business cycle analysis with a markov switching model this article explores the hamilton markov switching model through an analysis of the business cycles of eight developed market economies forecasting and specification tests suggest only marginal improvements over linear autoregressive models yet filtered and smoothed conditional probabilities indicate turning points in business cycles that closely correlate with turning points from traditional methods tests regarding the asymmetry of business cycles reject the null of symmetry for most countries

estimates of output gaps in four southeast asian countries abstract the output gaps derived for four countries using a generalized hamilton model are compared with conventional output gap estimates further research is needed to explain why the output gap identifies crisis episodes as slowdowns instead of recessions in some countries

detecting periodically collapsing bubbles a markov switching unit root test this paper addresses the problem of testing for the presence of a stochastic bubble in a time series in the case that the bubble is periodically collapsing so that the asset price keeps returning to the level implied by the market fundamentals as this is essentially a problem of identifying the collapsing periods from the expanding ones we propose using a generalization of the dickey fuller test procedure which makes use of the class of markov regime switching models the potential of the new methodology is illustrated via simulation and an empirical example is given copyright 1999 john wiley sons ltd

choices of organizational structures in religious organizations a game theoretic approach abstract this study has extended the work done by allen journal of economic behavior and organization 27 1995 97 and others who attempted to show a relationship between a denomination s doctrine and its organizational structure while allen s work resulted in a one to one mapping between doctrinal beliefs and organizational structure this study has argued that there exists a continuum of structures that are consistent with a particular church s doctrine the church s ultimate organizational structure is a game theoretic outcome resulting when churches attempt to maximize membership subject to the constraints imposed by their doctrines we examine how churches organizational structures depend on the extent to which members are willing to sacrifice their structural preferences to hold on to their doctrines consistent with allen s outcome our result indicates the further apart are the doctrines held by two churches the greater the variation in their structural organization this paper also examines the relationship between churches organizational structures and the degree of the majority church s majority

sacrifice and stigma reducing free riding in cults communes and other collectives this paper presents an economic analysis of religious behavior that accounts for the continuing success of groups with strange requirements and seemingly inefficient prohibitions the analysis does not presuppose any special motives for religious activity rather religion is modeled as a club good that displays positive returns to participatory crowding the analysis demonstrates that efficient religions with perfectly rational members may benefit from stigma self sacrifice and bizarre behavioral restrictions the model also addresses sacrifice in nonreligious social clubs fraternities communes political parties work groups and families

structural analysis of cointegrating vars this survey uses a number of recent developments in the analysis of cointegrating vector autoregressions vars to examine their links to the older structural modelling traditions using autoregressive distributed lag ardl and simultaneous equations models sems in particular it emphasizes the importance of using judgement and economic theory to supplement the statistical information after a brief historical review it sets out the statistical framework discusses the identification of impulse responses using the generalized impulse response functions reviews the analysis of cointegrating vars and highlights the large number of choices applied workers have to make in determining a specification in particular it considers the problem of specification of intercepts and trends and the size of the var in more detail and examines the advantages of the use of exogenous variables in cointegration analysis the issues are illustrated with a small u s macroeconomic model

was the recent downturn in us real gdp predictable this article uses a small set of variables real gdp the inflation rate and the short term interest rate and a rich set of models atheoretical time series and theoretical structural linear and nonlinear as well as classical and bayesian models to consider whether we could have predicted the recent downturn of the us real gdp comparing the performance of the models to the benchmark random walk model by root mean square errors the two structural theoretical models especially the nonlinear model perform well on average across all forecast horizons in our ex post out of sample forecasts although at specific forecast horizons certain nonlinear atheoretical models perform the best the nonlinear theoretical model also dominates in our ex ante out of sample forecast of the great recession suggesting that developing forward looking microfounded nonlinear dynamic stochastic general equilibrium models of the economy may prove crucial in forecasting turning points

