital tax rates can range from close to independently and identically distributed to close to a random walk the tax rate on labor income fluctuates very little and inherits the persistence properties of the exogenous shocks thus there is no presumption that optimal labor tax rates follow a random walk most of the welfare gains realized by switching from a tax system like that of the united states to the ramsey system come from an initial period of high taxation on capital income

increasing returns and animal spirits the purpose of this note is to simply point out that the multiplicity intrinsic of course to the presence of non convexities characterizes the models of growth with external increasing returns which have been studied recently and more importantly to show that the many competitive equilibria which often arise in those models can be interpreted as animal spirits equilibria that is equilibria indexed by the consumers optimism or pessimism this multiplicity of competitive equilibrium paths can be viewed as providing a new foundation upon which to build a theory of self fulfilling prophecies one which relies solely on the existence of external effects and does not rest on the overlapping generation structure or on back ward bending offer curves the conclusion that multiple animal spirits competitive equilibria are likely to arise in a model of external increasing returns would survive the generalization of the framework used in this paper to many period environments be they overlapping generation or representative agent infinite horizon structures this abstract was borrowed from another version of this item

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

the conventional treatment of seasonality in business cycle analysis does it create distortions abstract no so says one model that is broadly consistent with postwar u s seasonal and business cycle data

the aggregate implications of machine replacement theory and evidence the authors study an economy in which producers incur resource costs to replace depreciated machines the process of costly replacement and depreciation creates endogenous fluctuations in productivity employment and output of a single producer the authors explore the spillover effects of machine replacement on other sectors of the economy and provide conditions for synchronized machine replacement by multiple independent producers the implications of their model are generally consistent with observed monthly output employment and productivity fluctuations in automobile plants synchronization of retooling across plants within the auto industry is widespread so that the fluctuations observed at the plant level have aggregate implications copyright 1993 by american economic association

stability chaos and multiple attractors a single agent makes a difference abstract this paper provides an example in which a slight behavioral heterogeneity may fundamentally change the dynamical properties of a nonlinear cobweb market with a quadratic cost function and an isoelastic demand function we consider two types of producers cautious adapters and naive optimizers in a market of naive optimizers a single cautious adapter stabilizes the otherwise exploding market in a market of cautious adapters a single naive optimizer may destabilize the market without him there exists at most one periodic attractor in the market but with him there may appear many and even infinitely many coexisting periodic attractors

external effects in u s procyclical productivity abstract in this paper we highlight a new dimension of the aggregate procyclical productivity phenomenon we show that estimates of the degree of returns to scale are larger for manufacturing as a whole than for two digit industries since this difference must be due to factors that are only internalized at the most aggregate level we term it an external effect this result rules out explanations based on own input variation such as true increasing returns and unmeasured factor utilization tied to own activity as the sole explanations for aggregate procyclical productivity we explore several potential explanations of this external effect

a neoclassical model of seasonal fluctuations abstract we develop a neoclassical capital accumulation model with seasonal perturbations to tastes and technology we calibrate the model and use it to study the impact of seasonal demand and supply perturbations on economic activity we find that the impact is largely limited to a single quarter we also use our model to isolate the seasonal movements in u s quarterly data and then compute the seasonal variations in tastes and technology that approximately explain these movements we find comovements in productivity and taste perturbations that are very similar to the seasonal comovements of aggregate variables

balanced budget rules distortionary taxes and aggregate instability a traditional argument against a balanced budget fiscal policy rule is that it amplifies business cycles by stimulating aggregate demand during booms via tax cuts and higher public expenditures and by reducing demand during recessions through a corresponding fiscal contraction this paper suggests an additional source of instability that may arise from this type of fiscal policy rule it shows that within the standard neoclassical growth model a balanced budget rule can make expectations of higher tax rates self fulfilling if the fiscal authority relies heavily on changes in labor income taxes to eliminate short run fiscal imbalances calibrated versions of the model show that indeterminacy occurs for income tax rates that are empirically plausible for the u s economy and other group of seven countries

