output prices and the velocity of money in search equilibrium a monetary search model with match specific preferences and traded quantities is analyzed to assess how aggregate output the price level and the velocity of money are affected by various forms of technological change changes in the productive technology lead to output and prices moving in opposite directions but provide no prediction for monetary velocity the matching technology directly affects monetary velocity and output but has little impact on prices transactions technologies which affect the fixed cost of trading are ambiguous with respect to comovements of output and prices but systematically impact velocity

interpreting the cyclical behavior of the price level in the u s the development of macroeconomic theory is largely guided by so called stylized facts whether truly facts or myths the existence of such widely believed empirical regularities tends to constrain the class of acceptable theories to be taken seriously a macroeconomic model must be able to explain salient stylized facts in a reasonably satisfactory way it is therefore imperative that these facts be such

the cyclical behaviour of prices g 7 versus non g7 countries the cyclical behaviour of prices and inflation is investigated for g 7 and seven non g7 countries for the postwar period the quarterly prices are shown to be clearly countercyclical in the g 7 countries while they are much less so in the non g7 countries inflation is shown to move procyclically and this is more clearly pronounced in the g 7 than non g7 countries this discrepancy in results may result from the demand management policies that these non g7 countries have adopted in the past and this cautions the students of business cycles to pay attention to the peculiarities of each economy when modelling the business cycle

the cyclical behavior of prices abstract the procyclical behavior of prices has been a staple of business cycle lore since the work of the early nber business cycle researchers this paper reexamines that empirical fact the aggregate data do not support procyclical price movements as a stable feature of the business cycle the only episode where it is a robust feature of the data is the period between the two world wars particularly the period of the great depression

price flexibility credit availability and economic fluctuations evidence from the united states 1894 1909 the importance of disturbances in financial markets for real economic activity and the positive association between price level and output movements typically are explained by appeal to a combination of nominal aggregate demand shocks particularly money supply shocks and rigid prices we argue that this view is inconsistent with evidence for short run responsiveness of prices and gold flows to nominal disturbances during the pre world war i gold standard era we offer an alternative explanation that connects financial markets and real activity through disturbances to the availability of credit this approach links comovements in prices and output through real effects in credit markets associated with price level shocks empirical analysis using monthly data for the pre world war i period supports the assumption of rapid price adjustment and the credit supply interpretation of the transmission of financial shocks disturbances to credit availability including price shocks contribute substantially to our empirical explanation of output fluctuations during this period

the pre and postwar price output paradox revisited this article addresses past findings of a change in the sign of the price output correlation in the preand post world war ii eras this paradox can be resolved by taking into account the changing direction of price movements deflation to inflation during the two time periods there is in fact a consistently negative correlation between the absolute value of price level changes and changes in output in both time periods and throughout the entire sample this finding offers empirical support to economic theories espousing the benefits of price stability

price prediction errors and real activity a reassessment price prediction errors and real activity a reassessment i introduction macro models employing rational expectations and natural rate assumptions have proven to be powerful and tractable analytical tools in these models output and employment fluctuations are typically demand driven with aggregate demand disturbances transmitted to the real sector through price prediction errors the waning popularity of natural rate models is due in part to the widely held belief that although theoretically appealing the models are of questionable empirical relevance this view appears to be based on a small number of studies which fail to find evidence of a robust empirical relationship between price level surprises and aggregate real activity indeed the available evidence has led some influential macroeconomists to conclude that the channels through which aggregate demand influences the economy have yet to be identified 1 this has had the two fold effect of i stimulating research on channels other than price through which aggregate demand may affect the economy and ii discouraging research on channels that do act through the price level while the first of these effects may be desirable the second is of concern this paper is motivated by our conviction that potentially valuable research has been discouraged on the basis of thin and seriously suspect evidence the sections that follow reassess the role of price prediction errors in determining aggregate real activity we provide evidence that the inability of other researchers to verify a positive correlation between demand driven price prediction errors and real activity is due to misspecified models and in some cases inappropriate estimation procedures we demonstrate that in a more correctly specified and estimated model the relationship between price surprises and real activity is positive and strongly significant thus we conclude that previous researchers were incorrect in discarding the major natural rate paradigms as empirically irrelevant these models do appear to identify an important channel namely price surprises through which aggregate demand influences the real sector ii issues and early evidence price prediction errors play a central role in the most prominent natural rate macro models these models typically fall into one of two general classes equilibrium models and contracting models in both classes of models unanticipated movements in the price level are the channel through which aggregate demand disturbances influence the real sector the exact nature of transmission process however differs across the two sets of theories equilibrium models of the sort pioneered by lucas 1973 depend on the assumption of incomplete information to produce non neutrality of aggregate demand disturbances in the best known examples of this kind of model confusion between relative and aggregate price movements causes firms to react to unanticipated price level movements as though they were at least in part relative price movements thus positive price level shocks cause all firms to increase output and generate positive deviations of aggregate output from its natural rate contracting models as developed in the work of fischer 1977 and gray 1976 depend on contractually set wages to produce non neutrality in these models nominal wages are incompletely responsive to unexpected changes in the price level during the term of the contract under which they are set consequently an unanticipated rise in the price level causes a fall in the real wage of all workers whose contracts are not in the process of renegotiation at that moment with employment determined by the firm during the contract interval the result is a rise in aggregate employment and output our present concern is with testing the common implications of equilibrium and contracting models possibilities for distinguishing between the two classes of models are explored in separate work

