perfect foresight and equilibrium selection in symmetric potential games the equilibrium selection approach of matsui and matsuyama j econ theory65 1995 415 434 which is based on rational players who maximize their discounted future payoff is analyzed for symmetric two player games with a potential function it is shown that the maximizer of the potential function is the unique state that is absorbing and globally accessible for small discount rates journal of economic literatureclassification number c72

trade credit in a monetary economy abstract this paper examines the importance of financial and technological stochastic trends in the context of a stochastic dynamic general equilibrium monetary economy with multiple means of payment in contrast to earlier empirical work we find support for both a long run substitution condition between money trade credit and interest rates as well as a long run transactions demand for alternative payments media consistent with real business cycle frameworks

does it matter how monetary policy is implemented abstract in the u s existing monetary base measures add an adjustment factor for changes in reserve requirement ratios to high powered money implicitly the monetary base assumes that the economic effects of changes in reserve requirements are identical to those due to changes in high powered money theory however does not generally support the prediction that the two policy tools will have the same economic effects structural vars are estimated to compare the short run paths of inflation and output growth under two different types of policy shocks in doing so this analysis gives one a measure of the costs associated with this implicit equivalence assumption the evidence is consistent with the hypothesis that the federal reserve at least partially offsets reserve requirement changes with open market operations and the hypothesis that dynamic explanations of macroeconomic variables are improved by separating reserve requirement changes from other monetary policy moves

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

a multinomial probit model of stochastic evolution abstract a strategy revision process in symmetric normal form games is proposed following kandori et al econometrica 61 1993 29 members of a population periodically revise their strategy choice and choose a myopic best response to currently observed play their payoffs are perturbed by normally distributed harsanyian trembles so that strategies are chosen according to multinomial probit probabilities as the variance of payoffs is allowed to vanish the graph theoretic methods of the earlier literature continue to apply the distributional assumption enables a convenient closed form characterisation for the weights of the rooted trees an illustration of the approach is offered via a consideration of the role of dominated strategies in equilibrium selection

real business cycles sticky wages or sticky prices the impact of technology shocks on us manufacturing in this paper we examine empirically the predictions of a range of theoretical models which give a prominent role to technology shocks in explaining business cycles to this end we estimate 4 digit sic industry level var models for us manufacturing using real output the real wage and utilization corrected measures of technology and labor input our results support both sticky wage dge and rbc models over sticky price dge models moreover they cast some doubt on the importance of technology shocks as propulsive mechanism for business cycles at the industry level

evolution in games with randomly disturbed payoffs we consider a simple model of stochastic evolution in population games in our model each agent occasionally receives opportunities to update his choice of strategy when such an opportunity arises the agent selects a strategy that is currently optimal but only after his payoffs have been randomly perturbed we prove that the resulting evolutionary process converges to approximate nash equilibrium in both the medium run and the long run in three general classes of population games stable games potential games and supermodular games we conclude by contrasting the evolutionary process studied here with stochastic fictitious play

monetary policy and real wage cyclicality this article points to the potential role of monetary policy in affecting the degree of real wage cyclicality we show that the degree and direction of real wage cyclicality is determined by the interaction of i the returns to scale in production ii the nature of aggregate shocks and iii monetary policy given that production technology is fairly constant in the short run we suggest that variations in the real wage output covariance depend largely on the combination of the latter two identifying well documented monetary policy phases in six major organization for economic co operation and development oecd countries and accounting for both aggregate demand and supply shocks we provide empirical evidence to support our main theoretical claim

money output and income velocity this paper attempts to assess empirically the contribution of three structural shocks monetary institutional financial and fiscal and technological to output and velocity fluctuations in the national bank era and the post 1973 period to identify these shocks we impose only long run restrictions derived from a monetary growth model we find that higher money growth increases decreases velocity in the first second period depending crucially on the resulting changes in the transactions frequency credit enhancing financial or expansionary fiscal shocks have a permanent positive effect on velocity and a himp shaped effect on output whereas technological shocks cause velocity to decrease in the short run and output to move to a permanently higher level

