by force of demand explaining international comovements abstract this paper explores the possibility that economic fluctuations may be largely demand driven it is shown that the stylized open economy business cycle regularities documented by feldstein and horioka 1980 the economic journal 90 june 314 329 and backus et al 1992 journal of political economy 100 4 745 775 can be explained by demand shocks alone even in a standard general equilibrium model frictions such as market incompleteness increasing returns to scale and sticky prices do not appear to be the preconditions for resolving these long standing puzzles

when does the prime rate change abstract we study the frequency of prime rate changes we model the prime rate as a time series variable that can be changed only at some cost this yields a logit model in which the probability of a prime rate change is a function of market variables we test this model using data from a micro data set that gives the dating of prime rate changes the results indicate that adjustment costs are important to the prime rate adjustment process and that changes in exogenous variables have a significantly larger effect on the probability of a prime rate increase than decrease

the effect on competition of banking sector consolidation following the financial crisis of 2008 abstract consolidation of the spanish banking sector after the financial crisis of 2008 raises concerns about potential negative effects on competition i use structural econometric methods to examine these anti competitive concerns in the spanish mortgage market i estimate a mixed logit model of mortgage demand and recover bank level cost information with a strategic model of price competition counterfactual experiments reveal that the observed increase in concentration is associated only with small variations in mortgage rates and market shares staying far from collusive levels this moderate change in industry conduct implies a small direct effect of consolidation on bank exposures to mortgage risk

measures of technology and the business cycle empirical evidence on the relationship between technology shocks and e g hours worked hinges crucially on the identification of the unobservable technological progress in this paper we study different measures of technology in order to find out i to what extent they capture the same underlying phenomenon and ii whether the implications for macroeconomic theory are robust across the approaches several versions of the productions function approach and structural var models are investigated our main finding is that the different technology measures are highly correlated however the exact formulation of the identifying restrictions seems to matter for the results while we replicate the standard finding of a strongly procyclical solow residual all other measures of technology are either acyclical or countercyclical

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

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

optimal installation of small hydropower plant a review abstract most of the countries have access to large amounts of water through rivers and canal with this renewable resource electricity can be generated without polluting the environment because of the increasing in electricity demand it is important to estimate the future potential of hydropower it would then be possible to plan development through mix of energy and implement measures to control the development of the electricity market by the use of sustainable small hydropower projects in the present paper attempt has been made to review the different types of model developed to evaluate the cost of the small hydropower projects a review on the different types of correlations developed by earlier investigators has also been presented the present review attempts to cover the benefits such as clean development mechanism cdm internal rate of return irr for financial viability of such projects a review on the different types of optimization techniques is also been presented to minimize the cost of the installation of shp projects

job matching and propagation in the u s labor market the vacancy unemployment ratio and employment react sluggishly to productivity shocks we show that the job matching model in its standard form cannot reproduce these patterns due to excessively rapid vacancy responses extending the model to incorporate sunk costs for vacancy creation yields highly realistic dynamics creation costs induce entrant firms to smooth the adjustment of new openings following a shock leading the stock of vacancies to react sluggishly

is the real price of equipment a good measure for investment specific technological change abstract this paper shows that the real price of equipment is significantly affected by other shocks orthogonal to investment specific technology shock this finding questions the use of the real price of equipment as a measure of investment specific technology shock

indeterminacy aggregate demand and the real business cycle abstract we show that under indeterminacy aggregate demand shocks are able to explain not only aspects of actual fluctuations that standard rbc models predict fairly well but also aspects of actual fluctuations that standard rbc models cannot explain such as the hump shaped trend reverting impulse responses to transitory shocks found in us output cogley and nason am econom rev 85 1995 492 the large forecastable movements and comovements of output consumption and hours rotemberg and woodford am econom rev 86 1996 71 and the fact that consumption appears to lead output and investment over the business cycle indeterminacy arises in our model due to capacity utilization and mild increasing returns to scale

evaluating the performance of merger simulation evidence from the u s airline industry abstract this paper uses merger simulations to predict postmerger prices for five airline mergers from the 1980s and compares these predictions with observed postmerger prices i find that standard simulation methods which measure the effect of the change in ownership on unilateral pricing incentives do not generally provide an accurate forecast by incorporating postmerger information into the model i measure the relative importance of other factors that also contributed to the observed price changes the results indicate that the unexplained component of the price change is largely accounted for by supply side effects i conclude that deviations from the assumed model of firm conduct play an important role in accounting for the differences between the predicted and observed price changes this conclusion suggests that the predictive performance of merger simulation would benefit if more flexible models of firm conduct were incorporated into the methodology

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

can imperfect competition explain the difference between primal and dual productivity measures estimates for u s manufacturing it is well known that under the assumptions of constant returns to scale perfect competition and the absence of factor hoarding primal and dual productivity measures should be highly correlated the apparent lack of correlation is usually attributed to fixed factors of production in this paper i propose an alternative explanation by relaxing the assumption of perfect competition by controlling for the presence of a markup component i demonstrate that both productivity measures are in fact highly correlated for u s manufacturing the analysis also provides an alternative method of estimating a markup of prices over marginal cost that avoids certain difficulties inherent in some existing methods of estimation

straight time and overtime in equilibrium abstract we formulate an equilibrium model of straight time and overtime wages by imposing restrictions on agents consumption sets and using a commodity space that includes employment lotteries we extract some time series implications from a linear quadratic approximation to our model evaluated at particular parameter values we use our model informally to interpret some features of observed time series for wages and employment