friedman s plucking model of business fluctuations tests and estimates of permanent and transitory components in milton friedman s model output cannot exceed a ceiling level but occasionally is plucked downward by recession implying fluctuations are asymmetric recessions transitory and recessions duration dependent though expansions are not the empirical literature lends support but formal modeling has been absent the econometric model presented here encompasses both plucking and symmetric fluctuations around a stochastic trend we find gdp is well characterized by the plucking model implied recessions correspond to nber reference cycles and no role for symmetric cycles decomposition of the unemployment rate reveals a corresponding asymmetry and timing paths of ceiling output and trend unemployment are presented

do long swings in the business cycle lead to strong persistence in output abstract this paper investigates how the occasional long swing in the business cycle can produce long memory behavior in us output to prove this theoretical relationship we extend the hamilton markov chain regime switching model of real aggregate output to include the occasional long regime we do this by modeling the duration length of the expansion and recession regimes as draws from a fat tailed distribution with realized durations that are high in variability and occasionally extreme in value empirically we find that the tail indices for the length of us economic booms and busts correspond with the long memory parameter estimates of diebold and rudebusch 1989 long memory and persistence in aggregate output journal of monetary economics 24 189 209 and sowell 1992a modeling long run behavior with the fractional arima model journal of monetary economics 29 277 302 for real us output estimates of our extended regime switching model produce better short and long run forecasts of output in comparison to forecasts with a fractionally integrated model furthermore our estimated regime switching model finds us expansions to be fragile during their infancy but become more and more likely to continue after surviving the first seven quarters

a comparison of autoregressive univariate forecasting procedures for macroeconomic time series the actual performance of several automated univariate autoregressive forecasting procedures applied to 150 macroeconomic time series are compared the procedures are the random walk model as a basis for comparison long autoregressions with three alternative rules for lag length selection and a long autoregression estimated by minimizing the sum of absolute deviations the sensitivity of each procedure to preliminary transformations data periodicity forecast horizon loss function employed in parameter estimation and seasonal adjustment procedures is examined the more important conclusions are that akaike s lag length selection criterion works well in a wide variety of situations the modeling of long memory components becomes important for forecast horizons of three or more periods and linear combinations of forecasts do not improve forecast quality appreciably

source of monetary growth uncertainty and economic activity the time varying parameter model a large body of research suggests that uncertainty is an important factor affecting economic activity most earlier research however fails to consider the possibility that uncertainty may affect the value of new information and economic activity differently depending upon its source the author first examines the importance of these different sources for modeling u s monetary growth uncertainty he then empirically relates different sources of monetary growth uncertainty to economic activity measured by real gnp the results suggest that different sources of uncertainty have different impacts on economic activity the results tend to confirm predictions arising in the literature on irreversible investment and uncertainty copyright 1993 by mit press

cross sectional heterogeneity and the persistence of aggregate fluctuations abstract the microevidence indicates that small firms grow faster than big firms i argue that this relationship between the expected growth rate of a firm and its size may provide a microfoundation for the well known high degree of persistence of shocks to aggregate output the logic goes as follows almost any shock tends to temporarily alter firms incentive to invest in growth thereby leading to a reallocation of firms across size categories if small firms grow faster than big ones the impact effect of the shock on aggregate output is gradually absorbed but as fast growing small firms become big and start to grow at the lower rate of big firms the rate at which the shock is absorbed decreases over the adjustment path as a result shocks are absorbed yet at a very low decreasing rate which induces long memory in aggregate output i argue that this transmission mechanism may reconcile the microevidence with the observed degree of aggregate persistence it requires changes in neither the number of firms in the market nor the rate of technological progress it is merely the result of the cross sectional heterogeneity that we observe in real economies

do rice prices follow a random walk evidence from markov switching unit root tests for asian markets this study revisits the issue of mean reversion in the import rice prices of six asian countries over the period between 1995 and 2015 augmented dickey fuller tests with a conventional linear regression model support the presence of a unit root in the levels of the price data however when regressions allow for markov switching in coefficients and variances to capture periodic shifts in levels and volatilities there is strong evidence against the unit root null hypothesis in favor of stationarity over much of the observation period