house prices and birth rates the impact of the real estate market on the decision to have a baby abstract this project investigates how changes in metropolitan statistical area msa level house prices affect household fertility decisions recognizing that housing is a major cost associated with child rearing and assuming that children are normal goods we hypothesize that an increase in house prices will have a negative price effect on current period fertility this applies to both potential first time homeowners and current homeowners who might upgrade to a bigger house with the addition of a child on the other hand for current homeowners an increase in msa level house prices will increase home equity leading to a positive effect on birth rates our results suggest that indeed short term increases in house prices lead to a decline in births among non owners and a net increase among owners the estimates imply that a 10 000 increase leads to a 5 increase in fertility rates among owners and a 2 4 decrease among non owners at the mean u s home ownership rate these estimates imply that the net effect of a 10 000 increase in house prices is a 0 8 increase in current period fertility rates given underlying differences in home ownership rates the predicted net effect of house price changes varies across demographic groups in addition we find that changes in house prices exert a larger effect on current period birth rates than do changes in unemployment rates

monetary aggregates and output series title working paper frb title monetary aggregates and output date publication federal reserve bank of cleveland working paper no 9813 author s scott freeman finn kydland type working paper frb topics s us economy

monetary information and monetary neutrality abstract the monetary theory of business fluctuations in market clearing models constructed under the rational expectations assumption as advanced by lucas and others involves the idea that suppliers and demanders will typically misinterpret movements in the general level of prices as representing more or less favorable relative opportunities for real activities the present paper examines the consequences of agents possessing contemporaneous monetary information of a potentially noisy variety for the non neutrality of unanticipated monetary events within such an equilibrium business cycle model this modification of the information structure has the strong testable implication that real activity will be uncorrelated with contemporaneous monetary data

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

house prices and marital stability we investigate the effect of house price changes on divorce using data for 1991 2010 from the current population survey and the federal housing finance agency our findings suggest that changing house prices significantly affect the share of a cohort that is divorced and that these effects are asymmetric with respect to housing gains versus losses in addition we find differential effects for groups that are more likely to be homeowners versus renters some of this evidence is consistent with homeowners being locked into their homes and hence marriages by increased transactions costs in down markets

stochastic stability in asymmetric binary choice coordination games abstract a recent literature in evolutionary game theory is devoted to the question of robust equilibrium selection under noisy best response dynamics in this paper we present a complete picture of equilibrium selection for asymmetric binary choice coordination games in the small noise limit we achieve this by transforming the stochastic stability analysis into an optimal control problem which can be solved analytically this approach allows us to obtain precise and clean equilibrium selection results for all canonical noisy best response dynamics which have been proposed so far in the literature among which we find the best response with mutations dynamics the logit dynamics and the probit dynamics

the causes of bank failures deflationary spells abstract unexpected reductions in inflation induce debtor insolvency and bank failures with lags of up to eight years outside money is non neutral because the default of marginal banks and the rising costs of surviving banks reduce the supply of monetary services

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

a banking explanation of the us velocity of money 1919 2004 the paper shows that us gdp velocity of m1 money has exhibited long cycles around a 1 25 per year upward trend during the 1919 2004 period it explains the velocity cycles through shocks constructed from a dsge model and annual time series data ingram et al 1994 model velocity is stable along the balanced growth path which features endogenous growth and decentralized banking hat produces exchange credit positive shocks to credit productivity and money supply increase velocity as money demand falls while positive goods productivity shock raises temporary output and velocity the paper explains such velocity volatility at both business cycle and long run frequencies with filtered velocity turning negative starting during the 1930s and the 1987 crashes and again around 2003 results suggest that the money and credit shocks appear to be more important for velocity during less stable times and the goods productivity shock more important during stable times

