micro vs macro explanations of post war us unemployment movements abstract this paper considers contributions of industry sectoral micro shocks vs aggregate macro shocks a dynamic factor model is estimated with maximum likelihood method in the frequency domain and decomposes us unemployment movements into industry sectoral and common components sectoral shocks account for around half unemployment movements

idiosyncratic and common shocks to investment decisions this paper shows how microeconomic data on investment plans can be used to study the structure of risk faced by firms revisions of investment plans form a martingale and thus reveal the underlying shocks driving investment we decompose revisions in investment plans into micro sector and aggregate shocks and exploit stock market data to distinguish between structural valuerelated shocks and measurement error in investment revisions using panel data for us firms we find that microshocks are not the dominant source of risk in investment decisions and that much of the observed microvariation is actually due to heterogeneity in firm level responses to aggregate shocks firms are able to diversify most idiosyncratic investment risk and they do not appear to be liquidity constrained

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

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

discovering price load relationships in california s electricity market this paper reports on characterizing recent price behavior in the califomia electricity market market participants that is producers consumers and traders are highly motivated by the potential for profits to develop strategies to explore and exploit the limits of system operation these strategies should be reflected in the market as different price to load relationships we show that a number of regimes i e characteristic behaviors exist in the price time series and provide a brief analysis of each regime knowledge of the number of regimes their characteristics and switching dynamics allows insight into the market and power system performance

a simple model of sectoral adjustment despite the significance of limited labour mobility across sectors few attempts have been made to produce dynamic models of sectoral adjustment which are consistent with perfect foresight and yet flexible enough to allow for a variety of dynamic experiments this paper proposes a simple perfect foresight model of two sector economies in which aggregate sectoral movement of labour takes place through the process of demographic change the model is tractable enough that one can easily examine the effects of intertemporally complicated relative price shocks both exogenous and endogenous under a variety of assumptions on technology

a multi sector inventory model abstract two competing paradigms for firm level inventory behavior are production smoothing and s s empirical evidence that aggregate production varies more than sales and inventory investment is positively correlated with sales appears to contradict the buffer stock production smoothing motivation work by blinder and maccini suggests that an s s model better explains these stylized facts i simulate a multi sector model with sequential interaction of heterogeneous agents representing manufacturing wholesale and retail agents who use either smoothing or s s inventory decision rules the results demonstrate that the stylized facts can be explained by a model of this type

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

cross sector misallocation with sector specific distortions in this paper i seek to sharpen the understanding of the economic channels through which sector specific distortions affect aggregate outcomes i pay special attention on how cross sector misallocation might arrive as a result of these distortions and clarify how models of resource misallocation across heterogeneous firms differ from models of resource misallocation across sectors i present facts that suggest the presence of such distortions in mexico a noteworthy developing country the paper highlights the importance of understanding the origin and nature of sector specific distortions for policy design

electricity market price volatility the case of ontario abstract price volatility analysis has been reported in the literature for most competitive electricity markets around the world however no studies have been published yet that quantify price volatility in the ontario electricity market which is the focus of the present paper in this paper a comparative volatility analysis is conducted for the ontario market and its neighboring electricity markets volatility indices are developed based on historical volatility and price velocity concepts previously applied to other electricity market prices and employed in the present work the analysis is carried out in two scenarios in the first scenario the volatility indices are determined for the entire price time series in the second scenario the price time series are broken up into 24 time series for each of the 24 h and volatility indices are calculated for each specific hour separately the volatility indices are also applied to the locational marginal prices of several pricing points in the new england new york and pjm electricity markets the outcomes reveal that price volatility is significantly higher in ontario than the three studied neighboring electricity markets furthermore comparison of the results of this study with similar findings previously published for 15 other electricity markets demonstrates that the ontario electricity market is one of the most volatile electricity markets world wide this high volatility is argued to be associated with the fact that ontario is a single settlement real time market

firm volatility in granular networks firm volatilities comove strongly over time and their common factor is the dispersion of the economy wide firm size distribution in the cross section smaller firms and firms with a more concentr

california s dysfunctional electricity market policy lessons on market restructuring abstract the restructured electricity market in california has been behaving oddly and badly since summer of 2000 electricity prices have been exorbitantly high and highly volatile despite the high prices the three investor owned utilities are in dire financial shape because they cannot pass on the high costs of wholesale power to their customers due to a rate freeze many policymakers in the us and elsewhere want to know what went wrong in california trying to avoid a similar fate as they proceed with their own market liberalization plans