the flypaper effect what happens to a state s spending when it receives an unconditional grant from the federal government the standard theoretical analysis predicts that the increase in spending will be the same as that generated by an equivalent increase in local incomes or roughly 5 10 percent for most states in contrast numerous empirical analyses have found that spending increases by much more with some estimates near 100 percent this result is known as the flypaper effect since the money appears to stick where it hits the authors review this evidence as well as other studies that find similar behavior in firms

further evidence regarding nonlinear trend reversion of real gdp and the cpi abstract this paper examines whether the cpi and real gdp for the us exhibit nonlinear reversion to trend as recently concluded by beechey and osterholm beechey m and osterholm p 2008 revisiting the uncertain unit root in gdp and cpi testing for nonlinear trend reversion economics letters 100 221 223 the wild bootstrap is used to correct for non normality and heteroscedasticity in a nonlinear unit root test the use of wild bootstrapped critical values affects test conclusions in some cases results also are sensitive to the sample period examined

unit root and trend breaks in per capita output evidence from sub saharan african countries abstractthis article examines the nonstationary properties of per capita real output in 28 sub saharan african ssa countries covering the period 1960 2014 the sequential testing approach proposed by kejriwal and lopez 2013 econometric reviews 32 8 892 927 is used to categorize ssa countries into growth shift level shift and linear trend hypotheses based on the presence or not of breaks in slope and or level of the trend function the break dates are associated to major historical or economic events such as sociopolitical crisis commodity price fluctuations on international market the discovery and the exploitation of mineral deposits or unfavourable environmental and climatic conditions the empirical evidences of appropriate unit root tests fail to reject the unit root hypothesis in all the countries suggesting that a shock would have a permanent effect on growth process and stabilization policies may be implemented in dealing with income fluctuations

bayes estimates of markov trends in possibly cointegrated series stylized facts show that average growth rates of u s per capita consumption and income differ in recession and expansion periods because a linear combination of such series does not have to be a constant mean process standard cointegration analysis between the variables to examine the permanent income hypothesis may not be valid to model the changing growth rates in both series we introduce a multivariate markov trend model that accounts for different growth rates in consumption and income during expansions and recessions and across variables within both regimes the deviations from the multivariate markov trend are modeled by a vector autoregression var model bayes estimates of this model are obtained using markov chain monte carlo methods the empirical results suggest the existence of a cointegration relation between u s per capita disposable income and consumption after correction for a multivariate markov trend this result is also obtained when per capita investment is added to the var

potential pitfalls in determining multiple structural changes with an application to purchasing power parity we investigate the empirical performance of the bai and perron multiple structural change tests and show that the use of their critical values may cause severe size distortions in persistent series to correct these size distortions while maintaining a good power we implement the bai structural change test and extend it in two directions developing a new procedure to choose the number of breaks and a restricted version that specifically models breaks that imply mean or trend reversion using our new methodologies we reconcile the results of unit root tests with those of tests for structural change when testing for long run purchasing power parity

the case for trend stationarity is stronger than we thought in dejong and whiteman 1991a we concluded that 11 of the 14 macroeconomic time series originally studied by nelson and plosser 1982 supported trend stationarity phillips 1991 criticizes this inference claiming that our procedure is biased against integration and that our results are sensitive to model and prior specification however phillips alternative models and priors bias his results in favour of integration despite these biases phillips own findings indicate that the data provide the greatest relative support to trend stationarity this result is similar to our own 1989 1990 1991b findings concerning the sensitivity of our results the trend stationarity inference is remarkably robust

the great depression and output persistance the persistence of shocks to aggregate output has been the subject of continuing investigation since nelson and plosser 1982 suggested they are largely permanent recent literature reaches mixed conclusions largely due to disagreement about how to treat the great depression we estimate output persistence based on a parametric bootstrap of a markov switching model for gdp 1870 1994 in which the economy can switch in and out of a turbulent state our results suggest that real shocks persist indefinitely if we drop the maintained assumption of homoskedasticity in favor of a markov switching representation of the great depression