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

monetary aggregates and the business cycle a monetary aggregate consisting predominantly of zero maturity deposits called mzm tends to systematically lead output in the us business cycle such fluctuations are observed both before and after the 1979 monetary policy change similar dynamics are obtained in a model with multi stage production and purchase size heterogeneity when agents optimally choose their mix of cash checkable and time deposits used in transactions the causality in the model runs from real activity to money rather than the other way around although the monetary base is endogenous through a taylor type rule the lead in mzm is primarily driven by deposit creation

do family wealth shocks affect fertility choices evidence from the housing market abstract this paper uses wealth changes driven by housing market variation to estimate the effect of family resources on fertility decisions using data from the panel study of income dynamics we show that a 100 000 increase in housing wealth among home owners causes a 16 to 18 increase in the probability of having a child there is no evidence of an effect of msa level housing price growth on the fertility of renters however we also present evidence that housing wealth growth increases total fertility and that the responsiveness of fertility to housing wealth has increased over time commensurate with the recent housing boom

supply shocks and the interest rate supply shocks and the interest rate i introduction a new approach to business cycles that stresses intertemporal substitution possibilities and market clearing equilibria has recently gained prominence key models that use this new classical framework include those of lucas 1972 barro 1976 1981b 1987a 1987g kydland and prescott 1980 1982 long and plosser 1983 and king and plosser 1984 although these models share the basic similarity of intertemporal maximization and market clearing they differ about which factors cause business cycle fluctuations however most of them admit a role for supply shocks such as opec oil price shocks and agricultural harvest failures most of the empirical work using the market clearing approach concentrates on quantities such as real gnp and ignores the key price variable of the intertemporal substitutional approach the real interest rate exceptions are the papers by benjamin and kochin 1984 and barro 1987a who use eighteenth and nineteenth century data to examine the effect of government spending on the nominal interest rate this paper extends previous work by studying not only the effects of government spending on the interest rate but also the effects of supply shocks on the interest rate the classic supply shock agricultural harvests is used indeed to the best of our knowledge this is the first paper to investigate how agricultural supply shocks affect the interest rate and as such it provides additional evidence about the factors that influence interest rates although the theory behind this work is cast in the framework of the equilibrium approach keynesian models also concur with the theoretical prediction that supply shocks raise the real interest rate thus this empirical investigation of the impact of harvests on the interest rate will command attention from keynesian as well as new classical macroeconomists section ii reviewers the theory used to motivate the work the third section discusses the data the fourth section presents the empirical results while the last section contains conclusions ii theory the equilibrium approach to macroeconomics emphasizes the role played by intertemporal optimization consumers maximize their intertemporal utility functions while firms maximize their profits as a result an intertemporal relative price the ex ante real interest rate emerges as a crucial variable consider the effect on the ex ante real interest rate from a temporary adverse supply shock such as a harvest failure in an agricultural closed economy consumers faced with a temporary shortfall in income and trying to smooth their consumption generally try to borrow in order to maintain their usual level of consumption thus the ex ante real interest rate increases much the same argument applies to government spending a temporary increase in government spending reduces the resources currently available to the private sector then as in the case of a temporary supply shock the increased demand for borrowing to smooth the reduction in disposable income leads to a higher interest rate an open economy is different when faced with a temporary reduction in resources from either an adverse supply shock or a temporary increase in government spending the private sector in an open economy is able to borrow from abroad by running a balance of trade deficit if the country in question is a small part of the world economy the increased borrowing does not affect the world ex ante real interest rate so the effect on the country s ex ante real interest rate is nil returning to the case of a closed economy supply shocks and changes in government spending affect the ex ante real interest rate only if they are temporary if they were permanent consumers would not have the same incentive to borrow so the interest rate would tend to be constant