estimating gender differences in access to jobs this paper proposes a new measure of gender differences in access to jobs based on a job assignment model this measure is the probability ratio of getting a job for a female and a male at each rank of the wage ladder we derive a nonparametric estimator of this access measure and estimate it for french full time executives aged 40 45 in the private sector our results show that the gender difference in the probability of getting a job increases along the wage ladder from 9 to 50 females thus have a significantly lower access to high paid jobs than to low paid jobs

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

price and investment dynamics theory and plant level data we construct a model of a firm competing for market share in a customer market and making investments in physical capital the firm is financially constrained and there are implementation lags in investment our model predicts that product prices should depend on costs and competitors prices but respond weakly to demand shocks also prices should be strongly related to investment we estimate price and investment equations on panel data for swedish manufacturing plants and find results that are qualitatively in line with these predictions though the relation between investment and prices is stronger than predicted by our model

the cyclical relationship between output and prices an analysis in the frequency domain research showing a negative correlation between output and prices has brought into question the conventional wisdom that prices are procyclical however this finding has been shown to be sensitive to the sample period considered this paper examines the relationship in the frequency domain the covariance of output and prices is decomposed into spectral components to investigate whether differences in the price output relationship across sample periods reflect changes in the importance of various frequencies embedded within the correlations or whether they reflect more fundamental changes in the entire spectral relationship some implications for model evaluation are also considered

money does granger cause output in the bivariate money output relation abstract a bivariate granger causality test on money and output finds statistically significant causality when data are measured in log levels but not when they are measured in first differences of the logs bootstrap simulation experiments indicate that most probably the first difference results reflect lack of power whereas the level results reflect granger causality that is actually in the data the reason for the lack of power in the first difference f statistic is that first differencing the data appears to entail a specification error by showing that money does granger cause output in the bivariate relation we remove a potential embarrassment for models that assign an important role to money in business fluctuations

atheoretical macroeconometrics a critique abstract the spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the cowles commission this development which we call atheoretical macroeconometrics is summarized and evaluated in the current paper it is contrasted with an updated version of the cowles commission approach we conclude that while some of the exercises of atheoretical macroeconometrics are valid those that have attracted the most attention and appear the most innovative exogeneity testing impulse response analysis and policy analysis using estimated vector autoregressions are based on incorrect analysis

on the sources of business cycles in the g 7 abstract this paper examines sources of cyclical movements in output inflation and the term structure of interest rates in the g 7 it employs a novel identification approach which uses the sign of the theoretical cross correlation function in response to shocks to catalog orthogonal disturbances we find that demand shocks are the dominant source of output and inflation fluctuations in several of the g 7 countries the proportion of term structure variability explained by different structural sources does not depend on the horizon apart from the us and canada structural shocks are nearly uncorrelated across countries

canadian economic growth random walk or just a walk this paper analyses the role of shocks in canadian economic growth since 1870 it uses a nonparametric technique to evaluate the degree of presistence of an innnovation in long run gnp it is found that a one percent shock to canadian gnp changes the long run forecast of this variable by appproximately the same amount which is characteristic of a random walk process it is also shown that in important periods of canadian economic growth its gnp evolved as a random walk with constant drift with the exception of the period 1929 42 no evidence of business cycles is found these results lead to the conclusion that movements and oscillations in the gnp of canada since 1870 have been primarily driven by the accumulation of shocks rather than by cyclical movements