long memory and persistence in aggregate output abstract we examine persistence in u s aggregate output by estimating fractionally integrated arima models these models provide better low frequency approximations to the wold representation than previous stochastic specifications and earlier results on the importance of a permanent component emerge as special cases we find evidence of long memory which induces persistence though this long memory need not be associated with a unit root our point estimates indicate that macroeconomic shocks while persistent are distinctly less persistent than many earlier studies suggest however confidence intervals associated with the long run response are quite wide

asymmetries and nonlinearities in italian macroeconomic fluctuations this paper reports the results of an empirical investigation of business cycle asymmetries in the italian economy macroeconomic time series both annual post unity and quarterly post world war ii are subjected to nonlinearity and asymmetry tests the dynamics of recessions and expansions are then modelled with threshold autoregressive and markov switching models the paper shows that allowing for two regimes is sufficient to account for the finding of neglected nonlinearity the results indicate that business cycle asymmetries can provide both an intuitive economic interpretation and a parsimonious representation of nonlinearities in macroeconomic time series

markov switching models and the unit root hypothesis in real us gdp abstract i find that real us gdp is better characterized as a trend stationary markov switching process than as having a regime dependent unit root i examine the effects of both assumptions on the analysis of business cycle features and their implications for the persistence of the dynamic response of output to a random disturbance

the uncertain trend in u s gdp abstract several recent papers conclude that gdp is trend stationary implying that all shocks are transitory we re examine the evidence in light of test size distortion due to data based lag selection and departures from the maintained hypothesis of temporal homogeneity and find both effects trigger false rejections of the unit root hypothesis when it is true and signal the presence of permanent shifts in trend that did not occur trend stationarity is not supported by the more homogeneous post war data but if imposed implies cycles of implausible duration and pattern 1997 output was 8 below trend

aggregation persistence and volatility in a macro model we introduce firm heterogeneity into the standard monopolistically competitive real business cycle rbc model the fundamental equilibrium path is derived and the time series properties of aggregate gdp are studied analytically although firms productivities are subject to temporary shocks the aggregate process displays a surprising novel form of nonlinearity and long memory which had not been built into the model at the outset this aggregate gdp turns out to have very different properties from log linear time series models such as auto regressive ar models and their extensions it displays very strong persistence which ends abruptly with a sudden change of tendency giving its autocorrelation function acf an s shape although persistent it is mean reverting unlike the everlasting memory of unit root processes its volatility is of a greater order of magnitude than that of any of its components so small micro shocks can generate large macro fluctuations it is also characterized by long asymmetric cycles of random lengths increased monopoly power tends to reduce the amplitude and increase the

interactions between real economic and financial sides of the us economy in a regime switching environment this objective of this study is to examine the linkages between real economic and financial variables in the united states in a regime switching environment that accounts explicitly for high volatility in the stock market and high stress in financial markets since the linearity test shows that the linear model should be rejected we employ the markov switching vecm to examine the same objective using the bayesian markov chain monte carlo method the regime dependent impulse response function rdirf highlights the increasing importance of the financial sector of the economy during stress periods the responses and their fluctuations are significantly greater in the high volatility regime than in the low volatility regime

business cycle asymmetries characterisation and testing based on markov switching autoregressions tests for business cycle asymmetries are developed for markov switching autoregressive models the tests of deepness steepness and sharpness are wald statistics which have standard asymptotics for the standard two regime model of expansions and contractions deepness is shown to imply sharpness and vice versa whereas the process is always nonsteep two and three state models of u s gnp growth are used to illustrate the approach along with models of u s investment and consumption growth the robustness of the tests to model misspecification and the effects of regime dependent heteroscedasticity are investigated

regime switching in stochastic models of commodity prices an application to an optimal tree harvesting problem abstract this paper investigates whether a regime switching model of stochastic lumber prices is better for the analysis of optimal harvesting problems in forestry than a more traditional single regime model prices of lumber derivatives are used to calibrate a regime switching model with each of two regimes characterized by a different mean reverting process a single regime mean reverting process is also calibrated the value of a representative stand of trees and optimal harvesting prices are determined by specifying a hamilton jacobi bellman variational inequality which is solved for both pricing models using a implicit finite difference approach the regime switching model is found to more closely match the behavior of futures prices than the single regime model in addition analysis of a tree harvesting problem indicates significant differences in terms of land value and optimal harvest thresholds between the regime switching and single regime models