a forecasting model to evaluate the profitability of price promotions abstract experience over the years has led grocery store managers to spend almost all of their promotion money on adds in newspapers the adds are generally advertised price reductions for specific products these adds are usually cooperative adds in which the manufacturer whose product is featured in the display ad pay part of the cost of the ad the rest of the cost is paid by the grocer the grocer has a problem in evaluating the profitability of the price promotion different classes of consumers respond differently to the price promotions to measure the impact of the price promotion becomes very difficult in this paper the authors examine the different ways consumers respond to price promotions and how the different responses affect profits using this data the authors develop a model that can forecast the profitability of specific price promotions this model is then tested for three products at a very large grocery store chain in finland

indeterminacy and increasing returns abstract we investigate properties of the one sector growth model with increasing returns under two organizational structures capable of reconciling the existence of aggregate increasing returns with competitive behavior by firms the first involves input externalities the second involves monopolistic competition we show for parameters in close accord with recent literature on real business cycles that the model displays an indeterminate steady state that can be exploited to generate a model of business fluctuations driven by self fulfilling beliefs in our first class of models growth is generated by exogenous increases in factor productivity in the second class the marginal product of capital is large enough for endogenous growth journal of economic literature classification numbers e00 e3 o40

a simple theory of advertising as a good or bad our analysis treats advertisements and the goods advertised as complements in stable metautility functions and generates new results for advertising by building on and extending the general analysis of complements by assimilating the theory of advertising into the theory of complements we avoid the special approaches to advertising found in many studies that place obstacles in the way of understanding the effects of advertising we also use this approach to evaluate advertising from a welfare perspective whether there is excessive or too little advertising depends on several variables the effects on consumer utility the degree of competition in the market for advertised goods the induced changes in prices and outputs of advertised goods and whether advertising is sold to consumers

seminonparametric estimation of conditionally constrained heterogeneous processes asset pricing applications the overidentifying restrictions of the intertemporal capital asset pricing model are usually rejected when tested using data on consumption growth and asset returns particu larly when additively separable constant relative risk utility is attributed to the representa tive agent this article investigates the extent to which specification error can explain these rejections the empirical strategy is limited information maximum likelihood in conjunc tion with seminonparametric expanding parameter space representations for both the law of motion and utility we find that consumption growth and asset returns display conditional heterogeneity but this fact does not account for rejection of the overidentifying restrictions as might be anticipated from the work of hansen singleton and others using generalized method of moments methods we also find that expansion of the parameter space in the direction of nonseparable utility causes the overidentifying restrictions to be accepted our estimation strategy provides information on the manner in which the restrictions distort the law of motion in particular imposition of additively separable constant relative risk aversion utility causes the conditional variance of consumption growth to be overpredicted the conditional covariance of asset returns with consumption growth to be overpredicted and an equity premium imposition of nonseparable seminon parametric utility causes distortion in these same directions though the distortions are much smaller which is consistent with the outcomes of the tests of the restrictions

explaining investment dynamics in u s manufacturing a generalized s s approach we are grateful to olivier blanchard whitney newey james stock an editor three anonymousreferees and seminar participants at brown cepr champoussin chicago columbia econometric society meetings caracas and tokyo efcc harvard impa lse nber princeton rochester site toronto u de chile and yale for their comments financial support to caballero from the national science and sloan foundations and to engel from fondecyt grant 195 510 and the mellon foundation grant 9608 is gratefully acknowledged 2since plants entry is excluded from their sample these statistics are likely to represent lowerbounds on the degree of lumpiness in plants investment patterns 3we use the word project to emphasize the fact that the actual implementation of a projectmay cover more than a year observation realistic time to build aspects of investment are not incontradiction with the view that investment episodes are lumpy in nature 4 see chirinko 1994 for a survey of the empirical investment literature