optimal indexation and the cyclical behavior of prices abstract we construct in this article a dynamic model with technological and monetary shocks we show that whereas prices may be procyclical without indexation they are countercyclical under optimal indexation

prices output and hours an empirical analysis based on a sticky price model abstract i show that a simple sticky price model based on rotemberg 1982 is consistent with a variety of facts concerning the correlation of prices hours and output it is consistent with the negative correlation between forecastable movements in prices and output as well as the smaller negative correlation between forecastable movements in prices and hours it is also consistent with the positive correlations of unexpected movements in prices output and hours these patterns are harder to reconcile with the flexible price version of the model in particular they require that money respond differently to forecastable and to unforecastable real shocks

macroeconomic fluctuations demand or supply permanent or temporary abstract we use generalized method of moments to estimate a rational expectations aggregate demand aggregate supply macroeconomic model for five european economies and the united states our aim is to examine whether supply or demand shocks have predominated in these economies during the post war era and whether shocks of either type have been primarily temporary or permanent in nature we find that permanent or temporary demand shocks have been the dominant source of variance in output growth in all six countries but there is a less consistent pattern for inflation permanent supply shocks had the dominant influence on autocorrelations

the comovement between real activity and prices in the g7 in this paper we study the short run and long run comovement between prices and real activity in the g7 countries during the postwar period using var forecast errors and frequency domain filters we find several patterns of the correlation coefficients that are robust across countries and time periods typically the correlation coefficients at long run horizons are significantly negative and the correlation coefficients at short run horizons are substantially higher additionally there is evidence of positive correlation at short run forecast horizons for some countries

methodological and empirical issues in real business cycle theory abstract in this paper we argue that the major impact of the rbc literature has been to propose a new methodology for macroeconomics this methodology is distinguished first by the importance it attributes to the empirical description of the phenomena to be explained and second by the use of this description in conjunction with quantitative theorizing i e the construction of computable general equilibrium models whose characteristic statistics match those of the data in accordance with this approach we first report on the current state of knowledge concerning business cycle regularities and conclude that additional empirical effort is called for in order to arrive at the appropriate basis for theorizing we then examine the performance of existing models and evaluate the case for integrating monetary factors and demand shocks into them lastly we review the recent efforts to explain the employment variability puzzle and argue that the search for a solution naturally leads to the incorporation of significant non walrasian features into the rbc framework

the cyclical behavior of prices and relative prices i introduction correlations between shocks to prices and output provide evidence on the source of macroeconomic shocks for example den haan 2000 found positive correlations at short forecast horizons and negative correlations at longer forecast horizons for the consumer price index cpi and the index of industrial production ip 1 he interpreted these results to mean that demand shocks dominate in the short run while supply shocks dominate in the long run several other papers confirm the positive correlation between the cpi and the ip at short forecast horizons on the other hand some of these same authors have found a negative correlation between real gross domestic product gdp and the gdp deflator at short forecast horizons 2 this difference is disappointing since the results provide conflicting evidence on the nature of shocks at short horizons and puzzling since the cpi and the deflator are positively correlated as are ip and gdp an important distinction between pairing gdp with its deflator and pairing ip with the cpi is the extent to which products in the output index are matched to products in the price index gdp and the gdp deflator are based on the same set of goods and services on the other hand ip contains products such as those produced by mining whose prices are not included in the cpi and the cpi includes products such as housing services that are not included in ip in this paper we argue that the correlation between mismatched price and output indexes such at the cpi and ip can be and often is misleading the explanation for why it is important to use matched indexes of price and output is simple suppose that you are interested in the correlation between the price and the quantity of apples if instead you compute the correlation between the price of oranges and the quantity of apples the correlation is correct only if the relative price of oranges to apples does not vary with the quantity of apples if the relative price varies then the mismatched correlation differs in magnitude from and may even have the opposite sign of the matched one correlations between both matched and mismatched pairs are mostly negative positive correlations are rare and small for matched pairs but more frequent for mismatched pairs for example investment and the investment deflator are negatively correlated while investment and the consumption deflator are positively correlated our analysis below shows that these correlations imply that the relative price of consumption to investment may be positively correlated with investment previous authors have noted that the relative price of nondurables is procyclical which is consistent with the bias we find for mismatches these previous results are based on correlations between detrended variables we confirm that these findings hold when considering the correlation between forecast errors of the relative price of nondurables to durables and output measures 3 because there is no price index that matches ip and because correlations between mismatched price and output measures likely differ in size and may have the opposite sign of the correlation for matched pairs there is no way to be certain of the cyclical nature of the prices of goods included in the index of ip an examination of gdp components and price deflators provides reasons to be skeptical of the positive correlation between the cpi and the ip first matched pairs of price indexes and gdp components have small or negative correlations second correlations between mismatched price indexes and gdp components show that the bias created by mismatches is sometimes substantial further this bias tends to be positive when prices of nondurable goods such as the cpi or consumption deflator are mismatched with gdp components composed mostly of durable goods finally when ip is paired with deflators for durables investments or goods the correlation is either small or negative at short forecast horizons

