the differential regional effects of monetary policy this paper examines whether monetary policy has similar effects across regions in the united states impulse response functions from an estimated structural vector autoregression reveal a core of regions new england mideast plains southeast and the far west that respond to monetary policy changes in ways that closely approximate the u s average response of the three noncore regions one great lakes is noticeably more sensitive to monetary policy changes and two southwest and rocky mountains are found to be much less sensitive a state level version of the model is estimated and used to provide evidence on the channels for monetary policy

states and the business cycle abstract we model the us business cycle using a dynamic factor model that identifies common factors underlying fluctuations in state level income and employment growth we find three such common factors each of which is associated with a set of factor loadings that indicate the extent to which each state s economy is related to the national business cycle according to the factor loadings there is a great deal of heterogeneity in the nature of the links between state and national economies in addition to exhibiting geographic patterns the closeness of state economies to the national business cycle is related not only to differences in industry mix but also to non industry variables such as agglomeration and neighbor effects finally we find that the common factors tend to explain large proportions of the total variability in state level business cycles although again there is a great deal of cross state heterogeneity

monetary policy housing and heterogeneous regional markets we quantify the importance of heterogeneity for monetary policy using a new heterogeneous agent var havar model that integrates national monetary financial markets with regional housing markets via the mortgage rate although the havar model has linear regional vars its aggregate impulse responses exhibit two nonlinearities 1 time variation stemming from aggregation over heterogeneous regions and 2 state dependence on initial economic conditions in regions thus monetary policy has long and variable lags because monetary transmission depends on the extent and nature of regional heterogeneity which both vary over time the model is estimated with data for u s regions from 1986 to 1996 and simulated to show how coastal housing booms might influence the efficacy of monetary policy

the credibility of policy announcements greek evidence this paper by using error correction ec methodology along with chow stability tests examines whether three cases of policy announcements in greece over the 1975 1995 period have been considered credible or not by the public focusing on the phillips curve trade off the empirical findings reveal that two out of three policy announcements are characterized as credible by private agents

the propagation of regional recessions this paper develops a framework for inferring common markov switching components in a panel data set with large cross section and time series dimensions we apply the framework to studying similarities and dierences across u s states in the timing of business cycles we hypothesize that there exists a small number of cluster designations with individual states in a given cluster sharing certain business cycle characteristics we nd that although oil producing and agricultural states can sometimes experience a separate recession from the rest of the united states for the most part dierences across states appear to be a matter of timing with some states entering recession or recovering before others jel c11 c32 e32

forecasting national recessions using state level data a large literature studies the information contained in national level economic indicators such as nancial and aggregate economic activity variables for forecasting u s business cycle phases expansions and recessions in this paper we investigate whether there is additional information regarding business cycle phases contained in subnational measures of economic activity using a probit model to predict the nber expansion and recession classification we assess the forecasting benets of adding state level employment growth to a common list of national level predictors as state level data adds a large number of variables to the model we employ a bayesian model averaging procedure to construct forecasts based on a variety of forecast evaluation metrics we find that including state level employment growth substantially improves short horizon forecasts of the business cycle phase the gains in forecast accuracy are concentrated during months of national recession posterior inclusion probabilities indicate substantial uncertainty regarding which states belong in the model highlighting the importance of the bayesian model averaging approach

testing mean reversion in target zone exchange rates the aim of the paper is to assess to what extent european monetary system ems target zone exchange rates have been characterized by mean reverting behaviour to this purpose a new class of mean reversion tests is introduced with respect to standard approaches the proposed tests which are based on the sample excursion of the exchange rate within the band have a better ability to detect target zone mean reverting dynamics the empirical analysis of the exchange rates among the main ems currencies shows that the degree of mean reversion is much higher than what has been reported in the literature both before and after the target zone widening of 1993 finally the proposed tests have a wider range of applications since they originate a new approach to unit root testing

using option prices to estimate realignment probabilities in the european monetary system the case of sterling mark abstract this paper describes a procedure for estimating the market s perceived probability distribution of future exchange rates from the prices of risk reversals strangles and other currency options and uses the procedure to estimate the risk neutral ex ante probability of a realignment of the pound sterling the procedure for estimating the realignment probabilities relies on the jump diffusion model of exchange rate behavior and the resulting option pricing formula by fitting this model to market option price data i retrieve the unobserved parameters of the jump diffusion process i then use these parameter estimates to estimate the ex ante probability distribution of exchange rates and thus the realignment probabilities