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

nonconvex costs and the behavior of inventories this paper explores one possible explanation for the apparent excess volatility of production relative to sales nonconvexities in the technology facing firms it is shown that if firms operate in a region of declining marginal costs then small shifts in demand can cause production to jump substantially estimates for six production to stock industries as well as the automobile industry suggest that all these industries behave as if they were operating in the region of nonconvex costs the results have important implications not only for inventory investment but also for the cyclical behavior of productivity and prices

inflexible prices and procyclical productivity hall has shown that with perfect competition and price flexibility total factor productivity measured using labor s share either in revenues or in costs will be acyclical regardless of the level of labor hoarding we show that if firms producing a homogeneous good under constant returns must pick their prices before demand is known both measures of productivity become procyclical the model implies that productivity should be more procyclical the more important is labor hoarding empirically productivity is more procyclical in industries and in nations where labor hoarding appears more important

the macroeconomic effects of distortionary taxation abstract prescott 1986 estimates that technology shocks account for 75 of the fluctuations in the postwar u s economy this paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances i find that a significant fraction of the variance of aggregate consumption investment output capital stock and hours of work can be explained by disturbances in labor and capital tax rates and government consumption i also use the model to quantify the welfare costs of capital and labor taxation for both the time series and welfare calculations maximum likelihood estimates of taste technology and policy parameters are used

equilibrium selection in imperfectly competitive economies with multiple equilibria this paper investigates the selection of an equilibrium in an economy with multiple pareto ranked nash equilibria a history dependent selection criterion is proposed which induces correlated behavior in equilibrium even though agents are playing one shot games and disturbances are not correlated over time the model economy may experience prolonged periods in which a low productivity technology is in use and then as a consequence of a large real disturbance may switch to an alternative equilibrium in which a high productivity technology is utilized thus the model qualitatively matches observations of serially correlated movements in output and employment and generates procyclical productivity though there are no exogenous technology shocks copyright 1994 by royal economic society

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

methodological and empirical issues in real business cycle theory abstract in this paper we argue that the major impact of the rbc literature has been to propose a new methodology for macroeconomics this methodology is distinguished first by the importance it attributes to the empirical description of the phenomena to be explained and second by the use of this description in conjunction with quantitative theorizing i e the construction of computable general equilibrium models whose characteristic statistics match those of the data in accordance with this approach we first report on the current state of knowledge concerning business cycle regularities and conclude that additional empirical effort is called for in order to arrive at the appropriate basis for theorizing we then examine the performance of existing models and evaluate the case for integrating monetary factors and demand shocks into them lastly we review the recent efforts to explain the employment variability puzzle and argue that the search for a solution naturally leads to the incorporation of significant non walrasian features into the rbc framework

seasonal cycles business cycles and monetary policy abstract this paper presents a dynamic general equilibrium model that is consistent with both seasonal and business cycle facts in the u s economy the model features consumption durability and a transaction technology both crucial in accounting for seasonal patterns of nominal variables a calibrated version of the model is used to quantitatively evaluate welfare consequences of three alternative monetary policy rules 1 the fed s historical policy that smooths nominal interest rates at the seasonal frequency but not at the business cycle frequency 2 a constant money growth rule and 3 a constant interest rate rule we find that the historical policy is associated with higher welfare than both alternatives

persistent real exchange rates abstract three well known facts that characterize exchange rate data are a the high correlation between bilateral nominal and real exchange rates b the high degree of persistence in real exchange rate movements and c the high volatility of real exchange rates this paper attempts a joint albeit partial rationalization of these facts in an environment with no staggered contracts and where prices are preset for only one quarter there are two key innovations in the paper first we augment a standard two country open economy model with learning by doing in production at the firm level this induces monopolistically competitive firms to endogeneize the productivity effect of their price setting behavior specifically firms endogenously choose not to adjust prices by the full proportion of a positive monetary shock in order to take advantage of the productivity benefits of higher production second we introduce habits in leisure this makes the labor supply decision dynamic and adds an additional source of propagation we show that the calibrated model can quantitatively reproduce significant fractions of the aforementioned facts moreover as in the data the model also produces a positive correlation between the terms of trade and the nominal exchange rate