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

the chaning composition of income transfer programmes a public choice analysis this paper investigates the role of the interaction between the aid to families with dependent children afdc and food stamp programmes as an explanation for the decline in real income transfers experienced in the united states in the 1970s a public choice model is developed that focuses on the negative income tax features of the food stamp programme and its impact on the marginal cost of income redistribution the hypothesis developed from the theoretical model is investigated with a panel data set the econometric results suggests that the introduction of the food stamp programme did lead to a decline in real afdc transfers but that combined transfers afdc plus food stamps rose after the introduction of the food stamp programme it is further found that a flypaper effect is present which explains the strong stimulative effect from the food stamp grant on the level of income redistribution

is consumption too smooth for thirty years it has been accepted that consumption is smooth because permanent income is smoother than measured income this paper considers the evidence for the contrary position that permanent income is in fact less smooth than measured income so that the smoothness of consumption cannot be straightforwardly explained by permanent income theory the paper argues that in postwar u s quarterly data consumption is smooth because it responds with a lag to changes in income

do recessions permanently change output abstract this paper examines whether negative innovations to gnp are more or less persistent than positive innovations we find that once we allow for the impulse response of gnp to be asymmetric negative innovations to gnp are observed to be much less persistent than positive ones in particular the effect of a recession on the forecast of output is found to be negligible after only eight to twelve quarters while the effect of a positive shock is estimated to be persistent and amplified over time our results may therefore help reconcile two antagonistic views about the nature of business cycle fluctuations

is the trend in post ww ii us real gdp uncertain or non linear abstract this paper examines the presence of deterministic trend and or absence of a unit root in the log of post ww ii us real gdp evidence favoring non linear deterministic trend and trend stationarity unit root absence is found contradicting recent unit root and trend uncertainty findings

size distortions of tests of the null hypothesis of stationarity evidence and implications for the ppp debate abstract tests of the null hypothesis of stationarity against the unit root alternative play an increasingly important role in empirical work in macroeconomics and in international finance we show that the use of conventional asymptotic critical values for stationarity tests may cause extreme size distortions if the model under the null hypothesis is highly persistent this fact calls into question the use of these tests in empirical work we illustrate the practical importance of this point for tests of long run purchasing power parity ppp under the recent float we show that the common practice of viewing tests of stationarity as complementary to tests of the unit root null will tend to result in contradictions and in spurious rejections of long run ppp while the size distortions may be overcome by the use of finite sample critical values the resulting tests tend to have low power under economically plausible assumptions about the half life of deviations from ppp thus the fact that stationarity is not rejected cannot be interpreted as convincing evidence in favor of mean reversion only in the rare case that stationarity is rejected do size corrected tests shed light on the question of long run ppp

model evaluation based on residual analysis of two similar models models that may appear to have different properties may in fact produce residuals that differ only in subtle ways by analysing the relationships between model residuals the problems in distinguishing between models can perhaps be discovered as illustrated by the econometric examples considered regressing residuals gives the long memory residual which is the difference between two models but this difference is very subtle and deeply hidden which explains why the traditional standard technique does not find this difference

asymmetry in business fluctuations international evidence on friedman s plucking model abstract friedman s plucking model of business fluctuations suggests that output cannot exceed a ceiling level and it is occasionally plucked downward by recession output has depth and steepness this study uses a sample of 12 industrial and emerging economies and finds some evidence that negative shocks are largely transitory while positive shocks are mostly permanent in a few cases as implied by the plucking model output fluctuations tend to be asymmetric recessions are transitory and duration dependent although expansions are not there is however serial correlation in almost all cases international evidence on friedman s plucking model is far from robust