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

international and intranational business cycles this paper surveys and analyzes the international real business cycle literature we re explore two international business cycle anomalies emphasized by backus kehoe and kydland 1995 as well as establishing the pattern of productivity growth between industries and countries we then compare these findings for the international business cycle to those obtained for data between regions within a country the so called intranational business cycle importantly the intranational business cycle is a natural environment for thinking about the interactions between economies when there are no trade frictions and when there are not multiple currencies we summarize our findings with a comparison between the stylized facts for international and intranational business cycles and draw some policy conclusions copyright 1997 by oxford university press

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

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

international co movements of real and financial economic variables this study presents a first attempt at investigating whether the international co movements of real economic activity conform to the same international co movements of financial activity this study tests the international co movements of real economic activity on the one hand and financial variables such as stock returns interest rates inflation rates and risk premiums on the other hand we employ a dynamic correlation model on data from oecd countries for the period 1980 2010 our findings demonstrate that international stock markets co react in accordance with the underlying international economic forces we also document three other results first the correlation among countries with respect to real economic activity is statistically positive but the level of this correlation is lower than that of financial variables second there is a significant increase over time in the international correlation level with respect to the financial variables finally the creation of the euro monetary union

business cycles under monetary union a comparison of the eu and us reserve districts in the usa and the 15 countries that make up the eu the comparison is suggestive of what might be expected to emerge in the way of business cycle synchronization from a monetary union between the member states of the eu now simply non decimal denominations of the euro and the national central banks of the 11 are branches of the european system of central banks many prominent observers doubted that europe would ever reach this stage and many continue to believe that monetary union between such a large and dispar ate group of countries is fundamentally unsound a key element in the argu ments of many critics of emu is the degree of business cycle asynchronicity between the member states of the eu this paper contributes to the ongoing debate by documenting key differences and similarities between business cycles in the eu and business cycles in the 12 federal reserve districts in the united states the practice of looking to the us experience for insights into the problems and functioning of a monetary union has a long precedent in the literature on fixed exchange rates in general and in the literature on emu in particular for example in making an argument for fixed exchange rates rolnick and weber 1994 note that the usa can be viewed as having a system of fixed exchange rates between currencies issued by the 12 regional federal reserve banks they argue that the notes issued by the 12 banks are not strictly ident ical and that the difference between the notes creates the possibility that the united states could have a system of floating exchange rates among the 12 federal reserve districts 1 rolnick and weber go on to examine the features of the relationship among the 12 regional federal reserve banks that make a system of fixed exchange rates between them feasible in the process drawing lessons for how a monetary union among the countries of the eu might work the analysis in this paper complements earlier analyses in a number of ways the resurgence of interest in business cycle research over the past 20

the comovement between output and prices evidence from a dynamic conditional correlation garch model abstract estimation results based on a multivariate dynamic conditional correlation garch model reveal that the overall price level tended to move in the same direction as output in periods before world war ii but in the opposite direction after the war