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

sources of employment fluctuations in taiwan s industries and regions this empirical study explores the sources of employment fluctuations in taiwan s industries and regions over the period 1978 to 2004 the quarterly growth rates of employment in nine industries and four regions are modelled with a structural vector autoregression var and the employment shocks are measured by var residuals the covariance matrix of the var residuals is decomposed using system estimation method that selects the parameters to make the error model close to the covariance matrix and in turn to estimate the relative importance of national as well as industry specific and region specific shocks the empirical results show that industry specific shocks account for the major fluctuations in industries and regions on average about 83 95 of an industry s cyclical variations and 56 28 of the volatility in a region may be attributed to industry specific shocks national shocks account for little employment volatility in industries only the finance and personal service industries are highly s

demand generation and price in the norwegian market for electric power we analyse the simultaneous determination of supply demand and price in the competitive norwegian electricity market deregulated in 1991 this market is pretty mature and it offers numerous data required carrying out an interesting study stochastic and seasonal water inflow water storage possibilities and demand variations make this market interesting both from a theoretical and empirical view we establish a small supply demand model of the norwegian electricity market the model is estimated using weekly data from 1994 to 1995 data for 1996 are used for post sample examination of the model unexpected inflow snow and temperature conditions explain a large part of the variation in the electricity generation demand and price within and post sample simulation of the estimated model reproduce demand and price patterns considerably well

modern theory of unemployment fluctuations empirics and policy applications strong and widely accepted evidence shows that the natural rate of unemployment varies over time with substantial amplitude the frictions in the labor market that account for positive normal levels of unemployment are not simple and mechanical instead as a rich modem body of theory demonstrates the natural rate of unemployment is an equilibrium in which the volumes of job seeking by workers and worker seeking by employers reach a balance controlled by fundamental determinants of the relative prices of the two activities in recessions unemployment rises and job vacancies fall the natural explanation is an economywide fall in labor demand but a compelling model that generates a fall in labor demand without a counterfactual fall in productivity has eluded theorists to date nonetheless policymakers have appropriately adopted the view that the natural rate varies over time and is not a simple benchmark for setting monetary instruments

exploitable actions of believers in the law of small numbers in repeated constant sum games abstract in repeated fixed pair constant sum games with unique equilibria in mixed strategies such as matching pennies the subgame perfect equilibrium is repeating the stage game mixed strategy equilibrium action in such games rational players avoid strategies that are exploitable in that current actions either deviate systematically from the equilibrium action probabilities or fail to be serially independent of past actions i revisit classic experiments and find that subjects actions are sometimes exploitable because they are serially dependent subjects have difficulty in producing serially independent actions and in recognizing serially dependent sequences due to a bias called local representativeness

comparative analysis of features of polish and lithuanian day ahead electricity market prices the goal of this article is to better understand the processes of electricity market price formation in poland and lithuania through an analysis of the features volatility and spikes of lithuanian and polish day ahead electricity market prices and to assess how acquired electricity price features could affect the achievement of the main goals of the national energy policy the following indicators have been calculated to determine electricity market price volatility the oscillation coefficient the coefficient of variation an adjusted coefficient of variation the standard deviation indicator the daily velocity indicator based on the overall average price and the daily velocity indicator based on the daily average price critical values for electricity market price have been calculated to evaluate price spikes this analysis reveals that electricity market price volatility is moderate in poland and high in lithuania electricity price spikes have been an observable phenomenon both in lithuanian and in polish day ahead electricity markets but they are more common in lithuania encompassing 3 15 of the time period analysed in poland and 4 68 of the time period analysed in lithuania volatile spiking and increasing electricity prices in day ahead electricity markets in lithuania and poland create preconditions and substantiate the relevance of implementation of the national energy policies and measures

deregulated power prices comparison of volatility abstract we examine electrical power price variability for 14 deregulated markets power price volatility is measured by price velocity the daily average of the absolute value of price change per hour deregulated markets show a wide variability in price velocity some price velocity is expected and arises from the daily diurnal price pattern which differs significantly between markets even when the expected daily variability in price is removed the residual unexpected variability differs between markets some deregulated markets most notably britain and spain show patterns that are predictable and consistent and have low values of unexpected price velocity these markets create a climate conducive to consumers facing the market through real time pricing and shaping consumption behaviors in response to price changes other markets for example south australia and alberta have patterns that are inconsistent and irregular and hence are hard for a customer to interpret a customer in such a market will have a higher incentive to avoid demand side management and escape risk through hedging mechanisms