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

quantal response methods for equilibrium selection in 2 2 coordination games abstract the notion of quantal response equilibrium qre introduced by mckelvey and palfrey 1995 has been widely used to explain experimental data in this paper we use quantal response equilibrium as a homotopy method for equilibrium selection and study this in detail for 2 2 bimatrix coordination games we show that the risk dominant equilibrium need not be selected in the logarithmic game the limiting qre is the nash equilibrium with the larger sum of square root payoffs finally we apply the quantal response methods to the mini public goods game with punishment a cooperative equilibrium can be selected if punishment is strong enough

binary games with state dependent stochastic choice this paper studies a stochastic equilibrium selection model for binary coordination games players switch strategies stochastically so that the mistake probabilities are fully dependent on the population states a probabilistic behavior is said to be aspiration imitation resp oriented if strategy switches are mainly driven by the aspiration imitation resp effect in general a strategy switch by one player generates externalities on others strategies in a coordination game can be classified according to the relative magnitude of their externality effects it is shown that the selection outcome for a linear coordination game is determined in a specific way by the balance of the risk dominance the aspiration imitation and the externality effects it is also shown that an aspiration imitation resp oriented behavior tends to select payoff dominant maxmin resp equilibrium and that risk dominant equilibrium is always selected if and only if the aspiration and the imitation effects exactly cancel each other out which in turn makes the selection process insensitive to externality effects journal of economic literature classification number c72

waking up from the american dream on the experience of young americans during the housing boom of the 2000s we exploit regional variations in house price fluctuations in the united states during the early to mid 2000s to study the impact of the housing boom on young americans choices related to home ownership household formation and fertility we also introduce a novel instrument for changes in house prices based on the predetermined industrial structure of the local economy we find that in regions that experienced large increases in house prices between 2001 and 2006 the youngest households were substantially less likely to purchase residential property to be married and to have a child both in 2006 and in 2011

inventories as factors of production and economic fluctuations this paper presents a theory of inventory investment by stage of processing and uses it to examine the role of inventory investment in economic fluctuations the model in which inventories are treated as factors of production is estimated for four durable goods industries three conclusions emerge from the estimation first the estimates generally satisfy the theoretical restrictions second the elasticity of inventory demand with respect to output is high indicating an important accelerator effect finally the estimates suggest that shifts in the demand for inventories are an important source of economic fluctuations copyright 1989 by american economic association

the u s embargo act of 1807 its impact on new england money banking and economic activity the u s embargo act of 1807 its impact of new england money banking and economic activity i introduction the period 1793 through 1807 was one of unusual prosperity in the united states paced by the growth of american carrying and re export trade 1 the embargo act of 1807 however supposedly halted this period of growth and prosperity the act was an attempt by a new nation to persuade great britain and france to refrain from seizing neutral american ships by prohibiting the trading of certain goods between the united states and other countries the provisions of the act forbade u s ships to sail with cargoes to foreign ports the act was in effect from december 1807 through march 1809 historians generally assert that the embargo had at least three important consequences of the u s economy the embargo allegedly initiated a severe economic depression led to a signficant increase in the level of smuggling between the united states and other countries and was instrumental in bringing about an expansion of domestic manufacturing that started the united states on a path to self sufficiency with respect to the depression effects of the embargo mcmaster 1903 415 described the economic losses of the period as follows the newspapers were full of insolvent debtor notices all over the country the court house doors the tavern doors the post offices the cross road posts were covered with advertisements of sheriffs sales in the cities the jails were not large enough to hold the debtors at new york during 1809 thirteen hundred men were imprisoned for no other crime than being ruined by the embargo a traveler who saw the city in this day of distress assures us that it looked like a town ravaged by pestilence the counting houses were shut or advertised to let the coffee houses were almost empty the streets along the water side were almost deserted the ships were dismantled their decks were cleared their hatches were battened down illegal trade arose as people searched for other sources of income malone and rauch 1960 118 described the situation in the following manner the ancient art of smuggling was revived particularly along the land frontier with canada where drovers of wagon trains shot down federal agents and concerning the stimulative effect of the embargo upon the rise in domestic manufacturing north 1961 56 stated the closing off of the import trade was effective in promoting the rise of domestic manufactures and capital which had been devoted to shipping and foreign commerce was partially absorbed in a rapid growth of industry before 1808 only fifteen cotton mills had been built in the united states one in 1791 one in 1795 two more in 1803 and 1808 by the end of 1809 eighty seven additional mills had been constructed and capacity had been increased from eight thousand spindles in 1808 to thirty one thousand at the end of 1809 and an estimated eighty thousand by 1811 other branches of manufacturing also made substantial gains through 1814 similar comments concerning the embargo are abundant in most economic history texts and in numerous articles devoted to the subject while dramatic such discussion is based on casual empiricism at best and little in the way of rigorous economic analysis has ever been applied to discern the actual effects of the embargo upon the u s economy as usual with such historically remote events a paucity of data on such variables as real income output and employment constitutes the major obstacle to empirical analysis until recently economic historians have attempted to make inferences about the effects of the embargo upon the economy by relying primarily upon data reflecting the volume of import export and re export trade domestic and imported price indices and governmental duties 2 in a recent article for example frankel 1982 argues that an examination of british shipping statistics rather than those of the u