how regions react to recessions resilience and the role of economic structure martin r sunley p gardiner b and tyler p how regions react to recessions resilience and the role of economic structure regional studies this paper examines how employment in the major uk regions has reacted to the four major recessions of the last 40 years namely 1974 76 1979 83 1990 93 and 2008 10 the notions of resistance and recoverability are used to examine these reactions the analysis reveals both continuities and significant changes in the regional impact of recession from one economic cycle to the next further while economic structure is found to have exerted some influence on the resistance and recoverability of certain regions in general region specific or competitiveness effects appear to have played an equally if not more significant role

measuring business cycles a modern perspective in the first half of this century special attention was given to two features of the business cycle 1 the comovement of many individual economic series and 2 the different behavior of the economy during expansions and contractions both of these attributes were ignored in many subsequent business cycle models which were often linear representations of a single macroeconomic aggregate however recent theoretical and empirical research has revived interest in each attribute separately notably dynamic factor models have been used to obtain a single common factor from a set of macroeconomic variables and nonlinear models have been used to describe the regime switching nature of aggregate output we survey these two strands of research and then provide some suggestive empirical analysis in an effort to unite the two literatures and to assess their usefulness in a statistical characterization of business cycle dynamics

credibility and disinflation in the european monetary system analysis of interest differentials in the european monetary system has suggested a widespread lack of credibility of the exchange rate mechanism in the sense that in most countries the implicit expected rate of devaluation was significant and not far short of inflation differentials vis a vis the deutschmark we present and test a model in which prices reflect expectations of exchange rate behaviour the results provide mixed evidence that price setting in countries which participated in the erm was influenced by the exchange rate discipline

one for some or one for all taylor rules and interregional heterogeneity we document a novel empirical phenomenon the u s federal reserve appears to set interest rates partly in response to regional economic disparities this result is robust even after controlling for factors such as the central bank s forecasts and a battery of explanatory variables we argue that this likely does not reflect an explicit concern about regional differences by policymakers but instead can be explained by a model with nonlinear regional phillips curves consistent with the predictions of this model we find that the federal reserve responds disproportionately to fluctuations in low unemployment states alternative explanations cannot account for this finding

assessing the credibility of a target zone evidence from the ems this paper provides some new evidence on the credibility of the exchange rate mechanism erm of the european monetary system ems the study differs from previous research in the literature in three main respects first the main contribution is the use of several credibility indicators some of which have never been applied before to all of the currencies under study this allows one to strengthen the results obtained in this paper second a longer period than that of previous studies is analysed covering the complete ems history third a comparison has been made of the prediction qualities of the different indicators in order to explore their ability to capture the main erm events realignments changes in the fluctuations bands and speculative pressures fourth the indicators are applied to the experience of the new modified erm linking the currencies of non euro area member states to the euro showing the relevance of this approach in the near future with the enlargement of the european union

an interpretation of recent research on exchange rate target zones how do exchange rate bands work compared to completely fixed rates between realignments or more precisely what are the dynamics of exchange rates interest rates and central bank interventions within exchange rate bands does the difference between bands and completely fixed exchange rates matter and if so which of the two arrangements is best or more precisely what are the tradeoffs that determine the optimal bandwidth this article will present an interpretation of some selected recent theoretical and empirical research on exchange rate target zones with emphasis on main ideas and results and without technical detail

business cycle turning points a new coincident index and tests of duration dependence based on a dynamic factor model with regime switching the synthesis of the dynamic factor model of stock and watson 1989 and the regime switching model of hamilton 1989 proposed by diebold and rudebusch 1996 potentially encompasses both features of the business cycle identified by burns and mitchell 1946 1 comovement among economic variables through the cycle and 2 nonlinearity in its evolution however maximum likelihood estimation has required approximation recent advances in multimove gibbs sampling methodology open the way to approximation free inference in such non gaussian nonlinear models this paper estimates the model for u s data and attempts to address three questions are both features of the business cycle empirically relevant might the implied new index of coincident indicators be a useful one in practice do the resulting estimates of regime switches show evidence of duration dependence the answers to all three would appear to be yes

model averaging in markov switching models predicting national recessions with regional data this paper introduces new weighting schemes for model averaging when one is interested in combining discrete forecasts from competing markov switching models in the empirical application we forecast u s business cycle turning points with state level employment data we find that forecasts obtained with our best combination scheme provide timely updates of u s recessions in that they outperform a notoriously difficult benchmark to beat the anxious index from the survey of professional forecasters for short term forecasts