output growth and its volatility the gold standard through the great moderation this study examines the relationship between u s output growth and its volatility over the period 1876 i to 2012 ii we adjust the data for outliers and structural breaks we employ generalized autoregressive conditional heteroskedasticity garch and exponential garch egarch specifications normality and homoskedasticity appear only in the garch or egarch model that corrects for the outliers when including the break in the mean equation high volatility persistence remains after also accommodating the breaks in the variance equation the integrated garch effect proves spurious either for the symmetric or the asymmetric model finally our empirical results suggest that the finding of higher output growth volatility stimulating output growth and higher output growth reducing its volatility obtained from the symmetric garch in mean garch m model also proves spurious as a result of the emergence of an asymmetric effect our more appropriately specified asymmetric egarch m model suggests positive volatility in mean and level effects in the long period real gross national product series

examining trends of criteria air pollutants are the effects of governmental intervention transitory despite its growth in other areas of economics time series econometric methods have not beenwidespread in the area of environmental andresource economics we illustrate one use oftime series methods by examining the time pathof us nitrogen oxide nox emission dataover the period 1900 1994 the analysishighlights that proper time series methods canaid in optimal regulatory policy as well asdeveloping empirical verification of theoriesput forth to explain economic phenomena inaddition several interesting results emerge first we find that the emissions seriescontains both a permanent and random component second if one attributed all of the emissionsreductions to regulatory policy interventionanalysis suggests that the 1970 clean air act caa did not merely have transitory effects but permanently influenced the noxemission path in terms of total regulatoryimpact an upper bound on the emissions saveddue to the 1970 caa is in the range of27 48

resource extraction with a carbon tax and regime switching prices exercising your options this paper develops a model of a profit maximizing firm with the option to exploit a non renewable resource choosing the timing and pace of development the resource price is modelled as a regime switching process which is calibrated to oil futures prices a hamilton jacobi bellman equation is specified that describes the profit maximization decision of the firm the model is applied to a problem of optimal investment in a typical oils sands in situ operation and solved for critical levels of oil prices that would motivate a firm to make the large scale investment needed for oil sands extraction as well as to operate mothball or abandon the facility regime shifts can have an important effect on the optimal timing of investment and extraction the paper examines the effect of several carbon tax schemes on optimal timing of construction production and abandonment a form of green paradox is identified

a model of carbon price interactions with macroeconomic and energy dynamics abstract this paper develops a model of carbon pricing by considering two fundamental drivers of european union allowances economic activity and energy prices on the one hand economic activity is proxied by aggregated industrial production in the eu 27 as it provides the best performance in a preliminary forecasting exercise vs other indicators on the other hand brent natural gas and coal prices are selected as being the main carbon price drivers as highlighted by previous literature the interactions between the macroeconomic and energy spheres are captured in a markov switching var model with two states that is able to reproduce the boom bust business cycle hamilton 1989 first industrial production is found to impact positively negatively the carbon market during periods of economic expansion recession thereby confirming the existence of a link between the macroeconomy and the price of carbon second the brent price is confirmed to be the leader in price formation among energy markets bachmeier and griffin 2006 as it impacts other variables through the structure of the markov switching model taken together these results uncover new interactions between the recently created eu emissions market and the pre existing macroeconomic energy environment