tests of the relation between money and output in the real business cycle model abstract the paper contains tests of the relation between money and output implied by a real business cycle model the tests control for a variety that may affect economic growth and the growth rates of monetary aggregates using u s data from 1953 1 1984 4 we find almost no evidence that the empirical relations between real growth and measures of monetary policy violate the restrictions imposed by the model changes in a set of real variables explain a majority of the variation in gnp growth however substantial variation in gnp growth remains unexplained by the real factors that we consider

christopher a sims and vector autoregressions three decades ago christopher a sims suggested that vector autoregressions vars are useful statistical devices for evaluating alternative macroeconomic models his suggestion has stood the test of time well in the early days vars played an important role in the evaluation of alternative models they continue to play that role today

causality and correlations of output and nominal variables in a real business cycle model abstract a dynamic general equilibrium economy in which output is exogenous with respect to money is calibrated and simulated following a procedure commonly used in the real business cycle literature it is then confronted with key comovement patterns of output and nominal variables in post war u s time series data the model economy performs well in matching second moment patterns involving output money and price the model economy with its embedded reverse causation from output to money also provides the means for carrying out a probabilistic appraisal of the observed money to output granger causality in u s data repeated applications of the granger causality test to simulated data lead to the rinding that money causes output more often than expected

real business cycles a new keynesian perspective the debate over the source and propagation of economic fluctuations rages as fiercely today as it did 50 years ago in the aftermath of keynes s the general theory and in the midst of the great depression today as then there are two schools of thought the classical school emphasizes the optimization of private economic actors the adjustment of relative prices to equate supply and demand and the efficiency of unfettered markets the keynesian school believes that understanding economic fluctuations requires not just studying the intricacies of general equilibrium but also appreciating the possibility of market failure on a grand scale

loan sales and the cost of bank capital this paper considers a model where banks may improve the returns on loans by monitoring borrowers bank regulation together with competitive deposit and equity financing can give banks an incentive to sell loans but the extent of their loan selling is limited by a moral hazard problem a solution is given for the optimal design of the bank loan buyer contract that alleviates this moral hazard problem an explanation is also given as to why some banks might buy loans and why loan sales volume has recently increased banks practice of making loans and then selling them to other institutions and individuals has grown in popularity an important example in the development of loan selling has been the increase in banks mortgage loans that are insured and pooled under the authority of the government national mortgage association gnma and then sold to secondary market investors recently however there has been a dramatic rise in the volume of other types of loans being sold especially by money center banks portions of commercial loans originated by these larger banks are being sold to smaller banks foreign banks and other financial and nonfinancial institutions in addition banks car loans and credit card receivables have also been pooled and sold to institutions and individuals selling loans that were once considered nonmarketable assets a process that has been termed asset securitization may be signalling the start of a fundamental change in the commercial banking business the leading banks in loan selling operations now view themselves more as originators and distributors of loans rather than as institutions holding loans as assets the potentially large impact of loan sales on the future of commercial banking naturally evokes the question of what incentives exist for banks to sell loans in this paper we show that loan sales allow some banks to finance loans less expensively than by traditional deposit or equity issue because bank funds received via loan sales can avoid costs associated with required reserves and

the stability of short term interest rates pass through in the euro area during the financial market and sovereign debt crises we analyse the dynamics of the pass through of banks marginal cost to bank lending rates over the 2008 crisis and the euro area sovereign debt crisis in france germany greece italy portugal and spain we measure banks marginal cost by their rate on new deposits contrary to the literature that focuses on money market rates this allows us to account for banks risks we focus on the interest rate on new short term loans granted to non financial corporations in these countries our analysis is based on an error correction approach that we extend to handle the time varying long run relationship between banks lending rates and banks marginal cost as well as stochastic volatility our application is based on a harmonised monthly database from january 2003 to october 2014 we estimate the model within a bayesian framework using markov chain monte carlo methods mcmc we reject the view that the transmission mechanism is permanent over time the long run relationship moved with the sovereign debt crises to a new one with a slower pass through and higher bank lending rates its developments are heterogeneous from one country to the other impediments to the transmission of monetary rates depend on the heterogeneity in banks marginal costs and therefore its risks we also find that rates to small firms increase compared to large firms in a few countries using a var model we show that overall the effect of a shock on the rate of new deposits on the unexpected variances of new loans has been less important since 2010 these results confirm the slowdown in the transmission mechanism

procyclical multifactor productivity tests of the current theories this paper conducts various tests of four hypotheses to account for procycical multifactor productivity the hypotheses include imperfect competition increasing returns to scale labor hoarding and thick market externalities the test results provide strong evidence for imperfect competition and increasing returns and weak evidence for labor hoarding and thick market externalities however the markup and returns to scale parameter estimates are much smaller than those noted in previous research this difference results from the use here of gross output and intermediate inputs as opposed to the use in previous research of value added and primary inputs

how have borrowers fared in banking mega mergers previous studies of event returns surrounding bank mergers show that banks gain value in megamergers and additional value when they absorb in market competitors a portion of these gains has been traced to the increased bargaining power of banks vis a vis regulators and other competitors we demonstrate that increased bargaining power of megabanks adversely affects loan customers of the acquired institution wealth losses are greater when loan customers are credit constrained the loan customer is smaller or the acquisition is an in market deal these findings reinforce complaints that the ongoing consolidation in banking has unfavorably affected the availability of credit for smaller firms and especially capitalconstrained firms

the effects of technology shocks on hours and output a robustness analysis we analyze the effects of neutral and investment specific technology shocks on hours and output long cycles in hours are removed in a variety of ways hours robustly fall in response to neutral shocks and robustly increase in response to investment specific shocks the percentage of the variance of hours output explained by neutral shocks is small large the opposite is true for investment specific shocks news shocks are uncorrelated with the estimated technology shocks copyright 2009 john wiley sons ltd