deregulated power prices comparison of diurnal patterns we examine electrical power price and in particular its daily and average weekday vs weekend pattern of change for 14 deregulated markets power price in deregulated markets shows fundamentally different patterns north american markets show a monotonic diurnal weekday price pattern while all other markets studied show more than one price peak deregulated power markets differ in maximum vs minimum daily average price and in average weekday to weekend price in turn creating a different incentive for a consumer to time shift power consuming activities markets differ in the extent to which a small fraction of the days shapes the average diurnal pattern and value of price deregulated markets show a wide variation in the correlation between load and price some deregulated markets most notably britain and spain show patterns that are predictable and consistent and hence that can encourage a customer to shape consumption behaviors other markets for example south australia have patterns that are inconsistent and irregular and hence are hard for a customer to interpret a customer in such a market will have a higher incentive to escape risk through hedging mechanisms

twister employment responses to the 3 may 1999 oklahoma city tornado this research examined the impact of the 3 may 1999 tornado on the oklahoma city labour market we estimated time series models that allow for time varying variance in employment growth the models include intervention variables designed to capture the tornado s effect at initial impact as well as over the post tornado period in terms of total employment growth the oklahoma city metropolitan statistical area msa experienced an increase in employment growth and a reduction in labour market risk in the sample period following the tornado the analysis also examined the effect of the weather event on eight industrial sectors five of eight sectors experienced significant decreases in labour market risk after the tornado our evidence suggests that oklahoma city and surrounding communities that make up the metropolitan statistical area survived the disaster without suffering any extended adverse labour market effects our results indicate that at least in the aggregate the labour market improved what

asymmetric phase shifts in u s industrial production cycles abstract we identify cyclical turning points for 74 u s manufacturing industries and uncover new empirical regularities a industries tend to comove between expansion and contraction phases over the business cycle b clusters of industry turning points are highly asymmetric between peaks and troughs troughs are much more concentrated and sharper than peaks c the temporal pattern of phase shifts across industries supports the spillovers through input output linkages and d macroeconomic shocks such as unanticipated changes in monetary policy government spending oil prices and financial conditions are significant drivers of industrial phase shifts

sectoral price rigidity and aggregate dynamics abstract this paper studies the business cycle implications of sectoral heterogeneity in price rigidity using a highly disaggregated multi sector model the model is estimated by the simulated method of moments using a mix of aggregate and sectoral u s data the frequencies of price changes implied by our estimates are consistent with those reported in micro based studies we show that heterogeneity in price rigidity is the primary factor explaining the heterogeneity in the responses of sectoral output and inflation to a monetary policy shock we also find that ignoring sectoral heterogeneity in price rigidity leads to the mismeasurement of the relative importance of aggregate and sector specific shocks in aggregate and sectoral fluctuations

hourly electricity prices in day ahead markets this paper focuses on the characteristics of hourly electricity prices in day ahead markets in these markets quotes for day ahead delivery of electricity are submitted simultaneously for all hours in the next day the same information set is used for quoting all hours of the day the dynamics of hourly electricity prices does not behave as a time series process instead these prices should be treated as a panel in which the prices of 24 cross sectional hours vary from day to day this paper introduces a panel model for hourly electricity prices in day ahead markets and examines their characteristics the results show that hourly electricity prices exhibit hourly specific mean reversion and that they oscillate around an hourly specific mean price level furthermore a block structured cross sectional correlation pattern between the hours is apparent

professionals play minimax the implications of the minimax theorem are tested using natural data the tests use a unique data set from penalty kicks in professional soccer games in this natural setting experts play a one shot two person zero sum game the results of the tests are remarkably consistent with equilibrium play in every respect i winning probabilities are statistically identical across strategies for players ii players choices are serially independent the tests have substantial power to distinguish equilibrium play from disequilibrium alternatives these results represent the first time that both implications of von neumann s minimax theorem are supported under natural conditions during the last few decades game theory has contributed to a reshaping of important aspects of the methodology of economics and other social sciences in a large part this is because the language concepts and techniques of non cooperative game theory have become central to many areas of the discipline undoubtedly studying the interaction of ideally rational players greatly aids our understanding of the behaviour of real individuals firms and other agents moreover as kreps 1991 remarks studying the former should aim at understanding the latter the point of game theory is to help economists understand and predict what will happen in economic social and political contexts theoretical contributions should thus feed back to empirical analysis however testing the implications of the theory has proven extremely difficult in the literature the primary reason is that many predictions often hinge on properties of the utility functions and the values of the rewards used even when predictions are invariant over classes of preferences data on rewards are seldom available in natural settings moreover there is often great difficulty in determining strategy sets and in measuring individuals choices effort levels and the incentive structures they face as a result even the most fundamental predictions of game theoretical models have not yet been supported empirically in real situations in view of the substantial problems associated with testing theoretical predictions using natural data many authors have been compelled to test them in experimental settings interestingly enough despite the controlled structure of experiments the results of many experiments during the last few decades typically reject the assumption that subjects are playing according to the theoretical implications of equilibrium play for instance a number of experiments have evaluated the empirical validity of von neumann s minimax theory for two person zero sum games a theory that occupies a central position in our understanding of strategic situations the results have been mixed and are often rather negative see for instance brown and rosenthal 1990 rapoport and boebel 1992 camerer 2003 and the references therein