reserves announcements and interest rates does monetary policy matter the author provides evidence on the perceived existence of strong liquidity effect the analysis is based on the response of the term structure of interest rates to the weekly federal reserve announcements of bank reserves during the post october 1979 period it is shown that unanticipated changes in the mix between borrowed and nonborrowed reserves cause expected real interest rates to change after the announcement because they provide information about a future change in the supply of money a precise model is developed and tested during subperiods of nonborrowed and borrowed reserves targeting by the fed

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

financial integration housing and economic volatility abstract the great recession illustrates the sensitivity of the economy to housing this paper shows that financial integration fostered by securitization and nationwide branching amplified the positive effect of housing price shocks on the economy during the 1994 2006 period we exploit variation in credit supply subsidies across local markets from government sponsored enterprises to measure housing price changes unrelated to fundamentals using this instrument we find that house price shocks spur economic growth the effect is larger in localities more financially integrated through both secondary loan market and bank branch networks financial integration thus raised the effect of collateral shocks on local economies increasing economic volatility

the dynamics of a small open economy in response to monetary fiscal and productivity shocks abstract this paper evaluates empirically the relative importance of monetary and fiscal versus technology shocks in an open economy characterized by perfect international capital mobility the variance covariance matrix of these shocks is estimated a stochastic model is used to perform numerical simulations the results show that persistent shocks to productivity can reproduce several empirical regularities including the puzzling high correlation between national saving and investment remarkably well and that monetary and fiscal shocks play a minor role

bank regulation and monetary policy the depository institutions deregulation and monetary control act 1980 and the garn st germain depository institutions act 1982 are the two most significant pieces of bank legislation since the 193os their significance stems from the fact that they have sought to roll back a number of the regulations and restrictions imposed on bank activity and competition in the 1933 80 period among the important provisions of these acts are a gradual elimination of regulation q ceilings on time and savings deposits by march 1986 the amelioration of state imposed usury ceilings on loans the nationwide provision of interest bearing transaction type accounts negotiable order of withdrawal now and super now accounts permission for thritts to expand into bank like products such as commercial and industrial loans consumer loans and credit cards and the development of new types of savings accounts such as mmdas l in addition to legislative deregulation we have also witnessed homemade deregulation as banks have sought to exploit often with great success loopholes in the bank holding

credit booms and lending standards evidence from the subprime mortgage market this paper links the u s subprime mortgage crisis to demand side factors that contributed to the rapid expansion of the u s mortgage market we show that denial rates were relatively lower in areas that experienced faster credit demand growth and that lenders in these high growth areas attached less weight to applicants loan to income ratios the results are robust to controlling for supply side factors including house price appreciation mortgage securitization and other economic fundamentals and to several robustness tests controlling for endogeneity the results are consistent with the notion that a relaxation of lending standards triggered by an increased demand for loans contributed to the boom and the ensuing crisis together with other supply side explanations these findings shed new light on the relationship between credit booms and financial instability