aging and productivity among economists economists productivity over their careers and as measured by publication in leading journals declines very sharply with age there is no difference by age in the probability that an article submitted to a leading journal will be accepted rates of declining productivity are no greater among the very top publishers than among others and the probability of acceptance is increasingly related to the author s quality rather than the author s age

the role of investment specific technological change in the business cycle this is a quantitative investigation of the importance of technological change speci c to new investment goods for postwar us aggregate uctuations a growth model that incorporates this form of technological change is calibrated to us data and simulated using the relative price of new equipment to identify the process driving investmentspeci c technology shocks the analysis suggests that this form of technological change is the source of about 30 of output uctuations 2000 elsevier science b v all rights reserved

endogenous money or sticky prices comment on monetary non neutrality and inflation dynamics abstract we show that the highly persistent inflation dynamics and its lead lag relationship with output can be explained by a standard flexible price rbc model augmented with endogenous monetary policy endogenous monetary policy acting upon the illusion that prices are sticky and money is effective can create price movements that appear to indicate price stickiness although there is none in the economy

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

real business cycles and sunspot fluctuations are observationally equivalent abstract this paper points out that real business cycle models are observationally equivalent to externality models which we define as models with externalities and sunspots but without productivity shocks as far as standard first order systems are concerned however externality models turn out to be more flexible than rbc models this explains at least partly why previous studies have found that externality models perform better than standard rbc models at generating realistic business cycle behavior our results cast doubt on the arguments of farmer and guo 1994 and caballero and lyons 1992

the determinants of uk business cycles this paper considers the causes of post war uk business cycles using an extended stochastic growth model we construct estimates of productivity and preference shocks both of which are highly persistent volatile and potentially capable of explaining uk business cycles we find the productivity term is the dominant explanation of uk output fluctuations but our estimated preference shift is crucial in understanding employment movements a variety of granger causality tests establish whether these productivity and preference terms are unpredictable and so can be potentially considered as the cause of uk business cycles or whether they are themselves granger caused by other variables the aim of business cycle theory is to identify the causes of business cycles and outline the various propagation mechanisms through which these produce cyclical fluctuations the purpose of this paper is to study the former using uk data we investigate the main sources of uk post war business cycles our aim in doing so is to discriminate between competing theories of the business cycle as well as to increase our understanding of particular episodes of uk post war economic history to achieve this aim we focus on two fundamental sources of business cycle fluctuations productivity shocks and a preference shift or more generally a supply and demand shock we choose these because i they can be easily calculated using only published data avoiding the need for any econometric identification assumptions ii they represent the simplest extension to the neoclassical stochastic growth model which can explain observed uk business cycle patterns they therefore form a natural benchmark with which to assess prescott s 1986 claim that this model can account for both growth and business cycles however while our main focus is on these two shocks our methodology is broad enough to allow for a wide range of potential causes of uk business cycles in section 1 of the paper we outline some stylised facts of the uk business cycle and motivate more rigorously our focus on productivity and preference shocks in section 2 we provide estimates of these shocks discuss their univariate properties and examine their correlation with key business cycle variables we find both shocks to be very volatile and persistent with the productivity variable accounting for a large proportion of output fluctuations and preference shifts more important in explaining employment movements simulations show that in combination with a neoclassical growth model these shocks are capable of matching uk business cycles however if

do tax cuts generate twin deficits a multi country analysis we study the eects of tax shocks on the budget and external deficits for 16 industrialized countries over the post 1975 period our structural approach is based on a tractable small open economy model where a tax cut generates a budget deficit in turn the budget deficit aects the external deficit by two distinct channels the demographic channel works through the overlapping generation structure of the model the forecasting channel works through the dynamic structure of the model our empirical analysis documents that tax shocks generate significant positive comovements between the budget and external deficits we also find that both the demographic and forecasting channels are important to explain the comovements

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

labor hoarding and the business cycle this paper investigates the sensitivity of solow residual based measures of technology shocks to labor hoarding behavior using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption we estimate the fraction of the variability of the solow residual that is due to technology shocks our results support the view that a significant proportion of movements in the solow residual are artifacts of labor hoarding behavior specifically we estimate that the variance of innovations to technology is roughly 50 percent less than that implied by standard real business cycle models in addition our results suggest that existing real business cycle studies substantially overstate the extent to which technology shocks account for the variability of postwar aggregate u s output

issues on the measurement of the solow residual and the testing of its exogeneity evidence for canada abstract this paper examines the impact of adjusting the solow residual for variable capacity utilization on the empirical assessment of market structure and exogeneity of productivity shocks making use of an innovative measure of capacity utilization available in canada reveals that its aggregate market structure is well described by constant returns to scale and perfect competition in contrast to most studies which do not make this adjustment furthermore when the capital stock is adjusted for variations in utilization rates canadian productivity shocks are exogenous to real and monetary variables

quantifying equilibrium network externalities in the ach banking industry we seek to estimate the causes and magnitudes of network externalities for the automated clearinghouse ach electronic payments system using a panel data set on individual bank usage of ach we construct an equilibrium model of consumer and bank adoption of ach in the presence of a network the model identifies network externalities from correlations of changes in usage levels for banks within a network from changes in usage following changes in market concentration or sizes of competitors and from adoption decisions of banks outside the network with small branches in the network and can separately identify consumer and bank network effects we structurally estimate the parameters of the model by matching equilibrium behavior to the data using simulated maximum likelihood and a data set of localized networks and use a bootstrap to recover confidence intervals the parameters are estimated with high precision and fit various moments of the data reasonably well we find that most of the impediment to ach adoption is due to large consumer fixed costs of adoption the deadweight loss from the network externality is moderate the optimal number of ach transactions is about 16 higher than the equilibrium level