asynchronized multiperiod commitments and cycles abstract we consider a game where agents can synchronize or stagger their decisions we compare the outcomes of both timing patterns and show that spillovers and strategic interactions are crucial for such a comparison a typology used in industrial organization distinguishing four cases fat cat top dog lean and hungry puppy dog allows us to compare the actions taken in the staggered variant and in the synchronized one the staggered variant exhibits cycles and players are both better off when there are strategic complementarities between them a timing game is then set up so as to endogenize the choice between the two variants we study two examples are developed i bertrand competition and ii a wage setting game when there are two monopoly unions in two interrelated firms we show that the staggering of price decisions generates counter cyclical mark ups in the first example and the staggering of wage decisions generates cycling output in the industry in the second example

seasonality and equilibrium business cycle theories abstract we consider a dynamic stochastic equilibrium business cycle model which is augmented to reflect seasonal shifts in preferences technology and government purchases our estimated parameterization implies implausibly large seasonal variation in the state of technology rising at an annual rate of 24 in the fourth quarter and falling at an annual rate of 28 in the first quarter furthermore our findings indicate that variation in the state of technology of this magnitude is required if the model is to explain the main features of the seasonal cycle

the seasonal cycle and the business cycle almost all recent research on macroeconomic fluctuations has worked with seasonally adjusted or annual data this paper takes a different approach by treating seasonal fluctuations as worthy of study in their own right our results show that seasonal fluctuations are an important source of variation in all macroeconomic quantity variables but are small or entirely absent in both real and nominal price variables the timing of the seasonal fluctuations consists of increases in the second and fourth quarters a large decrease in the first quarter and a mild decrease in the third quarter the paper demonstrates that with respect to each of several major stylized facts about business cycles the seasonal cycle displays the same characteristics as the business cycle in some cases even more dramatically than the business cycle that is we find that at seasonal frequencies as well as at business cycle frequencies output movements across broadly defined sectors move together the timing of production and the

evidence on macroeconomic complementarities this paper provides empirical evidence on macroeconomic complementarities a restriction on the nature of interaction between individuals in a multiagent setting these models imply that activities across agents will be positively correlated that discrete decisions will be synchronized and that disturbances will be magnified and propagated the paper shows that these implications are consistent with aggregate observations as well as some microeconomic evidence further looking at certain historical episodes such as the national industrial recovery act as well as seasonal fluctuations provides additional support for models with macroeconomic complementarities copyright 1996 by mit press

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

microeconomic adjustment hazards and aggregate dynamics the basic premise of this paper is that understanding aggregate dynamics requires considering that agents are heterogeneous and that they do not adjust continuously to the shocks they perceive we provide a general characterization of lumpy behavior at the microeconomic level in terms of an adjustment hazard function which relates the probability that a unit adjusts to the deviation of its state variable from its moving target we characterize rich cross sectionally dependent aggregate dynamics generated by nonconstant hazards we present an example based on u s manufacturing employment and job flows and find that increasinghazard models outperform constant hazard partial adjustment models in describing aggregate employment dynamics

productivity shocks and real business cycles abstract productivity shocks play a central role in real business cycles as an exogenous impulse to macroeconomic activity however measured solow prescott residuals do not behave as an exogenous impulse rather econometric evidence provided in this paper indicates that 1 money interest rates and government spending granger cause these impulses and 2 a substantial component of the variance of these impulses between one quarter and one half is attributable to variations in aggregate demand these results are robust to a number of econometric issues including measurement errors specification of the production function and certain forms of omitted real variables