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

the hamilton model with a general autoregressive component estimation and comparison with other models of economic time series abstract this paper generalizes the hamilton model to the important case in which the autoregressive component need not contain a unit root using u s quarterly real gnp data the model is estimated and the results are compared to those of hamilton some monte carlo evidence for the model is presented and its in sample forecasting performance is discussed and compared to the original hamilton model the arima model and the deterministic time trend model

order in the church a property rights approach this paper examines the organizational structure of christian churches and in doing treats churches as firms constrained by their theology like all firms churches must manage opportunistic behaviour the hypothesis of the paper is that the particular organizational structure of a given church is the result of transaction cost problems that arise in the production of its spiritual good an effort to test the theory is made by examining the history of the church and examining cases of church failures and successes

fractional beta convergence abstract unit roots in output an exponential 2 rate of convergence and no change in the underlying dynamics of output seem to be three stylized facts that cannot go together this paper extends the solow swan growth model allowing for cross sectional heterogeneity in this framework aggregate shocks might vanish at a hyperbolic rather than at an exponential rate this implies that the level of output can exhibit long memory and that standard tests fail to reject the null of a unit root despite mean reversion exploiting secular time series properties of gdp we conclude that traditional approaches to test for uniform conditional and unconditional convergence suit first step approximation we show both theoretically and empirically how the uniform 2 rate of convergence repeatedly found in the empirical literature is the outcome of an underlying parameter of fractional integration strictly between 1 2 and 1 this is consistent with both time series and cross sectional evidence recently produced

regime non stationarity in the us uk real exchange rate abstract using a markov switching extension of the adf regression we find evidence that the us uk real exchange rate is stationary in periods when it is in a low volatility regime and nonstationary when it is in a high volatility regime

the effects of grants in aid on state and local expenditures abstract this paper develops econometric methods to estimate the effect of the piecewise linear budget constraints created by grant formulas in which the subsidy rate is not constant over expenditures e g closed end grants the methods are applied to the afdc program the results show that because of the kinked nature of the grant formula 1 the present federal formula actually increases cross state inequality in afdc benefits 2 several subsidy rates in the formula actually reduce benefits and 3 the so called flypaper effect disappears

re examining long run purchasing power parity abstract our results complement the recent findings of real exchange rates as stationary processes applying a battery of unit root tests can be problematic since the tests are sensitive to the specifics of the time series process the novelty of our approach is in emphasizing the information content of the data to distinguish between the competing processes stationary and non stationary arima processes are fitted to the us uk real exchange rate series covering 134 years artificial data are generated and the small sample distributions of the chosen test statistics are computed under each of the two hypotheses the values of the actual sample statistics seem to come rather from the stationary than from the non stationary process

revisiting the uncertain unit root in gdp and cpi testing for non linear trend reversion we test for the presence of a unit root in u s gdp and cpi allowing for non linear trend reversion under the alternative hypothesis in contrast to most previous results we find evidence in favour of trend stationarity for both variables

mean reversion in equilibrium asset prices this paper demonstrates that negative serial correlation in long horizon stock returns is consistent with an equilibrium model of asset pricing when investors display only a moderate desire to smooth their consumption commonly used measures of mean reversion in stock prices calculated from historical returns data nearly always lie within a 60 percent confidence interval of the median of the monte carlo distributions implied by the authors equilibrium model from this evidence the authors conclude that the degree of serial correlation in the data could plausibly have been generated by their model copyright 1990 by american economic association

nonlinearity and the permanent effects of recessions this paper presents a new nonlinear time series model that captures a post recession bounce back in the level of aggregate output while a number of studies have examined this type of business cycle asymmetry using recession based dummy variables and threshold models we relate the bounce back effect to an endogenously estimated unobservable markov switching state variable when the model is applied to us real gdp we find that the markov switching regimes are closely related to nber dated recessions and expansions also the markov switching form of nonlinearity is statistically significant and the bounce back effect is large implying that the permanent effects of recessions are small meanwhile having accounted for the bounce back effect we find little or no remaining serial correlation in the data suggesting that our model is sufficient to capture the defining features of us business cycle dynamics when the model is applied to other countries we find larger permanent effects of recessions copyright 2005 john wiley sons ltd

new index of coincident indicators a multivariate markov switching factor model approach abstract this paper extends the univariate markov switching unobserved component model to the multivariate markov switching factor model of coincident economic indicators an approximate ml method is developed to estimate the model the extracted markov switching factor may be interpreted as the coincident index and is comparable to the stock watson index which differs only by the markov switching component using four constituent series of the doc coincident index for the period january 1960 to june 1992 the proposed model generates recessionary and expansionary periods which are remarkably consistent with the nber chronology of the business cycles from the noisy monthly data this paper also finds that duration dependence does matter