do gasoline prices respond asymmetrically to crude oil price changes the authors test and confirm that retail gasoline prices respond more quickly to increases than to decreases in crude oil prices among the possible sources of this asymmetry are production inventory adjustment lags and market power of some sellers by analyzing price transmission at different points in the distribution chain the authors attempt to shed light on these theories spot prices for generic gasoline show asymmetry in responding to crude oil price changes which may reflect inventory adjustment effects asymmetry also appears in the response of retail prices to wholesale price changes possibly indicating short run market power among retailers

bank deposit rate clustering theory and empirical evidence the market prices of stocks and other assets tend to cluster on round fractions a similar clustering is found in the interest rates paid on retail bank deposits however the theoretical rationales given for asset price clustering are incompatible with the clustering of retail deposit rates this paper proposes a theory based on depositors limited recall it shows that when banks exploit this phenomenon deposit rates will tend to be set at round fractions and will be relatively sticky at these levels the implications of this theoretical model are tested using money market deposit account and retail certificate of deposit interest rate data from a sample of more than 500 banks

in search of a successor to is lm after discussing the general characteristics that the successor to is lm should possess this article argues that the business cycle research programme initiated by kydland and prescott 1992 is beginning to show a promising capacity to incorporate a broad range of modelling features into a logically consistent and theoretically satisfactory framework this ability and the systematic process of model enrichment it permits make it possible to predict that the dynamic general equilibrium models developed around the neoclassical stochastic growth model but possibly evolving towards friction prone non walrasian models will become the platform for a new neoclassical synthesis

multipliers of unexpected increases in defense spending an empirical investigation abstract we show that unexpected increases in defense spending increase total factor productivity tfp and output and decrease investment in us quarterly data yet the output multiplier is zero when the tfp response is shut down we examine various explanations for this phenomenon and find that the rise in tfp is due to the presence of measurement error in quarterly data using artificial data generated from an rbc model with measurement error we demonstrate the suitability of our identification approach for recovering the true output multiplier in the presence of measurement error

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

the rbc models through statistical inference an application with french data the aim of this paper is to evaluate the capacity of rbc models to mimic the french business cycle we are thus led to investigate the three following assumptions on the labour market 1 the non time separability of leisure 2 the indivisibility of labour and 3 the imperfect information on labour market and time varying effort using the general method of moments we estimate the structural parameters and we test 1 the model s hypothesis using a set of overidentifying restrictions and 2 the model s implications i e its ability to reproduce the cyclical features of the french economy

renewable micro generation of heat and electricity review on common and missing socio technical configurations abstract a widespread adoption of distributed generation dg technologies in energy systems can play a key role in creating clean reliable energy and support the targets of emission reduction a transition from current modes of production to a significant deployment of renewable energy technologies can fundamentally affect the structure of the industry and change the way energy is produced transmitted and sold the current paper provides an extended review of the socio technical configurations of micro generation based on journal publications and reports during the 21st century the paper analyses currently existing and missing configurations and discusses technology and policy implications to support proliferation of micro generation technology and local energy production from renewable sources the potential for new configurations can be found particularly in heat producing micro generation with solar heat heat pumps and biomass developing further the operations and maintenance of distributed generation technologies and business models appears an area that calls for further innovation and corresponding innovation policy measures third party service and community driven deployment models can aide the proliferation of distributed generation and further innovation therein justifying the introduction of feed in tariffs to attract such models during their early diffusion

prices rise faster than they fall output prices tend to respond faster to input increases than to decreases this tendency is found in more than two of every three markets examined it is found as frequently in producer goods markets as in consumer goods markets in both kinds of markets the asymmetric response to cost shocks is substantial and durable on average the immediate response to a positive cost shock is at least twice the response to a negative shock and that difference is sustained for at least five to eight months unlike past studies which documented similar asymmetries in selected markets gasoline agricultural products etc this one uses large samples of diverse products 77 consumer and 165 producer goods accordingly the results suggest a gap in an essential part of economic theory as a start on filling this gap the study finds no asymmetry in the resonse of an individual decision maker a supermarket chain to its costs but it finds above average asymmetry where a cost shock is filtered through a fragmented w

evidence on the benefits of alternative mortgage products alternative mortgage products have been identified by many as culprits in the financial crisis however because of their lower initial mortgage payments relative to loan amount they may be a valuable tool for households that expect higher and more certain future labor income and that wish to smooth consumption over the life cycle using u k household level panel data this paper provides evidence in support of this hypothesis and highlights other important benefits of alternative mortgages including portfolio diversification tax benefits and a reduction in the transaction costs incurred in housing transactions

are mergers beneficial to consumers evidence from the market for bank deposits the general conclusion of the empirical literature is that in market consolidation generates adverse price changes harming consumers previous studies however look only at the short run pricing impact of consolidation ignoring effects that take longer to materialize using a database that includes detailed information on the deposit rates of individual banks in local markets for different categories of depositors we investigate the long run price effects of mergers we find strong evidence that although consolidation does generate adverse price changes these are temporary in the long run efficiency gains dominate over the market power effect leading to more favorable prices for consumers jel g21 g34 l1