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

jobless recoveries stagnation or structural change within the existing literature a number of competing explanations for jobless recoveries have emerged on the one hand there is evidence of dynamic structural change including offshoring globalization and technological advances that are resulting in the loss of middle skill routine employment other studies emphasize a less dynamic economy with slower growth reduced labor market fluidity a decline in startup activity and even economic stagnation this study exploits variation among u s states to assess the degree that stagnation and or important structural changes in the economy contribute to the recent phenomenon of jobless recoveries we find support for both the stagnation and structural change theories of jobless recoveries on the stagnation side we find evidence that lower startup rates are a significant predictor of jobless recoveries we also find evidence that links dynamic structural change to the jobless recovery phenomenon more specifically states experiencing a long run downward trend in the share of routine employment are more likely to experience a jobless recovery our results are consistent with the polarization theory where routine replacing technological advances permanently reduce demand for middle skill labor thus contributing to jobless recoveries jel e32 e24

fiscal policy debt management and exchange rate credibility lessons from the recent italian experience abstract this paper explores some potential determinants of exchange rate credibility with reference to the italian experience of the 1990s the analysis relies on a nonlinear framework emphasizing shifts between credible and non credible states and assuming a significant degree of persistence in the above regimes almost all fiscal and debt management indicators display significant effects on devaluation expectations the main policy implications of the paper are that a restrictive fiscal stance a lengthening of average debt maturity and an increase in the share of foreign denominated debt are crucial to stabilize the lira exchange rate and to qualify italy in the former group of countries which will join emu

dissecting the cycle a methodological investigation following burns and mitchell we define the cycle as a pattern in the level of aggregate economic activity an algorithm to locate turning points is developed as is a new measure of pro cyclicality a link between turning points and the moments of the series is established thereby providing the statistical foundation that burns and mitchell s work lacked using these tools we are able to dissect cycles in terms of the contributions made by trend growth volatility serial correlation and non linear effects we dissect several models and find little evidence that certain non linear effects are important to the nature of business cycles

anomalies foreign exchange most all behavior can be explained by assuming that agents have stable well defined preferences and make rational choices consistent with those preferences in markets that eventually clear an empirical result qualifies as an anomaly if it is difficult to rationalize or if implausible assumptions are necessary to explain it within the paradigm this column will present a series of such anomalies readers are invited to suggest topics for future columns by sending a note with some reference to or better yet copies of the relevant research comments on anomalies printed here are also welcome the address

the quantitative effects of tax foresight not all states are equal abstract this paper explores the effect of federal tax news on state economic activity we estimate a factor augmented vector autoregression favar model which allows us to consider the possibility that unobserved factors such as credit and fiscal conditions might be relevant for modeling the dynamic response of aggregate and state level economic activity we identify tax foresight as a shock to the implicit tax rate measured by the yield spread between the one year tax exempt municipal bond and the one year taxable treasury bond our results suggest that an increase in the implicit tax rate raises national output over much of the anticipation period in addition anticipated tax increases give rise to expansions in state personal income and employment we find that the variation in the responsiveness of economic activity across states is mostly explained by differences in industrial composition and income distribution as well as by some demographic characteristics such as median income and education finally using a proxy for exogenous changes in federal tax revenues we investigate the dynamics of state level personal income and employment our results point to considerable heterogeneity in the response across u s states moreover they reveal that the long run multiplier for an anticipated increase in tax revenues is about a tenth of the short run multiplier for an unanticipated increase in taxes

target zones and realignments recent contributions emphasize that the presence of exchange rate target zones has important effects on the within band behavior of exchange rates when agents are forward looking the authors find that the implications of available models are inconsistent with european exchange rate data and they suggest that the frequent realignments occurring in the period they consider may be responsible for this they construct a model in which the likelihood of a realignment in the near future increases as the exchange rate approaches the limits of its fluctuation band and show that its implications are broadly consistent with the evidence copyright 1992 by american economic association

reputation and credibility in the european monetary system ems credibility axel weber this article provides a quantitative assessment of the credibility of the european monetary system during the disinflation period of the 1980s the results contradict the widely held view that the ems has operated as a dm zone it is shown that after a brief early phase the ems has functioned as a bipolar system with a hard currency option supplied by the german bundesbank and a soft currency option offered by the banque de france whilst from the onset the netherlands have chosen the hard currency option at least in a first stage the remaining smaller economies belgium denmark and ireland adopted the soft currency alternative at a later stage of the ems however the soft currency block has disintegrated and some countries most noticeably ireland and to a lesser extent france have shifted towards the hard currency standard it is argued that this increased tightening of the ems provides a favourable starting condition for the transition to economic and monetary union