trade exposure export intensity and wage volatility theory and evidence this paper addresses the link between trade exposure and wage volatility first it shows in a simple model that trade exposure magnifies the impact of domestic productivity shocks on industry specific labor demand particularly for the less export intensive industries and that if labor is not perfectly mobile this implies a rise in wage volatility then it tests these predictions using industry data the empirical results confirm that wage volatility increases with an industry s degree of openness and that it declines with an increase in the industry s export intensity

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

deregulated power prices changes over time we examine price by season and by year in 14 deregulated markets by looking at diurnal price patterns and price volatility power price volatility is measured by price velocity the daily average of the absolute value of price change per hour which is broken into a component expected from the average diurnal pattern and an unexpected component deregulated markets can be categorized into three groups stable markets markets that experienced one bad period or season of high price excursion and chaotic markets britain spain and scandinavia show consistent price patterns and low unexpected price velocity a thoughtful consumer could reasonably implement demand side management dsm by shaping consumption patterns to reflect price california new zealand and alberta are examples of markets that had a period of very high price excursion we discuss factors affecting public reaction to this australian power markets have inconsistent price patterns from season to season and year to year and very high unexpected price velocity planned dsm in these markets would be very difficult we offer four policy considerations for markets considering deregulation in the future

complementarities and comovements short run interindustry comovement may be due either to common shocks or to complementarities that progagate shocks across sectors this paper assesses the importance of input output linkages aggregate activity spillovers and local activity spillovers to comovement in postwar u s manufacturing i find that input output linkages and local activity spillovers are important to comovement while aggregate activity spillovers are not important i find that complementarities are important to aggregate volatility even after i remove observable aggregate shocks from the data local spillovers are particularly important explaining between 15 and 36 percent of manufacturing employment volatility the importance of local spillovers stems from the fact that industries that cluster together in space also comove through time contrary to the marshallian idea that industries with negatively correlated fluctuations should cluster together in order to stabilize local demand

employment fluctuations in u s regions and industries the roles of national region specific and industry specific shocks this study quantifies the roles of national region specific and industry specific shocks in aggregate employment fluctuations in u s regions and industries variation among the growth rates of major regions and industries is decomposed into unobserved national region and industry specific components the results reject the view that any heterogeneity in regional fluctuations is attributable to differences in industry composition after controlling for industry mix effects roughly 40 of the variance of the cyclical innovation in any region s growth rate is particular to that region in addition region specific shocks appear to propagate across regions over time

sectoral shocks and business cycles a disaggregated analysis of output fluctuations in the uk in this paper we first show that it is possible to modify linear real business cycle models to allow for disaggregate industry specific factors in the generation of macroeconomic fluctuations we then try to determine the relative importance of aggregate and sectoral shocks by doing principal components analysis on the residuals from a var of output growth rates in 19 uk industrial sectors we find that a significant percentage of the innovations in sectoral output growths can be accounted for by a single unobserved component however since the model only sets an upper bound to the explanatory power of aggregate impulses the importance of using sectoral data to extract additional information to bear on the analysis of economic fluctuations is confirmed by our findings

production chains and general equilibrium aggregate dynamics abstract recent empirical studies reveal that monetary shocks can cause persistent fluctuations in aggregate output in this paper we propose a mechanism to help generate such persistence our dynamic stochastic general equilibrium model features a vertical input output structure with staggered price contracts at each stage of production working through the input output relations and the timing of firms pricing decisions the model generates persistent fluctuations in aggregate output and the observed patterns of price dynamics following a monetary shock output responses are more persistent the greater the number of stages of production and the larger the share of intermediate inputs with a sufficient number of stages the persistence is arbitrarily large if the share of intermediate inputs is one at all but finitely many stages