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

the ins and outs of unemployment an analysis conditional on technology shocks we analyze how unemployment job finding and job separation rates react to neutral and investment specific technology shocks neutral shocks increase unemployment and explain a substantial portion of it volatility investmentspecific shocks expand employment and hours worked and contribute to hours worked volatility movements in the job separation rates are responsible for the impact response of unemployment while job finding rates for movements along its adjustment path the evidence warns against using models with exogenous separation rates and challenges the conventional way of modelling technology shocks in search and sticky price models

stochastic trends and fluctuations in national income wages and profits macroeconomics and especially the theory of business cycles went through very important changes during the last ten years during the seventies most macroeconomists believed that economic activity evolved around a deterministic trend cyclical components and unanticipated changes in policy were believed to be the source of economic fluctuations the real business cycle rbc models which began to emerge in the early eighties cast doubt on this belief according to the rbc theory the cumulative effect of permanent shocks to productivity explains economic fluctuations the proponents of the rbc theory assume that productivity shocks are exogenous and are not affected by aggregate demand shocks therefore monetary shocks have no role in explaining economic fluctuations in fact according to the rbc theories money responds positively to fluctuations in production induced by technological shocks therefore the positive correlation between output and money is one of reverse causation critics of the rbc theories argue that productivity shocks cannot be treated strictly as exogenous evans 5 provides evidence that a significant portion of the variance of productivity impulse can be attributed to aggregate demand shocks another line of research by christiano and eichenbaum 4 shows that monetary policy shocks have persistent liquidity effects as well as persistent increases in output in this paper we investigate the role of monetary factors in explaining fluctuations in both

real business cycle theory and monetary policy the multiplier approach according to real business cycle theory the money multiplier explains money output correlations because nominal policy is impotent this paper re examines the key assumptions of the multiplier approach and presents empirical evidence for five countries the main conclusions are as follows first base money does granger cause economic activity second actual operating procedures of monetary authorities prevent orthogonalization of base money and multiplier changes the distinction between real and nominal aspects of monetary policy is therefore not very helpful

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

deconstructing the success of real business cycles i introduction a major achievement of real business cycle rbc models has been their success at elegantly explaining a remarkably large fraction of business cycle fluctuations in aggregate variables based solely on exogenous variation in productivity in particular the rbc literature has emphasized the ability of models driven by productivity shocks to explain the historically observed paths of macroeconomic variables a method introduced by plosser 1989 in a recent paper in the handbook of macroeconomics king and rebelo 1999 remark on the dramatic correspondence between simulations of the us economy produced by the rbc model and the actual data when productivity shocks are remeasured and the bare bones model is augmented with the assumptions of indivisible labor and variable capital utilization rbc models explain the comovement of a multiplicity of macroeconomic variables consumption output labor supply investment wages productivity etc with a single exogenous shock series in other words they reduce a more than five dimensional problem to one dimension of unexplained variation the contribution of the rbc methodology to the business cycle literature can be thought of in two parts first rbc models adopt a basic dynamic stochastic general equilibrium framework that has now become standard in the macroeconomics business cycle literature including new keynesian models second the rbc literature emphasizes the importance of the productivity shock this paper investigates the question of how much of the success of rbc according to standard rbc evaluation techniques arises from the basic form of the dynamic stochastic general equilibrium model versus the specific role of the productivity shock the answer to this question says something both about the nature of the dynamic stochastic general equilibrium models used in macroeconomics as well as about the standard rbc tests used to evaluate these models the models considered in this paper all have the basic form of the high substitution rbc model developed by king and rebelo 1999 i consider both the original form of this model as well as a monetary business cycle mbc version of the model augmented with a calvo phillips curve and a standard taylor rule specification of monetary policy i adopt the procedure of remeasuring the business cycle shocks to perfectly match the observed output series by king and rebelo 1999 i consider the models success at explaining the behavior of macroeconomic variables given a variety of specifications of shocks productivity shocks monetary shocks to the taylor rule cost push shocks and preference shocks this exercise shows that any of the models with remeasured shocks is able to successfully explain the empirical dynamics of the real variables the monetary model with remeasured shocks is if anything more empirically successful than the rbc model since it is also able to explain the behavior of inflation and the nominal interest rate in the volcker greenspan era thus this paper adds concreteness to work by hansen and heckman 1996 and fair 1992 suggesting that the rbc standards for evaluating models may be too weak by showing that important classes of business cycle models cannot be distinguished using standard rbc evaluation techniques the mbc models considered in this paper have the same basic structure as the model presented in rotemberg and woodford 1997 the most closely related paper to the present work is perhaps the innovative paper by hairault and portier 1993 which evaluates the performance of a mbc model when presented with various combinations of estimated monetary and productivity shocks unlike the present paper however the success of the models is evaluated according to their second moment properties the paper proceeds as follows section ii presents the model which consists of a household sector a firm sector and a central bank

margin based asset pricing and deviations from the law of one price in a model with heterogeneous risk aversion agents facing margin constraints we show how securities required returns increase in both their betas and their margin requirements negative shocks to fundamentals make margin constraints bind lowering risk free rates and raising sharpe ratios of risky securities especially for high margin securities such a funding liquidity crisis gives rise to bases that is price gaps between securities with identical cash flows but different margins in the time series bases depend on the shadow cost of capital which can be captured through the interest rate spread between collateralized and uncollateralized loans and in the cross section they depend on relative margins we test the model empirically using the credit default swap bond bases and other deviations from the law of one price and use it to evaluate central banks lending facilities jel g01 g12 g13 e44 e50 the paramount role of funding constraints becomes particularly salient during liquidity crises with the one that started in 2007 being an excellent case in point banks unable to fund their operations closed down and the funding problems spread to other investors such as hedge funds that relied on bank funding therefore traditional liquidity providers became forced sellers interest rate spreads increased dramatically treasury rates dropped sharply and central banks stretched their balance sheets to facilitate funding these funding problems had significant asset pricing effects the most extreme example being the failure of the law of one price loop securities with nearly