subgame perfect implementation this paper examines the use of stage mechanisms in implementation problems and provides a partial characterization of the set of subgam e perfect implementable choice rules it is shown that in many economic environments virtually an y choice rule can be implemented to illustrate the power of this approach the paper discusses a number of models in which it is possible to implement the first best although it wouldn t have been possible to do so without using stage mechanisms the diversity of these models suggests that subgame perfect implementation may find wide application copyright 1988 by the econometric society

companies learning to innovate in recessions abstract innovating in downturns can affect corporate success by improving a firm s position relative to competitors during the recovery period however increased uncertainty and more binding financial constraints complicate such innovation activity i find that past experience with innovation during recessions improves a firm s ability to invest in r d when a new downturn hits this result holds controlling for traditional drivers of innovation as cumulated innovations and financial constraints as well as mitigating endogeneity and selection concerns moreover i find that past experience with innovation during recessions is beneficial to patent outcomes after a new recession overall the paper provides novel evidence on how business cycles shape innovative capabilities

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

implementation of individually rational social choice functions with guaranteed utilities abstract a simple mechanism is presented that allocates an indivisible object between two agents for almost any possible compensation rule furthermore the equilibrium strategy guarantees a level of utility not less than e where e can be arbitrarily small

sterling s erm credibility abstract this paper examines the recent credibility of the currencies participating in the erm since 1987 focusing on sterling in 1992 it shows that there is little market evidence that sterling s credibility was in serious doubt until mid september 1992

stochastic devaluation risk and the empirical fit of target zone models in the model of this paper an exchange rate fluctuates between given boundaries for random lengths of time and jumps discretely when devaluation occur we provide explicit solutions for the stochastic processes followed by the exchange rate and by the expected rate of depreciation when the likelihood and the size of devaluations vary stochastically over time the model produces realistic patterns of covariation between exchange rates and interest rate differentials and provides interesting interpretations of available empirical evidence we also specify how to infer devaluation risk from target zone data

exchange rates under ems target zones an econometric investigation this study tests krugman s model on exchange rate target zones using four old ems exchange rates those of the currencies of belgium france italy and the netherlands against the deutsche mark vast theoretical literature is available but there are very few empirical studies testing the main results of krugman s model namely the honeymoon effect smooth pasting and the overall s curved relationship between fundamental and exchange rate the present study supports the honeymoon effect but does not find any evidence in support of smooth pasting or of an s curved relationship between the exchange rate and fundamentals for the belgian franc french franc and italian lira against the deutsche mark the dutch guilder very closely follows movements in the german mark throughout the period 1981 90 end of month exchange rates and euro currency interest rates data are used

efficient provision of a public project almost without knowing the cost sharing rule abstract a group of agents must decide whether or not to undertake a project a simple mechanism is presented which implements the social choice function when the cost sharing rule fulfills only two properties budget balance and payment bounds

business cycle phases in u s states the u s aggregate business cycle is often characterized as a series of distinct recession and expansion phases we apply a regime switching model to state level coincident indices to characterize state business cycles in this way we find that states differ a great deal in the levels of growth that they experience in the two phases recession growth rates are related to industry mix whereas expansion growth rates are related to education and age composition further states differ significantly in the timing of switches between regimes indicating large differences in the extent to which state business cycle phases are in concord with those of the aggregate economy

metro business cycles abstract we construct monthly economic activity indices for the 50 largest u s metropolitan statistical areas msas beginning in 1990 each index is derived from a dynamic factor model based on twelve underlying variables capturing various aspects of metro area economic activity to accommodate mixed frequency data and differences in data publication lags we estimate the dynamic factor model using a maximum likelihood approach that allows for arbitrary patterns of missing data our indices highlight important similarities and differences in business cycles across msas while a number of msas experience sizable recessions during the national recessions of the early 1990s and early 2000s other msas escape recessions altogether during one or both of these periods nearly all msas suffer relatively deep recessions near the recent great recession but we still find significant differences in the depth of recent metro recessions we relate the severity of metro recessions to a variety of msa characteristics and find that msas with less educated populations and less elastic housing supplies experience significantly more severe recessions after controlling for national economic activity we also find significant evidence of dynamic spillover effects in economic activity across msas