let s get real a factor analytical approach to disaggregated business cycle dynamics this paper develops a method for analysing the dynamics of large cross sections based on a factor analytic model we use law of large numbers arguments to show that the number of common factors can be determined by a principal components method the economy wide shocks can be identified by means of simple structural var techniques and that the parameters of the unobserved factor model can be estimated consistently by applying ols equation by equation we distinguish between a technological and a non technological shock identification is obtained by minimizing the negative realizations of the technology shock empirical results on 4 digit industrial output and productivity for the u s economy from 1958 to 1986 show that 1 at least two economy wide shocks both having a long run effect on sectoral output are needed to explain the common dynamics 2 although the technological shock accounts for at least 50 of the aggregate dynamics of output it cannot by itself explain dynamics at business cycle frequencies 3 sector specific shocks explain the main bulk of total variance but generate mainly high frequency dynamics 4 both the technological and the non technological component of output show a peak for positive sectoral comovements of output at business cycle frequencies 5 technological shocks are strongly correlated with the growth rates of the investment in machinery and equipment sectors and their inputs many interesting questions about cyclical fluctuations and economic growth can be answered only by studying the dynamic behaviour of sectoral variables when data contain information on time for a large cross section of sectors traditional econometric techniques used in the macroeconomic literature such as vector autoregressive var and vector autoregressive moving average varma models are not appropriate since they require the estimation of too many parameters this is why new methods which allow for the reduction of the parameter space need to be developed the objective of this paper is both methodological and descriptive at the methodological level we develop a simple framework for the dynamic analysis of large cross sections the basic model is a dynamic factor analytic model as in sargent and sims 1977 the sectoral variables are decomposed into two unobservable components a common component driven by macroeconomic shocks and a purely sectoral component when

characteristics of the prices of operating reserves and regulation services in competitive electricity markets in this paper characteristics of the prices of reserves and regulation services in the ontario new york and ercot electricity markets are studied more specifically price variability price jumps long range correlation and non linearity of the prices are analyzed using the available measures in the literature for the ontario electricity market the prices of 10 min spinning 10 min non spinning and 30 min operating reserves for the period may 1 2002 to december 31 2007 are analyzed for the new york market prices of the same reserves plus regulation service are studied for the period february 5 2005 to december 31 2008 for the ercot market we analyze the prices of responsive reserve regulation up and regulation down services for the period january 1 2005 to december 31 2009 the studied characteristics of operating reserve and regulation prices are also compared with those of energy prices the findings of this paper show that the studied reserve and regulation prices feature extreme volatility more frequent jumps and spikes different peak price occurrence time and lower predictability compared to the energy prices

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

sectoral shifts and cyclical unemployment a reconsideration sectoral shifts and cyclical unemployment a reconsideration the debate over the relative importance of sectoral and aggregate shocks in explaining fluctuations in the aggregate unemployment rate has centered on the relationship between unemployment job vacancies and the dispersion of sectoral employment growth rates which proxies for sectoral shocks this paper examines some possible theoretical relationships between these variables and after decomposing unemployment into components attributable to sectoral and aggregate shocks estimates the importance of each if finds that fluctuations in unemployment are principally caused by aggregate shocks but sectoral shifts explain a significant albeit steady amount of unemployment i introduction in a controversial paper lillien 1982 argued that much of the rise in aggregate unemployment experienced in the 1970s and 1980s was attributable to increases in the natural rate of unemployment these increases he said arose from shifts of demand between the different sectors of the national economy these demand shifts increased unemployment because labor market frictions prevented the immediate reallocation of workers from declining sectors to expanding sectors lillien used a dispersion index of sectoral employment growth rates as a proxy for the extent of sectoral shifts and found that aggregate unemployment could be explained by this dispersion with a positive distributed lag given the much discussed changing composition of output and employment in the u s this interpretation of unemployment quickly won adherents such as barro 1984 more recent work by abraham and katz 1986 challenges this view they argue that the rise in aggregate unemployment was attributable to aggregate demand disturbances they showed that if sectors had different cyclical sensitivities aggregate demand disturbances such as those resulting from monetary policy or fluctuations in animal spirits could produce counter cyclical fluctuations in the dispersion of sectoral employment growth rates the finding that unemployment was a distributed lag of this dispersion did not therefore distinguish between the two hypotheses instead abraham and katz found vacancy rates to be negatively related to dispersion with a distributed lag they interpreted this result as confirmation of the aggregate demand hypothesis since it was consistent with a movement along the beveridge curve 1 my paper further explores the relationships between sectoral shifts aggregate unemployment and aggregate vacancies the theoretical section demonstrates that sectoral shifts are also consistent with a movement along the beveridge curve and a negative relation between vacancies and the dispersion of sectoral employment growth rates this result potentially invalidates abraham and katz s claim and at the same time provides a novel explanation of the beveridge curve in the empirical section i use the implications of the two hypotheses to decompose the dispersion of sectoral employment growth rates into parts attributable to sectoral shifts and aggregate shocks respectively these new measures are then used to estimate the relative contributions of sectoral shifts and aggregate disturbances to aggregate unemployment this paper is linked to an emerging literature on the sources of macroeconomic fluctuations the seminal paper by long and plosser 1983 showed how real business cycle models could explain comovements of output across sectors on the basis of sector specific shocks in a subsequent paper long and plosser 1987 sought to identify the relative importance of aggregate versus sector specific shocks using a single factor model of output growth they found that aggregate shocks explained only a relatively small amount of the convariation of output across sectors and concluded that sectoral shocks are largely responsible for cyclical fluctuations