regulations market structure institutions and the cost of financial intermediation this paper examines the impact of bank regulations market structure and national institutions on bank net interest margins and overhead costs using data on over 1400 banks across 72 countries while controlling for bankspecific characteristics the data indicate that tighter regulations on bank entry and bank activities boost the cost of financial intermediation inflation also exerts a robust positive impact on bank margins and overhead costs while concentration is positively associated with net interest margins this relationship breaksdownwhencontrolling for regulatory impediments to competition and inflation furthermore bank regulations become insignificant when controlling for national indicators of economic freedom or property rights protection while these institutional indicators robustly explain cross bank net interest margins and overhead expenditures thus bank regulations cannot be viewed in isolation they reflect broad national approaches to private property and competition

aggregate demand idle time and unemployment this paper develops a model of unemployment fluctuations the model keeps the architecture of the barro and grossman 1971 general disequilibrium model but replaces the disequilibrium framework on the labor and product markets by a matching framework on the product and labor markets both price and tightness adjust to equalize supply and demand there is one more variable than equilibrium condition on each market so we consider various price mechanisms to close the model from completely flexible to completely rigid with some price rigidity aggregate demand influences unemployment through a simple mechanism higher aggregate demand raises the probability that firms find customers which reduces idle time for firms employees and thus increases labor demand which in turn reduces unemployment we use the comparative statics predictions of the model together with empirical measures of quantities and tightnesses to re examine the origins of labor market fluctuations we conclude that 1 price and real wage are not fully flexible because product and labor market tightness fluctuate significantly 2 fluctuations are mostly caused by labor demand and not labor supply shocks because employment is positively correlated with labor market tightness and 3 labor demand shocks mostly reflect aggregate demand and not technology shocks because output is positively correlated with product market tightness

the solow residual for australia technology shocks or factor utilization i introduction in macroeconomics a standard way of measuring technology shocks is to use the solow residual solow 1957 however a growing body of evidence suggests the solow residual is at best a noisy measure of technology shocks a number of hypotheses have been advanced as to why this might be the case these include the existence of imperfect competition and increasing returns to scale hall 1988 1990 spillover externalities caballero and lyons 1992 and variations in factor utilization rates basu 1995 burnside 1996 burnside et at 1993 1995a b burnside and eichenbaum 1994 and finn 1995 recent work by basu 1995 and burnside et al 1995a using data for united states u s manufacturing industries suggests that changes in capital utilization are the most likely cause of the mis measurement of technology by the solow residual this paper presents an econometric analysis of the behavior of the solow residual for the australian economy 1 the preliminary analysis examines whether the solow residual for australia can be characterized as a strictly exogenous variable following evans 1992 i test whether the solow residual is grangercaused by a number of other macroeconomic variables including foreign prices and production government spending interest rates and a monetary aggregate fluctuations in such variables are frequently proposed as sources of business cycles in small open economies consistent with results obtained for the u s by evans i find that the solow residual for australia is not a strictly exogenous variable however while evans finds money supply growth and government spending granger cause the u s solow residual neither of these variables is a significant predictor in the australian case for australia the terms of trade and a measure of the term spread have the strongest predictive content for the solow residual what these results indicate is that the standard measure of the solow residual for australia is affected by shocks other than pure technological innovations in an attempt to quantify the contribution of other non technology shocks to fluctuations in the solow residual for australia i employ the structural vector autoregression svar methodology developed by shapiro and watson 1988 blanchard and quah 1989 and cochrane 1994 it is assumed that the measured solow residual is affected by two types of mutually uncorrelated shocks one of these has a permanent effect on the level of the solow residual and the other has only a temporary effect to identify these two disturbances i use information from a second variable capacity utilization where this choice is influenced by the recent work of burnside and eichenbaum 1994 and burnside et al 1995b neither of the two shocks affecting the solow residual has a permanent effect on the level of capacity utilization the shock which has a permanent effect on the solow residual is identified with a true technology disturbance while the other shock is assumed to reflect aggregate demand disturbances the remainder of this paper is organized as follows in section ii a measure of the solow residual for australia is constructed and its predictability examined section iii contains a discussion of the svar model used to analyze the solow residual and capacity utilization the empirical results from this model are presented in section iv section v considers the robustness of the results and section vi concludes ii properties of the solow residual in macroeconomics a standard means of computing the logarithm of the solow residual a sub 1 is to use the following equation 1 a sub t y sub t s sub n n sub t 1 s sub n k sub t where y is the log of aggregate output n is the log of total hours worked k is the log of the aggregate capital stock and s sub n is labour s share of national income assumed to be constant

securitization and mortgage renegotiation evidence from the great depression we use loan level data from the nyc metropolitan area to examine the extent to which lenders attempted to prevent foreclosures with concessionary modi cations during the great depression we nd no principal forgiveness in the sample and only a handful of concessionary mortgage modi cations of other types far more mortgages terminated through foreclosure than received any sort of concessionary modi cation the results indicate that there are signi cant impediments to renegotiation of residential mortgages beyond securitization as such less renegotiation seems unlikely to be a major cost of securitization of residential mortgages

