animal spirits and credit cycles in this paper we extend the behavioral macroeconomic model as proposed by de grauwe 2012 to include a banking sector the behavioral model takes the view that agents have limited cognitive abilities as a result it is rational to use simple forecasting rules and to subject the use of these rules to a fitness test agents are then driven to select the rule that performs best the behavioral model produces endogenous and self fulfilling movements of optimism and pessimism animal spirits our main result is that the existence of banks intensifies these movements creating a greater scope for booms and busts thus banks do not create but amplify animal spirits we find that increases in the equity ratios of banks tend to reduce the importance of animal spirits over the business cycle the other policy conclusion we derive from our results is that the central bank has an important responsibility for stabilising output output stabilization is an instrument to tame the animal spirits this has the effect of improving the trade off between inflation and output volatility

estimation of the tenants benefits residing in public rental housing with unit size constraint in korea summary hicksian income equivalent variation ev has often been used to measure tenants benefits in evaluating public housing programmes a number of papers have so far attempted to apply hicksian ev under the implicit assumption of no constraint on unit size of public housing as a result overestimation of tenants benefits probably occurs where unit size constraints exist as in korea s public housing programme thus the purpose of the paper is to measure hicksian ev with the constraint in unit size of public housing by formulating a revised hicksian ev equation and comparing the result with constraint free cases it is found that hicksian ev with constraint in unit size decreases relative to that of the constraint free cases the extent of ev decrease depends on the income elasticity of demand for housing and the difference between the optimum consumption of public housing under rent support demand wanted and the actual constraint of unit size demand fulfilled

the role of cognitive limitations and heterogeneous expectations for aggregate production and credit cycle abstract the behavioural model of de grauwe and macchiarelli 2015 is extended to include financial frictions on the aggregate supply side the result is a tight and sustained feedback loop between animal spirits on one hand and supply of credit capital purchase and production on the other during phases of optimism credit is abundant access to production capital is easy the cash in advance constraint is lax risks are undervalued and production is booming upon reversal in market sentiment the contraction is quick and deep moreover the model is capable of replicating the stylized fact of a long and sustained simultaneous growth in credit production and asset prices observed in the us since mid1990 s lastly the behavioural model does a decent job in matching us data including multiple supply side relations including capital firm credit and inflation interest rate

monetary and financial interactions in the business cycle this paper develops a computable general equilibrium model in which endogenous agency costs can potentially alter business cycle dynamics the model resembles the influential theoretical work of ben bernanke and mark gertler 1989 two sources of shocks are considered productivity shocks and monetary shocks the model is parametrized to match key features of u s aggregate activity the principal result of the analysis is that agency costs add very little to the basic business cycle dynamics copyright 1995 by ohio state university press

the econometrics of the general equilibrium approach to business cycles early in this century american institutionists and members of the german historical school attacked and rightfully so neoclassical economic theory for not being quantitative this deficiency bothered ragnar frisch and motivated him along with irving fisher joseph schumpeter and others to organize the econometric society in 1930 the aim of the society was to foster the development of quantitative economic theory that is the development of what frisch labeled econometrics soon after its inception the society started the journal econometrica frisch was the journal s first editor and served in this capacity for twenty five years

the financial instability hypothesis a stochastic microfoundation framework this paper examines the dynamics of financial distress and in particular the mechanism of transmission of shocks from the financial sector to the real economy the analysis is performed by representing the linkages between microeconomic financial variables and the aggregate performance of the economy by means of a microfounded model with firms that have heterogeneous capital structures the model is solved both numerically and analytically by means of a stochastic approximation that is able to replicate quite well the numerical solution these methodologies by overcoming the restrictions imposed by the traditional microfounded approach enable us to provide some insights into the stabilization policies which may be effective in a financially fragile system

comment on f e kydland and e c prescott the econometrics of the general equilibrium approach to business cycles real business cycle theory is cast in a competitive general equilibrium setting with infinitely lived households and a propagation mechanism allowing real shocks to produce business cycle fluctuations the models show that substantial fluctuations can be generated by real technology shocks in a competitive framework and thus reflect a pareto efficient response to changes in intertemporal possibilities for substitution the central point of this finding is that fluctuations do not necessarily reflect inefficiencies as is often implicitly implied by in particular the keynesian literature this is an observation which most people would accept although there are substantial reservations concerning the assumptions underlying the models and thus the importance of this observation however a new empirical approach known as calibration has also come to be associated with real business cycle models authors belonging to this branch of the literature interpret the results of such calibrations as empirical justification for their theories prescott 1986 p 38 goes as far as to conclude that theory predicts what is observed indeed if the economy did not display the business cycle phenomena there would be a puzzle although it is uncontroversial to regard calibrations previously known as simulations as a useful way of illustrating properties of theoretical models having a complexity which precludes an analytical solution it is less obvious that calibration can be seen as a test of a theory actually protagonists of real business cycle theories tend to go even further by suggesting that this empirical methodology is a logical consequence of the general equilibrium approach this raises the question does calibration teach us something about the model or about reality