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

the importance of sectoral and aggregate shocks in business cycles the importance of sectoral and aggregate shocks in business cycles the theoretical literature on business cycles proposes numerous causes for their occurrence this paper attempts to measure the relative importance of aggregate whether real or nominal and sectoral factors in generating real economic fluctuations as well as to identify economic variables that are correlated with the various factors empirical results indicate that both aggregate and industry level factors are statistically significant in explaining variations in output with the aggregate factor being the most important some evidence is presented that links the aggregate factor with monetary variables i introduction prior to the keynesian revolution a great deal of theoretical and empirical research was conducted on the business cycle 1 with the acceptance of keynesian ideas the emphasis of macroeconomic research shifted from the study of business cycles to the study of macroeconomic policies required to reduce economic fluctuations this research program continued until the 1970s when oil price increases and the generally poor predictive performance of keynesian models caused many macroeconomists to question this research program as a result some economists such as robert lucas edward prescott and thomas sargent began to employ stochastic general equilibrium models to explain the main characteristics of the business cycle movements in output or real economic activity arise from the interaction of economic shocks and internal mechanisms which propagate their effects in this general framework which is based on the work of frisch 1933 and slutsky 1937 unanticipated disturbances or shocks are spread through the propagation mechanism resulting in serially correlated fluctuations in output while most theories of economic fluctuations can be fitted into this general framework there are disagreements over the form of the propagation mechanism and the source of the disturbances some models stress the role of aggregate demand shocks while other models such as the real business cycle models focus on real technological shocks such technological shocks may be sector specific and thus represent a set of disaggregate disturbances that cannot be viewed in the manner of aggregate shocks there is little agreement as to the main sources of disturbances knowledge of the relative importance of sector specific and aggregate shocks would be a significant development in theoretical work on business cycles this paper attempts to determine the relative importance of aggregate and disaggregate shocks in generating macroeconomic fluctuations it extends norrbin and schlagenhauf 1988 in a number of important ways the relative contribution of aggregate and sectoral shocks in generating real economic fluctuations is measured using disaggregated industrial production data which we believe is a better measure of real economic activity in addition we employ a more detailed disaggregation of manufacturing and mining industries covering a longer time period the robustness of the results is more carefully identified finally the methodology used to determine the relative importance of the shocks is substantially different in this paper 2 ii a time series model of disaggregate output the work of frisch 1933 and slutsky 1937 suggests that movements in output can be decomposed into an impulse effect and a propagation effect in this section we present a multivariate time series model of output for the united states this model is in the tradition of frisch s and slutsky s work and is sufficiently general to encompass most competing linear business cycle theories the model is developed at a disaggregate industry level allowing a propagation of output changes between industries in addition output fluctuations can arise from national industry group specific or idiosyncratic factors

capital allocative disturbances and economic fluctuations permanent sector specific productivity shocks alter the relative marginal products of capital and labor across sectors such that the existing factor allocations are suboptimal the subsequent factor reallocations may involve the costly movement and redeployment of capital and labor across sectors to proxy the magnitude of these disturbances this paper focuses on capital rather than labor allocative disturbances since firms can make temporary adjustments in employment levels in response to transitory sectoral shocks empirical evidence is provided that these costs reduce output from what it otherwise would have been and that this effect persists for up to three quarters copyright 1993 by mit press

an equilibrium model of sectoral reallocation this paper constructs a two period two sector model in which there are permanent sectoral shocks it analyzes the equilibrium path of individual labor supply sectoral employment and duration of unemployment in response to these shocks equilibrium allocations are shown to be easy to characterize and comparative statics results are provided

the aggregate effects of sectoral reallocations abstract can a one time permanent change in the fundamentals behind the sectoral composition of the economy prompt an aggregate downturn can this downturn be non negligible even if one uses us data to determine the relative size of gross vs net job flows and the importance of job creation costs can one consider the military build down of the 1990s as a plausible cause for the 1990 1991 recession do sectoral reallocations generate responses that are qualitatively similar to productivity shocks we use a variant of the mortensen pissarides 1994 review of economic studies 61 397 415 job creation destruction model calibrate it to us labor market data and run experiments that suggest one can answer yes to all these questions

an examination of business cycle features in uk sectoral output this article examines business cycle features of uk gross domestic product gdp sectors with regard to trends cycles and growth the empirical study adopts the kalman filter to decompose these gdp sectors into trend and cycle components the general model of this study encompasses a number of alternative specifications about trend growth therefore accommodating diverse views on growth there is reasonable support in the results for a mean reverting stochastic growth model for the uk economy the characteristics in trends and cycles of uk gdp sectors are discussed focusing on their similarities and differences around business cycles