the logit response dynamics we develop a characterization of stochastically stable states for the logit response learning dynamics in games with arbitraryspecification of revision opportunities the result allows us to show convergence to the set of nash equilibria in the class of best response potential games and the failure of the dynamics to select potential maximizers beyond the class of exact potential games we also study to which extent equilibrium selection is robust to the specificationof revision opportunities our techniques can be extended and applied to a wide class of learning dynamics in games

intermediate monetary targets and macroeconomic fluctuations it is investigated whether the choice of intermediate target has altered macroeconomic fluctuations and whether the observed changes are consistent with predictions from economic theory since implications from the theoretical literature focus on the effects of structural disturbances an empirical analysis must identify these effects the structural vector autoregressive var technique estimates structural disturbances using restrictions from standard macroeconomic theory based on descriptions of actual targeting procedures by insiders to federal reserve policy decisions the intermediate target for the united states is identified as the interest rate from 1951 to 1969 and money from 1970 to 1986 var models are estimated over each subsample to assess whether the estimated structural disturbances cause endogenous variables to behave as economic theory predicts tests are also performed to assess whether or not the targeting rule affects the variance of endogenous variables attributable to structural sh

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

financial structure and aggregate economic activity an overview this paper surveys literature that explores the possible links between the financial system and aggregate economic behavior the survey is in two parts the first reviews the traditional work and the second discusses new research copyright 1988 by ohio state university press

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

unexpected monetary disturbances during the gold standard era abstract this empirical paper uses the barro methodology of estimating unexpected monetary shocks to determine the effect these shocks had on real output in the u s during the gold standard era between 1880 and 1913 it also investigates whether changes in a measure of financial intermediation had real effects the results indicate that neither expected nor unexpected money shocks affected output changes in financial intermediation however were significantly correlated with output this result lends support to theories which stress the endogeneity of broad measures of the money supply

the source of fluctuations in money evidence from trade credit abstract this paper tests the relative importance of technology shocks and financial shocks as sources of fluctuations in money the model extends the theory of king and plosser 1984 by recognizing that both money and trade credit provide transactions services under certain conditions the co movements between money and trade credit can reveal the nature of the underlying shocks the empirical results strongly suggest that shocks to the financial system account for most of the fluctuations in money in the long run and at business cycle frequencies on the other hand technology shocks appear to be more important at seasonal frequencies

demand shocks supply shocks and the cyclicality of real wages the behaviour of real wages over the business cycle has received increasiing attention in recent years the cyclicality of real wages constitues an important aspect of recent models of the business cycle however empirical studies undertaken to determine whether real wages are procyclical or countercyclical have reported conflicting findings in thiis paper we use vector autoregressions to analyse the cyclicality of real wages we find that the source of the disturbance plays a decisive role in the cyclical behaviour of real wages in particular we demonstrate that a supply shock generates procyclical real wages whereas a demand shock yields countercyclicality

a lost generation education decisions and employment outcomes during the us housing boom bust cycle of the 2000s abstract we exploit regional variations in u s house price fluctuations during the boom bust cycle of the 2000s to study the impact of the housing cycle on young americans choices related to education and employment we find that in msas which experienced large increases in house prices between 2001 and 2006 young adults were substantially more likely to forego a higher education and join the workforce lowering skill formation during the bust years the young especially those without higher education were more likely to be unemployed in areas which experienced higher declines in house prices

productivity shocks and business cycles this note uses two measures of productivity growth the solow residual and the dual residual from the cost function to test competing theories of the cycle in a number of oecd countries the empirical results indicate that both demand and supply shocks play a role in driving economic cycles and therefore refute the stronger real business cycle hypothesis