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

asset price and wealth dynamics in a financial market with heterogeneous agents abstract this paper considers a discrete time model of a financial market with one risky asset and one risk free asset where the asset price and wealth dynamics are determined by the interaction of two groups of agents fundamentalists and chartists in each period each group allocates its wealth between the risky asset and the safe asset according to myopic expected utility maximization but the two groups have heterogeneous beliefs about the price change over the next period the chartists are trend extrapolators while the fundamentalists expect that the price will return to the fundamental we assume that investors optimal demand for the risky asset depends on wealth as a result of crra utility a market maker is assumed to adjust the market price at the end of each trading period based on excess demand and on changes of the underlying reference price the model results in a nonlinear discrete time dynamical system with growing price and wealth processes but it is reduced to a stationary system in terms of asset returns and wealth shares of the two groups it is shown that the long run market dynamics are highly dependent on the parameters which characterize agents behaviour as well as on the initial condition moreover for wide ranges of the parameters a locally stable fundamental steady state coexists with a stable non fundamental steady state or with a stable closed orbit where only chartists survive in the long run such cases require the numerical and graphical investigation of the basins of attraction other dynamic scenarios include periodic orbits and more complex attractors where in general both types of agents survive in the long run with time varying wealth fractions

financial crises bank risk exposure and government financial policy a macroeconomic model with nancial intermediation is developed in which the intermediaries banks can issue outside equity as well as short term debt this makes bank risk exposure an endogenous choice the goal is to have a model that can not only capture a crisis when banks are highly vulnerable to risk but can also account for why banks adopt such a risky balance sheet in the rst place we use the model to assess quantitatively how perceptions of fundamental risk and of government credit

money output and the nominal national debt this paper presents a model of finitely lived rational agents in which unanticipated innovations in the stock of fiat money affect real variables an unanticipated inflation reduces the real value of the nominally denominated national debt thereby reducing the crowding out of capital and or the tax burden both effects stimulate increased investment in capital which leads to an increase in real output and wages in the following periods in contrast with price surprise models these real effects occur even if the monetary innovation is instantly and perfectly observed by agents copyright 1990 by american economic association

a simple adaptive measure of core inflation this paper proposes a new measure of core inflation and compares it with several existing measures the new measure is adaptive and is designed to track sudden and persistent movements in inflation such as those arising from changes in monetary policy regimes the adaptive measure filters out transients more effectively than existing measures and it is a superior predictor of locally mean reverting components of inflation

nominal vs real wage rigidities in new keynesian models with hiring costs a bayesian evaluation abstract the inclusion of labor market frictions in the new keynesian dsge model overcomes the main drawbacks of the baseline framework in this paper we show that this extended model by assuming real wage rigidities does not replicate the correct wage dynamics and the negative conditional correlation between technology shocks and employment observed in the data known as the productivity employment puzzle we show also that these empirical limitations can be overcome by replacing real wage rigidities with nominal wage rigidities without sacrificing other appealing features of the model we adopt a bayesian perspective to estimate the dynamic properties of the model with real wage rigidities and compare them with those of the model with nominal wage rigidities we show that the evidence favors this latter construction

hedonic prices and public goods an argument for weighting locational attributes in hedonic regressions by lot size the hedonic price technique is frequently used for valuing attributes of housing in such an analysis a hedonic price function is specified p p x p is the price of a house and x is a vector of attributes of the house the attributes include structural features such as size age garage and fireplace and locational features such as neighborhood quality crime access to downtown and air quality the function is interpreted as an equilibrium price schedule for houses see rosen 5 its first derivative with respect to an element of x is an implicit price for that attribute the price function is estimated typically using cross sectional data from a housing market i argue that the measure of each locational attribute in a hedonic price function should be weighted by lot size and that the measure of each structural attribute should not be weighted the usual regression weights neither locational nor structural attributes by my argument if two houses are identical in every respect except that the measure of lot size of the first is twice that of the second then the measure for air quality access to parks and so on for the first should be twice that of the second i also argue that failure to weight locational attributes in a hedonic regression that should be weighted gives biased implicit price estimates for structural and locational attributes the direction and degree of bias depend on the correlations between the attributes and lot size in the housing market on the variance of lot size in the market and on the lot size of the observation for which implicit price is being estimated