the dynamic effects of neutral and investment specific technology shocks the neoclassical growth model is used to identify the short run effects of neutral technology shocks which affect the production of all goods homogeneously and investment specific shocks which affect only investment goods the real equipment price crucial for identifying the investment shocks experiences an abrupt increase in its average rate of decline in 1982 so the analysis is based on a split sample on the basis of the preferred specification the two technology shocks account for 73 percent of hours and 44 percent of output s business cycle variation before 1982 and 38 percent and 80 percent afterward the shocks also account for more than 40 percent of hours and 58 percent of output s forecast errors over a three to eight year horizon in both samples the majority of these effects are driven by the investment shocks

bank consolidation and the dynamics of consumer loan interest rates this paper analyzes interest rates quoted by individual banks for personal and automobile loans in 10 cities personal loan rates are higher in concentrated markets and banks involved in mergers reduce personal rates relative to their competitors prior to the merger s completion this is consistent with mergers changing the size structure of personal loan markets and merger participants desire to gain regulatory approval auto rates are unaffected by local concentration and mergers suggesting that their market is nationwide rates for both loan types respond asymmetrically to changes in treasury rates being more sensitive to a rise than a fall

bank risk taking securitization supervision and low interest rates evidence from the euro area and the u s lending standards using a unique dataset of the euro area and the u s bank lending standards we find that low monetary policy short term interest rates soften standards for household and corporate loans this softening especially for mortgages is amplified by securitization activity weak supervision for bank capital and low monetary policy rates for an extended period conversely low long term interest rates do not soften lending standards finally countries with softer lending standards before the crisis related to negative taylor rule residuals experienced a worse economic performance afterward these results help shed light on the origins of the crisis and have important policy implications the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

the academic analysis of the 2008 financial crisis round 1 academics responded to the challenges posed by the 2008 financial crisis with a flurry of studies this collection of articles is just the academic community s first look into it the articles begin with an examination at the last national housing price crash the great depression of the 1930s this is followed by articles looking at the current mortgage market and how it behaved did modern innovations reflect or add to the downturn the next set of papers examines how non financial firms were impacted by the crash to what degree did credit worthy firms nevertheless find themselves without access to capital the papers then end with a look into how the banking sector itself fared throughout this period the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

location and competition in retail banking abstract we investigate the impact of banking deregulation during the 1990s on consumer welfare we estimate a spatial model of consumer demand for retail bank deposits that explicitly accounts for consumer disutility from distance traveled this is important given the substantial changes in banks branch networks observed in the data our model indicates that cross price elasticities between banks whose branches are close to consumers close banks are larger than those between far banks and more than double the cross price elasticity of close banks with respect to far banks we distinguish between thrifts and other banks and find that within thrift competitive effects are stronger than within bank effects or those between thrifts and banks we use our estimates to predict the effect of changes in market structure on consumer welfare following the branching deregulation of the riegle neal act of 1994 our results indicate that the median household gained around 60 per year from the changes approximately two thirds of the gains come from within market changes in market structure the gains were greater in markets with high initial numbers of banks than elsewhere

aggregate employment real business cycles and superior information abstract we test whether dynamic stochastic general equilibrium artificial economies associated with several labor market structures provide an adequate characterization of aggregate employment volatility and dynamics our test is robust to possible misspecifications about the information set used by economic agents to forecast future events accounting for agents superior information we find that the divisible labor indivisible labor labor adjustment costs and labor hoarding structures replicate employment volatility in contrast to the nominal wage contracts structure also the labor hoarding structure provides a substantially better account of employment dynamics

money new keynesian macroeconomics and the business cycle abstract we show in this paper that the typical modern business cycle cannot be reduced to the real business cycles archetype a monopolistic competition model with price adjustment costs affected by technological and monetary shocks better mimics the economic fluctuations in two countries with very different cyclical properties namely france and the united states in our model monetary shocks are necessary to reproduce the standard deviation of output the money output correlation the labour productivity worked hours relative standard deviation the labour productivity worked hours correlation and the mark up output correlation with two independent shocks one real more specifically defined than the solow residual and one nominal the model gives an answer to some empirical puzzles which were left unexplained by traditional rbc models

market structure and the nature of price rigidity evidence from the market for consumer deposits panel data on consumer bank deposit interest rates reveal asymmetric impacts of market concentration on the dynamic adjustment of prices to shocks banks in concentrated markets are slower to raise interest rates on deposits in response to rising market interest rates but are faster to reduce them in response to declining market interest rates thus banks with market power skim off surplus on movements in both directions since deposit interest rates are inversely related to the price charged by banks for deposits the results suggest that downward price rigidity and upward price flexibility are a consequence of market concentration

international business cycles financial markets and household production abstract this paper investigates the properties of an international real business cycle model with household production we show that a model with disturbances to both market and household technologies reproduces the main regularities of the data and improves existing models in matching international consumption investment and output correlations without irrealistic assumptions on the structure of international financial markets sensitivity analysis shows the robustness of the results to alternative specifications of the stochastic processes for the disturbances and to variations of unmeasured parameters within a reasonable range

can long run restrictions identify technology shocks gali s innovative approach of imposing long run restrictions on a vector autoregression var to identify the effects of a technology shock has become widely utilized in this paper we investigate its reliability through monte carlo simulations using calibrated business cycle models overall gali s methodology appears to be fruitful the impulse responses derived from the artificial data generally have the same sign and qualitative pattern as the true responses and the approach can be informative in discriminating between alternative models however our results reveal some important quantitative shortcomings including considerable estimation uncertainty about the impact of technology shocks on macroeconomic variables more generally the conditions under which the methodology performs well appear considerably more restrictive than implied by the key identifying assumption this underscores the importance of using economic models to guide in the implementation of the approach in interpreting the results and in assessing its limitations jel c32 e32 o33