aggregation and optimization with state dependent pricing the literature on the aggregation of s s policies has ignored the impact of aggregate behavior on the individual s optimization problem in the case of pricing the feedback effects are clear not only do pricing strategies determine the evolution of the price level but the evolution of the price level also influences the optimal pricing strategies in this paper we provide a consistent treatment of aggregation and optimization we use this model to analyze three issues in the menu cost pricing literature the relationship between strategic complementarity and the real effects of money the relationship between the variance of the money supply and the correlation between money and output and the relationship between the cost of price adjustment and the size of price adjustment questions concerning the dynamics of aggregate variables such as prices employment investment and consumption represent the core of business cycle analysis one striking feature of these variables is the radical difference between properties of these aggregates and the nature of the individual behavior that underlies them the behavior of a firm s prices investment and employment and the behavior of an individual s consumption all involve frictional elements that lead to discrete adjustment at the microeconomic level heterogeneity among individuals however tends to smooth the behavior of the corresponding aggregates in recent years a large body of research has developed to examine the manner in which microeconomic frictions influence aggregate dynamics one of the centerpieces of this research has been the s s model developed by arrow harris and marschak 1951 the key element of this model is the state dependence of individual decisions agents act when a state variable crosses some critical threshold which balances the cost and benefits of adjustment the aggregate implications of this form of microeconomic behavior have been analyzed by blinder 1981 caplin 1985 and mosser 1991 in the context of inventory dynamics by caplin and spulber 1987 caballero and engel 1991 1993 and caplin and leahy 1991 in the context of prices and by bertola and caballero 1990 caballero 1993 and eberly 1994 in the context of con sumer durables one of the most limiting aspects of these models is that they focus exclusively on the impact that microeconomic inertia has on aggregate dynamics they 1we would like to thank michael harrison loannis karatzas john leahy sr andreu mas colell a co editor and four anonymous referees for helpful discussions and comments and the national science foundation and the sloan foundation for financial support

the business cycle effects of christmas abstract why do countries and industries with large seasonal fluctuations also have large business cycles it is well known that seasonal fluctuations account for the bulk of total output fluctuations yet it is unknown whether seasonal fluctuations can trigger business cycles using a procedure that allows for identification of seasonal innovations i found that seasonal shocks explain 50 of the business cycle in aggregate output such findings provide a novel and powerful explanation for the observed strong correlation between seasonal fluctuations and business cycles the implication is that in addition to trying to determine whether it is monetary technology or other types of shocks that cause business cycles we should be looking at what causes seasonality

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

a model of imperfect competition with keynesian features the recent literature on the reappraisal of keynes has viewed keynesian equilibria as arising when prices are fixed and effective demands and supplies are equilibrated through the adjustment of quantities one problem with this approach is that it lacks a theory of price determination in particular of why prices are fixed in the present paper we show that a number of keynesian features arise in a model in which prices are fully flexible but where agents have some monopoly power one advantage of this approach is that it provides a theory of the determination of both prices and quantities

multiple expectational equilibria under monopolistic competition this paper shows that a monopolistically competitive economy with real investment can have multiple rational expectations equilibria one is associated with entrepreneurs optimistic expectations about future demand another with entrepreneurs pessimism it also shows that an optimistic expectational equilibrium pareto dominates a pessimistic equilibrium an investment subsidy can be beneficial both by reducing the original underinvestment distortion and by changing firms expectations from pessimistic to optimistic the most important assumption is increasing returns to scale and monopolistic competition makes increasing returns consistent with each producer s optimization

the seasonality of banking failures during the late national banking era in this paper we expand previous models with banks and money and explore the consequences of seasonals in the banking system we find that when bank failures occur not all of them have associated large output losses and currency premiums exist we show that the most important sources of seasonal fluctuations for the banking system are those related to the return on farming activities and the scrapping value of the initial investment finally this model is consistent with the notion that the treasury is more likely to accommodate the money market in periods where the liquidity needs

the marketing mix decision under uncertainty this paper develops a marketing mix model under uncertainty using the capital asset pricing model capm valuation framework the model is general because it treats price advertising and personal selling simultaneously and allows for general patterns of uncertainty because the manager often lacks precise quantitative information about the sales response function the analysis focuses on the qualitative properties of the model the methodology of comparative statics is used to determine how the marketing mix should be modified when market conditions change specifically the comparative statics are shown to depend on how advertising and personal selling influence price sensitivity the interaction between advertising and personal selling and the relationship between sales and the return earned in the capital markets the comparative statics for risk depend in addition on the precise mathematical form with which uncertainty enters the random demand function i e additive multiplicative or generalize