earnings unemployment and the allocation of time over time since an individual s labour market history can be described by a markov chain in state space it is possible to calculate the steady states it is natural to interpret the steady state proportion in unemployment for a group of identical workers as the natural rate of unemployment for this group i e it is the expected proportion that would be employed if the environment were to remain constant it is shown how the natural rate of unemployment is different for different groups the model is estimated using data from a large u s income maintenance experiment the predictions of the model with some exceptions bear up well to confrontation by data the empirical findings also accord well with existing evidence on cross section studies of labour supply we find that labour force participation rates implied by the estimated models are positively related to earnings for all age sex and race groups as expected we demonstrate that the elasticities of the unemployment rates for all groups with respect to expected wage rates are negative and large in absolute value in the case of adults while the role of the wage in allocation of time is not novel the existing neoclassical labour literature uses static labour supply models to interpret participation rate studies

a new keynesian model with heterogeneous expectations abstract within a new keynesian model we incorporate bounded rationality at the individual agent level and we determine restrictions on expectations operators sufficient to imply aggregate is and as relations of the same functional form as those under rationality this result provides dual implications the strong nature of the restrictions required to achieve aggregation serve as a caution to researchers imposing heterogeneous expectations at an aggregate level may be ill advised on the other hand accepting the necessary restrictions provides for tractable analysis of expectations heterogeneity as an example we consider a case where a fraction of agents are rational and the remainder are adaptive and find specifications that are determinate under rationality may possess multiple equilibria in case of expectations heterogeneity

macroeconomic expectations of households and professional forecasters economists have long emphasized the importance of expectations in determining macroeconomic outcomes yet there has been almost no recent effort to model actual empirical expectations data instead m acroeconomists usually simply assume that expectations are rational this paper shows that while empirical household expectations are not rational in the usual sense expectational dynamics are well captured by a model in which households views derive from news reports of the views of professional forecasters which in turn may be rational the model s estimates imply that people only occasionally pay attention to news reports this inattention generates stickyness in aggregate expectations with important macroeconomic consequences

search models and applied labor economics individual effects in a nonlinear model explicit treatment of heterogeneity in the empirical job search model this paper extends the empirical version of a job search model to permit heterogeneity in the location of wage offer distributions population variance in wage offers is decomposed into variance due to heterogeneity and variance facing each individual heterogeneity is found to be an important source of offer variance in the population the amount of pure wage offer dispersion facing individuals is found to contribute little to population variance

introducing financial frictions and unemployment into a small open economy model the current nancial crisis has made it abundantly clear that business cycle modeling no longer can abstract from nancial factors it is also becoming increasingly clear that the stylized modeling of labor markets without explicit unemployment that is the current standard approach has its limitations some questions which the dominating extant business cycle models are mute on but that we would like to answer are how important are nancial and labor market frictions for the business cycle dynamics of a

comparing shocks and frictions in us and euro area business cycles a bayesian dsge approach this paper estimates a dsge model with many types of shocks and frictions for both the us and the euro area economy over a common sample period 1974 2002 the structural estimation methodology allows us to investigate whether differences in business cycle behaviour are due to differences in the type of shocks that affect the two economies differences in the propagation mechanism of those shocks or differences in the way the central bank responds to those economic developments our main conclusion is that each of these characteristics is remarkably similar across both currency areas copyright 2005 john wiley sons ltd

values in the wind a hedonic analysis of wind power facilities the siting of wind facilities is extremely controversial this paper uses data on 11 331 property transactions over nine years in northern new york state to explore the effects of new wind facilities on property values we use a fixed effects framework to control for omitted variables and endogeneity biases we find that nearby wind facilities significantly reduce property values in two of the three counties studied these results indicate that existing compensation to local homeowners communities may not be sufficient to prevent a loss of property values jel q51 q53

on the price of land and the value of amenities a house represents not only a bundle of structural characteristics but also a set of location specific characteristics adding locational coordinates and site area to other house characteristics makes it possible to estimate a land rent surface as well as thle hedonic prices attached to local patterns of land use and other neighbourhood characteristics one can then estimate how the value of such location specific characteristics are capitalized into land prices this analysis illustrated with estimates based on data from two british towns has a number of wider implications it generates a more parsimonious method of estimating amenity values it also reveals likely systematic biases produced by conventional hedonic studies which exclude land and location finally it clarifies the conceptual definition of land and suggests that monocentric models can perform well despite recent criticism

the information content of wage and duration data in a search model estimates of the parameters of the wage offer density and the offer arrival process of a simple search model are presented in this paper the optimality constraint from the search model is treated as a restriction and its effect on parameter estimates is analysed estimates from wage data alone and estimates from duration data alone can be interpreted as unrestricted estimates while estimates obtained from wage and duration data together can be interpreted as restricted estimates this interpretation allows a test of the optimality constraint which is rejected by the data used estimates reveal a substantial difference in the information contained in wages and the information contained in durations but benefit elasticities are consistent with findings from previous studies