financial innovation price smoothing and monetary policy financial innovation price smoothing and monetary policy i introduction in a monetary economy the volume of nominal transactions fluctuates with the level of economic activity empirical evidence suggests that the supply of nominal transaction assets such as currency and bank deposits also fluctuates with the level of economic activity some researchers have attributed these observations to the phenomenon of money endogeneity 1 one explanation for this endogenous supply response is a systematic monetary policy as described by black 1972 under which the central bank passively adjusts the money supply to accommodate the changes in money demand alternatively king and plosser 1984 and saving 1979 stress the role of the private banking system in producing this endogenous response they argue that exogenous changes in real activity elicit sympathetic changes in the demand for transaction services that may be partially or fully accommodated by the banking system through its supply of inside money in either case this endogenous supply response tends to mitigate the price adjustment that accompanies a real supply shock 2 in the long run however the price level is ultimately determined by the central bank in the market for the nominal quantity that it controls e g currency bank reserves when deposit accounts are subject to reserve requirements or the monetary base 3 this suggests that if the private banking system does not fully accommodate the real shock and if the shock exhibits a well defined persistence then endogenous price adjustments that are fully anticipated may be further damped by a passive supply response by the central bank in addition if price expectations affect real interest rates then current period price level smoothing via a passive monetary policy may also be possible 4 in addition to employing transaction assets currency and checkable bank deposit accounts to meet their transaction requirements agents may purchase non deposit transaction services directly for firms these services include the tools available to the modern corporate cash manager such as lockbox collection systems repurchase agreements and zero balance accounts in the household sector they take the form of atms debit and credit cards and overdraft privilages on checkable accounts among others these non deposit transaction services represent an increasingly important medium of exchange their supply by the banking system is not directly controlled by the central bank and also offers another avenue by which the economy may respond endogenously to fluctuating transaction requirements associated with real shocks thereby further mitigating the price adjustment 5 the production of non deposit transaction services is subject to technology shocks in the form of financial innovations these innovations alter the economy wide demand for currency and checkable bank deposit accounts and prices adjust as with the introduction of new technology into the production of goods financial innovations are not fully adopted immediately due to the fixed costs of adjusting individual cash management practices but are instead assimilated over time this implies that their effects on transaction asset demands persist if the rate of adoption has a forecastable component the central bank can smooth expected prices by passively accommodating these innovations as with aggregate productivity shocks this persistence may also enable the central bank to damp the disturbances to the current period price level that these innovations create through the impact of price expectations on real interest rates this paper examines a non deposit transaction services market in a model economy that is developed in section ii it has the following features transactors can meet their transaction requirements by allocating wealth to currency or to bank deposit accounts that pay a market determined interest rate or by purchasing non deposit transaction services directly at a market determined price

trade interdependence and the international business cycle a stochastic general equilibrium model of the world economy is developed to analyze the contribution of trade interdependence to international business cycles we test some of the implications of the model using data from ten major industrial countries and a variety of detrending techniques to calculate the cyclical component of output we find that the significance of trade in the transmission of economic disturbances across countries is not robust to the choice of the detrending method in general the role of trade interdependence is moderate and seem to have been stronger in the period before 1973

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

an approach to equilibrium selection abstract we consider equilibrium selection in 2 2 bimatrix both symmetric and asymetric games with two strict nash equilibria by embedding the static games in a dynamic random matching framework played by a continuum of anonymous agents unlike in evolutionary games the players are rational and maximize discounted payoffs but they are restricted to make a short run commitment when choosing actions this dynamic game with frictions has stationary states which correspond to the nash equilibria of the static game our selection is based on differential stability properties of the stationary states it is shown that for a small degree of friction a strict nash equilibrium becomes uniquely absorbing and globally accessible if and only if it is risk dominant harsanyi and selten a general theory of equilibrium selection in games mit press cambridge ma 1988 journal of economic literature classification numbers c72 and c73