the contemporaneous correlation between price shocks and output shocks until the 1990s prices were believed to be procyclical several researchers have since presented evidence of counter cyclical prices this evidence proved robust but its interpretation has varied some have argued that the contemporaneous correlation between output and prices reflects both the source of the current shock and the adjustment process from short run to long run equilibrium the adjustment to the long run imparts a bias towards a negative price output correlation the issue of dynamics is addressed by estimating price shocks and output shocks the sign of the correlation between these shocks does not reveal anything about the relative importance or frequency of demand versus supply shocks however some understanding is gained from the time series of the product of the shocks in periods when the product is negative supply shocks must have been either relatively large or relatively important in periods when the product is positive demand shocks must have been either relatively large or re

macroeconomic fluctuations in developing countries some stylized facts this paper documents the main stylized features of macroeconomic fluctuations and business cycle regularities for a group of 12 developing countries cross correlations between domestic industrial output and a large group of macroeconomic time series including government revenue and expenditure wages inflation money velocity private sector credit international trade and exchange rates are presented the effects of industrial country economic conditions on output fluctuations in these countries are also analyzed the robustness of the results is examined using three detrending procedures a modified hodrick prescott filter the baxter king band pass filter and a nonparametric technique overall the results show some similarities between macroeconomic fluctuations in developing and industrial countries e g procyclical real wages and counter cyclical variation in government expenditure but also some important differences in business cycle characteristics e g countercyclical variation in the velocity of monetary aggregates

the comovement between output and prices abstract in this paper i analyze the comovement of us prices and output in the postwar period i use a new set of statistics to characterize the comovement between variables the statistics capture important information about the dynamics in the system the estimation procedure does not require assumptions about the order of integration or the types of assumptions needed for var decompositions i find that the comovement between output and prices is positive in the short run and negative in the long run i show that a model in which demand shocks dominate in the short run and supply shocks dominate in the long run can explain these empirical results while sticky price models with only demand shocks cannot

entrepreneurial risk taking inequality and public policy an application of inequality decomposition analysis to the general equilibrium effects of progressive taxation the objective of this paper is to investigate the conventional wisdom that there is a policy conflict between the reduction of inequality and the encouragement of entrepreneurial risk taking the paper attempts to provide a precise statement of this conflict in the context of the progressivity of tax regimes using the method of inequality decomposition analysis a taxonomy is developed which locates the sources of the policy conflict in a precise fashion a detailed analysis then shows that the conventional wisdom is misleading if not wrong and that in many cases the claimed policy conflict is quite simply illusory

overhead cost and price behavior the role of market intransparency search and price randomization this paper investigates price setting when firms produce with increasing returns and customers are imperfectly informed about prices but can search a unique randomization equilibrium exists where each customer is offered a random price by each firm known to him if the number of firms is fixed then the expected price to be paid by a customer responds countercyclically to variations of demand per customer and remains invariant with respect to variations of the number of customers this price behavior corresponds well with new evidence on price behavior copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a tale of two correlations evidence and theory regarding the phase shift between the price level and output abstract we examine the relationship between the price level and output at business cycle frequencies in the postwar period there is evidence of a phase shift between the price level and output such a phase shift is manifested in the price level being countercyclical and the inflation rate being procyclical or acyclical depending on the detrending method used our examination takes three approaches first we apply bootstrapping methods to characterize the two correlations though the methodology could easily be extended to any set of facts second we specify a model economy with forecast heterogeneity showing numerically that this model economy can match the observed pair of correlations third we apply robust control theory deriving conditions in which the price level is countercyclical and the inflation rate is procyclical

time varying return and risk in the corporate bond market this paper examines the pricing of exchange traded long term corporate bond portfolios observable instruments measuring the term structure of interest rates levels of bond and stock prices and a january dummy are found to predict excess returns on corporate bonds an intertemporal asset pricing model with changing expectations and unobservable factors is then estimated for the predictable excess returns using hansen s generalized method of moments the results show that a multibeta linear time varying model of con ditional expected returns with constant betas can successfully value corporate bonds spe cifically the tests indicate the presence of two time varying hedge portfolios the data however support a single latent variable specification when all january observations are excluded this result suggests the existence of a strong january seasonal in one of the latent variables

sources and propagation of international output cycles common shocks or transmission abstract this paper studies the generation and transmission of international cycles in a multi country model with production and consumption interdependencies two sources of disturbance are considered and three channels of propagation are compared technology disturbances which are mildly correlated across countries are more successful than government expenditure disturbances in reproducing actual data the presence of a common component to the shocks and of production interdependencies appear to be crucial in quantitatively matching the properties of the data

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

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