the economic performance of cities a markov switching approach abstract this paper examines the determinants of employment growth in metro areas to obtain growth rates we use a markov switching model that separates a city s growth path into two distinct phases high and low each with its own growth rate the simple average growth rate over some period is therefore the weighted average of the high phase and low phase growth rates with the weight being the frequency of the two phases we estimate the effects of a variety of factors separately for the high phase and low phase growth rates growth in the high phase is related to both human capital and industry mix while growth in the low phase is related to industry mix only specifically the relative importance of manufacturing overall our results strongly reject the notion that city level characteristics influence employment growth equally across the phases of the business cycle

countercyclical policy and the speed of recovery after recessions we consider the effect of some policies intended to shorten recessions and accelerate recoveries our innovation is to analyze the duration of the recoveries of various u s states which gives us a cross section of both state and national level policies because we study multiple recessions for the same state and multiple states for the same recession we can control for differences in the economic conditions preceding recessions and the causes of the recessions when evaluating various policies we find that expansionary monetary policy at the national level helps to stimulate the exit of individual states from recession we find that exogenous measures of decreases in taxes or targeted increases in federal spending reduce recovery times for state recessions we also find ambient economic conditions can extend expected recovery times other states in the same region suffering from recession around the same time the length of the preceding recession and increases in oil prices

efficient mechanisms for multiple public goods abstract we propose two sequential mechanisms for efficient production of public goods our analysis differs from the existing literature in allowing for the presence of multiple public goods and in also being simple while both mechanisms ensure efficiency the payoffs in the first mechanism are asymmetric being sensitive to the order in which agents move the second mechanism corrects for this through a two stage game where the order of moves in the second stage is randomly determined the payoffs from the second mechanism correspond to the shapley value of a well defined game which summarizes the production opportunities available to coalitions in the economy

regional effects of federal tax shocks this article studies the effects of federal tax changes on u s state level income utilizing an exogenous tax shock series recently proposed in the literature we find considerable variation in how federal tax changes affect regional income estimated state income multipliers range between 0 2 in utah and 3 7 in hawaii analyzing the determinants of differences in regional tax multipliers suggests that size and composition of the state tax base help explain the observed heterogeneity in the transmission of federal tax policy

estimating the u s output gap with state level data this paper develops a method to estimate the u s output gap by exploiting the cross sectional variation of state level output and unemployment rate data the model assumes that there are common output and unemployment rate trend and cycle components and that each state s output and unemployment rate are subject to idiosyncratic trend and cycle perturbations i estimate the model with bayesian methods using quarterly data from 2005 q1 to 2018 q2 for the 50 states and the district of columbia results show that the u s output gap reached about negative 4 6 around the years of the great recession and was about 0 9 in 2018 q2

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

analysis of exchange rate target zones using a limited dependent rational expectations model with jumps this article examines the exchange rate determination in a target zone regime when the bounds can be fixed for an extended period but are subject to occasional jumps in this case the behavior of the endogenous variable is affected by the agents expectations about both the occurrence and the size of the jump empirical results using data for the franc mark exchange rate provide support for the nonlinear model with time varying realignment probability and indicate that the agents correctly anticipated most of the observed changes in the central parity

the term structure of interest rate differentials in a target zone theory and swedish data abstract the term structure of interest rate differentials is derived in a model of a small open economy with a target zone exchange rate regime for given time to maturity the interest rate differential is decreasing in the exchange rate and for given exchange rate the interest rate differential s absolute value and its instantaneous variability are both decreasing in the time to maturity devaluation realignment risks are incorporated and imply upward shifts of the interest rate differentials several implications of the theory are found to be broadly consistent with data on swedish exchange rates and interest differentials for the period 1986 1989

the foreign exchange risk premium in a target zone with devaluation risk abstract the foreign exchange risk premium in an exchange rate target zone is derived when the exchange rate is heteroskedastic within the band and there is a separate devaluation risk the risk premium is then the sum of two separate risk premia arising from uncertainty about exchange rate movements within the band and from uncertainty about devaluations both real and nominal risk premia are considered real and nominal risk premia from movements within the band are very small real and nominal risk premia from devaluations are larger but still relatively small proportions of the interest rate differential

is housing the business cycle evidence from us cities abstract in a recent paper leamer 2007 identified housing as an important precursor of the national business cycle previous work on the other hand has shown that regional cycles may not be synchronous with the aggregate cycle in this paper we analyze the relationship between housing and the business cycle at the msa level for a set of 51 us cities we find that declines in house prices are often not followed by declines in that city s employment while the growth rates in housing variables appeared to slow ahead of city level peaks we find no consistent statistical relationship suggesting a city s permits or prices influences its business cycle in fact we find that national permits are a better leading indicator for a city s employment than a city s own permits this suggest the possibility that housing is merely a proxy for other consumption or wealth indicators