do substantial horizontal mergers generate significant price effects evidence from the banking industry this study examines the price effects of recent us bank mergers that substantially increased local market concentration using the deposit interest rates that banks offer their customers as our price measure we find that over the 1991 94 time period deposit rates offered by participants in substantial horizontal mergers and their local market rivals declined by a greater percentage than did deposit rates offered by banks not operating in markets in which such mergers took place we interpret our results as evidence that these mergers led to increased market power

scale effects time varying markups and the cyclical behaviour of primal and dual productivity this paper presents estimates of the degree of returns to scale using nonparametric measures of primal and dual productivity for 2 digit us manufacturing industries as part of the analysis the cyclical behaviour of primal and dual productivity measures are considered time varying markups are allowed for and the small sample properties of the instrumental variables estimator used to derive the estimates from the primal and dual relations examined both the primal and dual estimates indicate the existence of increasing returns to scale for the durable goods industries the simulation results indicate there is a slight tendency for the dual equation estimates to overestimate the degree of returns to scale however small sample bias appears to be most severe for the non durable goods industries

a reconsideration of sims evidence concerning monetarism abstract in var systems such as those of sims 1980 monetary policy surprises may be more accurately represented by interest rate than money stock innovations especially if the monetary authority uses an interest rate instrument

why do banks merge the banking industry is consolidating at an accelerating pace yet no conclusive results have emerged on the benefits of mergers and acquisitions in order to investigate the motives and results of each type of deal we consider separately acquisitions that is the purchase of the majority of voting shares and mergers using italian data mergers seek to improve income from services but the increase is offset by higher staff costs return on equity improves because of a decrease in capital acquisitions aim to restructure the loan portfolio of the acquired bank improved lending policies result in higher profits

money real interest rates and output a reinterpretation of postwar u s data this paper reexamines both monthly and quarterly u s postwar data to investigate if the observed comovements between money real interestrates prices and output are compatible with the money real interest output link suggested by existing monetary theories of output which include both keynesian and equilibrium models the major empirical findings are these 1 in both monthly and quarterly data we cannot reject the hypothesis that the ex ante real rate is exogenous or granger causally prior in the context of a four variable system which contains money prices nominal interest rates and industrial production 2 in quarterly data there is significantly more information con tained in either the levels of expected inflation or the innovationof this variable for predicting future output given current and lagged output than in any other variable examined money actualinflation nominal interest rates or ex ante real rates the effect of an inflation innovation on future output is unambiguously negative the first result casts strong doubt on the empirical importance of existing monetary theories of output which imply that money should have a causal role on the ex ante real rates the second result would appear incompatible with most demand driven models of output in light of these results we propose an alternative structural model which can account for the major dynamic interactions among the variables this model has two central features i output is unaffected by money supply and ii the money supply process is motivated by short run price stability this abstract was borrowed from another version of this item

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

mergers and technical efficiency in spanish savings banks a stochastic distance function approach abstract the aim of this paper is to test the temporal variation of technical efficiency of spanish savings banks during the period 1985 1998 furthermore we test whether merged and non merged firms have different levels and temporal patterns of technical efficiency a stochastic output distance function r w shephard theory of cost and production functions princeton university press princeton nj is employed to accommodate multiple output technology the distance function provides the advantage that it does not need information about prices so it can accommodate the multi product nature of the financial sector only using the quantities as data an important point when the assumptions about perfectly competitive markets are unlikely to be met the temporal variation of efficiency is modeled extending the battese and coelli journal of productivity analysis 3 1992 153 169 approach in two ways relaxing the monotonicity of the temporal variation pattern of the efficiency term and allowing for different patterns of efficiency change between merged and non merged firms

increasing returns labour utilization and externalities procyclical productivity in the united states and japan this paper investigates procyclical productivity and attempts to discriminate among several competing explanations the study focuses on the united states and japan since the different industrial relations in these two economies serve to cast a sharper light on the procyclical productivity debate labour hoarding evaluated through the introduction of a labour utilization proxy proves to be an important influence the interpretation of the role of external economies remains an open issue

micro hydro power in the uk the role of communities in an emerging energy resource research around micro hydro power is focused on technical aspects with limited understanding of the social organisation and environmental implications we examine the ways in which micro hydro is engaged by people and organisations as a means of contributing to the uk s policy ambition for renewable energy we bring to the fore the way in which expertise is used and contested a web based review of micro hydro schemes in the uk was undertaken and a detailed evaluation of two schemes in the north of england was conducted to determine how expertise and contestation figures in community schemes results demonstrate a rapid expansion of micro hydro in the uk ownership control is highly community based until now research around micro hydro has been dominated by technical approaches with schemes defined in terms of hardware we propose a third dimension to walker and cass s 2007 classification of renewable energy developments the environmental dimension we suggest this dimension of micro hydro is critical both in terms of the extent to which resources can be realised but also the ways in which it might attract controversy in particular around how expertise is used and valued

real business cycle models past present and future in this paper i review the contribution of real business cycles models to our understanding of economic fluctuations and discuss open issues in business cycle research this abstract was borrowed from another version of this item

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

the price concentration relationship in banking the commonly observed positive correlation between market concentration and profitability may be explained by noncompetitive pricing behavior as argued by the structure performance hypothesis or by the greater efficiency of firms with dominant market shares as argued by the efficient structure hypothesis by examining the price concentration relationship instead of the profit concentration relationship this paper tests the structure performance hypothesis in a manner that excludes the efficient structure hypothesis as an alternative explanation of the results the results strongly support the structure performance hypothesis and are robust with respect to model specification measurement of concentration and econometric technique copyright 1989 by mit press