the role of international factors in the business cycle a multi country study abstract empirical research has been conducted on the various theories of the business cycle over many countries however very little research has attempted to undertake a multi country disaggregate investigation into the sources of output change this paper decomposes fluctuations in industry output in a particular country into 1 a nation specific shock 2 an industry specific shock 3 a common shock and 4 an idiosyncratic factor using a dynamic factor analysis state space approach the paper finds that the industry specific impulse explains a significant but small part of the variance of the forecast error this provides limited support for the disaggregated real business cycle paradigm

an inquiry into the sources of macroeconomic fluctuations abstract this paper attempts to decompose the sources of fluctuations in quarterly employment by industry and region into 1 an aggregate national shock 2 region specific shocks 3 industry specific shocks and 4 idiosyncratic factors the empirical analysis is motivated by a dynamic theory of the business cycle the empirical methodology is the engle watson dynamic mimic model implemented via the em algorithm the work is motivated as an attempt to compare empirically aggregate single factor theories of the cycle with real business cycle theories emphasizing industrial or regional shocks

unemployment and trade liberalisation in contrast to the focus of the public debate over trade liberalisation on job losses there is a widespread view among economists that unemployment and trade issues should be considered separately this view cannot be justified theoretically and ignores the growing number of general equilibrium trade models with unemployment in a simple model with an exogenous wage floor trade liberalisation can lead to either gains or losses depending on the production technology severity of the factor market distortion factor intensities of the industries and conditions in trading partners definite results can be derived about gains from liberalising trade with lower wage floors about relative abundance of the unemployed factor dampening losses when trade is liberalised and about gains when the good which uses the unemployed factor is exported the theoretical models are then linked to the policy modelling literature using the example of recent australian controversies over liberalisation of trade in automobiles and textiles it is argued that trade liberalisation would be better advanced by including endogenous employment in trade policy simulation exercises and by discussing employment effects rather than brushing them aside as temporary adjustment problems or regional difficulties

regional and sectoral evidence of the macroeconomic effects of labor reallocation a panel data analysis this paper revisits the sectoral shifts hypothesis by examining unemployment fluctuations for 48 u s states over the period 1990 01 2011 12 we develop a panel approach that incorporates dynamics parameter heterogeneity aggregate factors and cross sectional dependence our findings provide support for a positive and significant effect of the employment dispersion index on unemployment this outcome is robust under alternative specifications and measures of employment dispersion the empirical evidence corroborates the presence and relevance of cross sectional dependence and heterogeneity among states the results show that once unobserved common factors and cross state heterogeneity are taken into account labor reallocation has a significant effect on unemployment that is half the size of the estimate when cross sectional dependence is not taken into account

on the irrelevance of risk attitudes in repeated two outcome games abstract we study equilibrium and maximin play in supergames consisting of the sequential play of a finite collection of stage games where each stage game has two outcomes for each player we show that for two player supergames in which each stage game is strictly competitive in any nash equilibrium of the supergame play at each stage is a nash equilibrium of the stage game provided preferences over certain supergame outcomes satisfy a natural monotonicity condition in particular equilibrium play does not depend on risk attitudes we establish an invariance result for games with more than two players when the solution concept is subgame perfection journal of economic literature classification numbers c72 c9

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

regional income fluctuations common trends and common cycles this paper investigates trend and cycle dynamics in per capita income for the major u s regions during the 1956 1995 period cointegration and serial correlation common features information are used in jointly decomposing the series into trend and cycle components we find considerable differences in the volatility of regional cycles controlling for differences in volatility we find a great deal of comovement in the cyclical response for all regions but the far west possible sources underlying differences in regional cycles are explored such as the share of a region s income accounted for by manufacturing defense spending as a proportion of a region s income oil price shocks and the stance of monetary policy somewhat surprisingly we find that the share of manufacturing in a region seems to account for little of the variation in regional cycles relative to national cycles but manufacturing share differentially affects trend growth for four of the seven regions studied

interpreting aggregate fluctuations looking at sectors abstract a dynamic factor model is used to investigate on the variability in labor productivity and hours across the 2 digit us manufacturing industries two kind of shocks emerge as quantitatively relevant during the postwar period they can be reasonably interpreted as technology shocks to the production of equipment and economy wide shocks the former induces a positive correlation between productivity and hours growth rates in the durable goods producing sector the latter spurs a negative correlation in the nondurable goods producing sector such evidence provides a novel interpretation of the aggregate near zero correlation between the two variables