a cross country comparison of seasonal cycles and business cycles in a recent paper barsky and miron 1989 examine the seasonal fluctuations in the u s economy they show that the key stylized facts about the business cycle characterize the seasonal cycle as well and they suggest that the interpretation of many of these stylized facts over the seasonal cycle is easier than interpretation over the business cycle the reason is that the ultimate sources of seasonal cycles are more readily identifiable than those of business cycles this paper uses the cross country variation in seasonal patterns to pin down the ultimate sources of seasonal variation more precisely than is possible from examination of u s data alone we conclude that a christmas shift in preferences and synergies across agents are the key determinants of the seasonal patterns around the world the paper also establishes that across developed countries the key observations about aggregate variables that characterize the business cycle also characterize the seasonal cycle thus the similarity of the seasonal cycle and the business cycle demonstrated by barsky and miron 1989 for the united states is a robust stylized fact this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

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

stochastic fiscal policy and the swedish business cycle in this paper we show that fluctuations in distortive taxes can account for some of the key features of the swedish post war business cycle the empirical fit of a simple stochastic growth model is significantly improved when it is amended to include imperfectly predictable fluctuations in payroll taxes consumption taxes and government consumption indeed using the simulated method of moments smm we find that for large sets of conventional moments models with stochastic fiscal policy cannot be statistically rejected whereas a model without it is always rejected

chapter 17 marketing strategy models publisher summary despite the advances in the sophistication and proliferation of marketing science models relatively few true marketing strategy models have been developed and those that have been developed generally had limited impact on management the gap between management needs for models that help them generate evaluate and implement better marketing strategies and the available models especially non traditional is narrowing as the environment and the characteristics of successful businesses are changing the nature of the marketing paradigm and the nature of desired marketing strategy models is changing as well

stratport a model for the evaluation and formulation of business portfolio strategies a decision support system to evaluate and formulate business portfolio strategies is proposed strategies are expressed in terms of market share objectives to be achieved in each of the n business units in the portfolio stratport evaluates a strategy in terms of the net present value of its after tax cash flows in the long term as well as its short term net cash flow implications risk considerations are incorporated as per the capital asset pricing model the model explicitly considers marketing investment capacity expenditures working capital and the impact of experience on costs and revenues over a time horizon the formulation of strategy is accomplished by maximizing long term profit subject to a short term net cash flow limit with the maximization repeated over a range of values for the short term net cash flow limit the use of the generalized lagrange multiplier permits the simultaneous optimization of n market shares to be accomplished more efficiently by n univariate maximizations although the function that is maximized in the univariate maximization is not unimodal the newly proposed procedure guarantees that a global maximum will be found limitations of the model and some extensions to minimize their impact are discussed

do effects of theoretical training and rewards for energy efficient behavior persist over time and interact a natural field experiment on eco driving in a company fleet abstract increasing energy efficiency is a cornerstone of policy initiatives to tackle climate change and increase corporate sustainability convincing people to drive more fuel efficiently eco driving is often an integral part of these approaches especially in the transport sector but there is a lack of studies on the long term persistence and potential interaction of the effects of incentives and training on energy conservation behavior in general and eco driving behavior in particular we address this gap with a twelve months long natural field experiment in a logistics company to analyze the time dependent and potentially interacting effects of rewards and theoretical training for eco driving on fuel consumption in a real world setting we find an immediate reduction of fuel consumption following the introduction of a non monetary reward and an attenuation of this effect over time theoretical eco driving training shows no effect neither short term nor long term highlighting the often neglected necessity to include practical training elements contrary to common assumptions the interaction of incentives and theoretical training does not show an additional reduction effect our results demonstrate the difficulty of changing engrained behavior and habits and underline the need for a careful selection and combination of interventions policy implications for public and private actors are discussed