the past present and future of macroeconomic forecasting he reports of the death of large scale macroeconomic forecasting models are not exaggerated but many observers interpret the failure of the early models as indicative of a bleak future for macroeconomic forecasting more generally such is not the case although the large scale macroeconomic forecasting models didn t live up to their original promise they nevertheless left a useful legacy of lasting contributions from which macroeconomic forecasting will continue to benefit they spurred the development of powerful identification and estimation theory computational and simulation techniques comprehensive machinereadable macroeconomic databases and much else moreover past failures do not necessarily imply a bleak future we learn from our mistakes just as macroeconomics has benefitted from rethinking since the 1970s so too will macroeconomic forecasting understanding the future of macroeconomic forecasting requires understanding the interplay between measurement and theory and the corresponding evolution of the nonstructural and structural approaches to forecasting nonstructural macroeconomic forecasting methods attempt to exploit the reduced form correlations in observed macroeconomic time series with little reliance on economic theory structural models in contrast view and interpret economic data through the lens of a particular economic theory structural econometric forecasting because it is based on explicit theory rises and falls with theory typically with a lag structural keynesian macroeconomic forecasting based on postulated systems of decision rules enjoyed a golden age in the 1950s and 1960s following the advances in keynesian theory in the 1930s and 1940s

red signals current account deficits and sustainability abstract this paper proposes a method to asses the potential problems of sustainability of a country s sovereign debt we claim that the relevant variables used for this analysis are typically subject to changes that are associated with changes in macroeconomics policies we propose a procedure for identifying periods under which the current account accumulates at a non stationary rate our approach is based on imposing identifying restrictions on markov switching type models empirical applications of the procedure to argentina brazil japan uk and usa are examined and discussed

the estimation of prewar gross national product methodology and new evidence the paper develops new methodology for the estimation of prewar gnp taps previously unused data sources and develops new estimates for the periods 1869 1908 and 1869 1928 primary among the new data sources are direct measures of output in the transportation communications and construction sectors and estimates of the consumer price index new measures of real gnp nominal gnp and the gnp deflator are developed the new estimates of real gnp are as volatile on average over the business cycle as the traditional kuznets kendrick series but dampen the amplitude of some cycles while raising the amplitude of others the new estimates of the gnp deflator are distinctly less volatile than the traditional series and in fact no more volatile than those in the postwar period

we voted for this abstract this paper examines two institutional factors that influenced school spending in missouri during the 1970s first the retirement of a bond issue is usually accompanied by an increase in the operating tax rate which requires voter approval the retirement of a bond issue does not reduce but apparently obscures the cost of a tax increase in addition a change in assessment practices in 1975 allowed some districts to increase their effective operating rates without voter approval each of these factors led to substantial tax increases in the affected districts

non renewable resource prices deterministic or stochastic trends in this paper we examine temporal properties of 11 natural resource real price series from 1870 to 1990 recent studies by ahrens and sharma trends in natural resource commodity prices deterministic or stochastic j environ econom manage 33 1997 59 74 berck and roberts natural resource prices will they ever turn up j environ econom manage 31 1996 65 78 and slade grade selection under uncertainty least cost last and other anomalies j environ econom manage 15 1988 189 205 among others find that many non renewable resource prices have a stochastic trend we revisit this issue by employing a lagrangian multiplier unit root test that allows for two endogenously determined structural breaks with and without a quadratic trend contrary to previous research we find evidence against the unit root hypothesis for all price series our findings support characterizing natural resource prices as stationary around deterministic trends with structural breaks we additionally show that both pre testing for unit roots with breaks and allowing for breaks in the forecast model can improve forecast accuracy overall the results in this paper are important in both a positive and normative sense without an appropriate understanding of the dynamics of a time series empirical verification of theories forecasting and proper inference are potentially fruitless