a new look at variation in employment growth in canada the role of industry provincial national and external factors we examine fluctuations in employment growth using canadian data from 1976 to 2010 we consider a wide range of models and examine the sensitivity of our findings to modelling assumptions the results from our most preferred model which we selected using the bayesian information criteria indicate that most of the variance in employment growth that is not due to the idiosyncratic error comes from domestic sources with most of this coming from industry and provincial factors overall we find that external and national factors play a much smaller role in employment fluctuations than in earlier research we provide some possible explanations for these differences and discuss the implications of our findings for public policy and theory

strategic bidding for price taker hydroelectricity producers this paper introduces a stochastic programming model that integrates strategic bids or offers for electricity in quantities and prices in a deregulated electricity market the model is designed to maximize the profits of a producer of electricity who manages a series of power plants along a river the model is compared with a previously reported stochastic model where the bidding process is disregarded the superiority of the new model is empirically demonstrated on historical data

total factor productivity an unobserved components approach this work examines the presence of unobserved components in the time series of total factor productivity tfp which is an idea central to modern macroeconomics the main approaches in both the study of economic growth and the study of business cycles rely on certain properties of the different components of the time series of tfp in the study of economic growth the neoclassical growth model explains growth in terms of technical progress as measured by the secular component of tfp while in the study of business cycles the real business cycle approach explains short run fluctuations in the economy as determined by temporary movements in the production function which are reflected by the cyclical component of the time series of the same variable the econometric methodology employed in the estimation of these different components is the structural time series approach developed by harvey 1989 harvey and shephard 1993 and others an application to the time series of tfp for the 1948 2002 us priva

understanding real business cycles he 1 960s were a time of great optimism for macroeconomists many economists viewed the business cycle as dead the keynesian model was the reigning paradigm and it provided all the necessary instructions for manipulating the levers of monetary and fiscal policy to control aggregate demand inflation occurred if aggregate demand was stimulated excessively and unemployment arose if demand was insufficient the only dilemma faced by policymakers was determining the most desirable location along this inflation unemployment tradeoff or phillips curve the remaining intellectual challenge was to establish coherent microeconomic foundations for the aggregate behavioral relations posited by the keynesian framework but this was broadly regarded as a detail that should not deter policymakers in their efforts to stabilize the economy the return of the business cycle in the 1970s after almost a decade of economic expansion and the accompanying high rates of inflation came as a rude awakening for many economists it became increasingly apparent that the basic keynesian framework was not the appropriate vehicle for understanding what happens during a business cycle nor did it seem capable of providing the empirically correct answers to questions involving changes in the economic environment or changes in monetary or fiscal policy the view that keynesian economics was an empirical success even if it lacked sound theoretical foundations could no longer be taken seriously the essential flaw in the keynesian interpretation of macroeconomic phenomenon was the absence of a consistent foundation based on the choice theoretic framework of microeconomics two important papers one by milton friedman 1968 and the other by robert lucas 1976 forcefully demonstrated examples of

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

world country and sector factors in international business cycles do sector specific factors common to all countries play an important role in explaining business cycle co movement we address this question by analyzing international co movements of value added va growth in a multi sector dynamic factor model the model contains a world factor country specific factors sector specific factors and idiosyncratic components we estimate the model using bayesian methods for 30 disaggregated sectors in the g7 economies for the 1974 2004 period our findings show that although there is a substantial role for sector specific factors fluctuations are dominated by country factors the world factor appears to play a minimal role because when using aggregate data the world factor captures both the factor common to all countries and industries and the factor common to the same industry across countries we then examine how these factors evolved as globalization deepened over the past two decades our results suggest that business cycles at a disaggregate level have not become more synchronized internationally this is mainly driven by a substantial fall in the volatility of world shocks during the globalization period rather than a lower sensitivity of sectoral growth to world factors our results also reveal that world factors appear to be more important for industries with a higher level of international vertical integration

electricity spot price dynamics beyond financial models we reveal properties of electricity spot prices that cannot be captured by the statistical models commonly used to model financial asset prices that are increasingly used to model electricity prices using more than eight years of half hourly spot price data from the new zealand electricity market we find that the half hourly trading periods fall naturally into five groups corresponding to the overnight off peak the morning peak daytime off peak evening peak and evening off peak the prices in different trading periods within each group are highly correlated with each other yet the correlations between prices in different groups are lower models adopted from the modeling of security prices that are currently applied to electricity spot prices are incapable of capturing this behavior we use a periodic autoregression to model prices instead showing that shocks in the peak periods are larger and less persistent than those in off peak periods and that they often reappear in the following peak period in contrast shocks in the off peak periods are smaller more persistent and die out perhaps temporarily during the peak periods current approaches to modeling spot prices cannot capture this behavior either