forecasting quarterly brazilian gdp growth rate with linear and non linear diffusion inex models this paper uses linear and non linear diffusion index models and combination of them to produce one step ahead forecast of quarterly brazilian gdp growth rate the non linear diffusion index models are not only parsimonious ones but they also purport to describe economic cycles through a threshold diffusion index model and a markov switching diffusion index model

the american business cycle continuity and change in recent decades the american economy has experienced the worst peace time inflation in its history and the highest unemployment rate since the great depression these circumstances have prompted renewed interest in the concept of business cycles which joseph schumpeter suggested are like the beat of the heart of the essence of the organism that displays them in the american business cycle some of the most prominent macroeconomics in the united states focuses on the questions to what extent are business cycles propelled by external shocks how have post 1946 cycles differed from earlier cycles and what are the major factors that contribute to business cycles they extend their investigation in some areas as far back as 1875 to afford a deeper understanding of both economic history and the most recent economic fluctuations seven papers address specific aspects of economic activity consumption investment inventory change fiscal policy monetary behavior open economy and the labor market five papers focus on aggregate economic activity in a number of cases the papers present findings that challenge widely accepted models and assumptions in addition to its substantive findings the american business cycle includes an appendix containing both the first published history of the nber business cycle dating chronology and many previously unpublished historical data series

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

animal spirits and household spending in europe and the us abstract we investigate whether consumer confidence has an independent effect on household spending first we determine a common set of factors that drive both consumer confidence and household spending next we interpret the non systematic residuals in the country consumer confidence equations as a proxy for animal spirits and include this proxy in the spending equations as an additional explanatory variable our results suggest that animal spirits exist and may have a considerable impact on spending growth in europe and the us

what u s data should be used to measure the price elasticity of demand for alcohol this paper examines how estimates of the price elasticity of demand for beer vary with the choice of alcohol price series examined our most important finding is that the commonly used accra price data are unlikely to reliably indicate alcohol demand elasticities estimates obtained from this source vary drastically and unpredictably as an alternative researchers often use beer taxes to proxy for alcohol prices while the estimated beer taxes elasticities are more stable there are several problems with using taxes including difficulties in accounting for cross price effects we believe that the most useful estimates reported in this paper are obtained using annual uniform product code upc barcode scanner data on grocery store alcohol prices these estimates suggest relatively low demand elasticity probably around 0 3 with evidence that the elasticities are considerably overstated in models that control for beer but not wine or spirits prices

nowcasting mexico s short term gdp growth in real time a factor model versus professional forecasters we introduce a novel real time database for the mexican economy and propose a small scale mixed frequency dynamic factor model for nowcasting mexico s short term gdp growth in real time we compare our factor based backcasts nowcasts and forecasts with those of the consensus of the survey of professional forecasters during the period from the second quarter of 2008 through the second quarter of 2014 our results suggest that our factor based backcasts nowcasts and forecasts outperform those of the consensus of professional forecasters in real time comparisons despite some structural instability during the 2008 09 crisis and its aftermath in 2010

the demand for beer wine and spirits a survey of the literature the demand for alcohol literature is vast and much conflicting information about the nature of the demand for alcoholic beverages has been published this paper presents a survey of the literature and then uses the technique of meta regression analysis to establish insights into the nature of the demand for beer wine and spirits unlike previous meta studies of the demand for alcoholic beverages this study adjusts for the precision of each elasticity estimate the analysis presented suggests reported elasticity estimates will be influenced by such factors as estimation technique data frequency and time period under consideration with respect to time the findings suggest that the demand for alcoholic beverages has become less inelastic since the mid 1950s and that the income elasticity has been falling since the mid 1960s the analysis also found support for the idea that alcohol as a commodity group is a necessity and that consumers respond to price discounting with inventory behaviour rather than true substitution behaviour little support is found for the idea that the demand for alcoholic beverages varies fundamentally across most countries although wine may be an exception language en

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

nonuniform pricing with unobservable numbers of purchases properties are derived for the profit maximizing price schedule in a market where the firm can observe the size of any given purchase but cannot directly observe the number of purchases made by any given consumer in such a market a consumer may make multiple purchases to minimize the amount paid for a given quantity of the good it is shown that when purchase numbers are unobservable the schedule may entail quantity premia and may be strikingly different from the schedule that obtains when the numbers of purchases are observable in particular some individuals may consume more under the profit maximizing outcome than under the first best outcome

steepness and deepness in the australian macroeconomy this study uses nonparametric tests the triples test and the bds test to examine whether key australian macroeconomic aggregates exhibit nonlinearities and important steepness and deepness asymmetries at the business cycle frequency evidence is found of nonlinearities but there is little evidence of deepness in the australian macroeconomy however there is evidence of steepness especially concerning labour market variables as well as both the cpi and m3 the evidence suggests that unemployment employment rises falls rapidly in recessions and only recovers slowly over time also positive asymmetries in m3 are reflected in similar asymmetries in the cpi but not in output consumption or investment

understanding the inventory cycle abstract careful examination of aggregate data from the u s and other oecd countries reveals that production and inventory behavior exhibit paradoxical features 1 inventory investment is strongly countercyclical at very high frequencies e g 2 3 quarters per cycle it is procyclical only at relatively low cyclical frequencies such as the business cycle frequencies e g 8 40 quarters per cycle 2 production is less volatile than sales around the high frequencies it is more volatile than sales only around business cycle or lower frequencies 3 unlike capital investment or gdp the bulk of the variance of inventory investment is concentrated around high frequencies rather than around business cycle frequencies these features of production and inventory behavior at the low and high frequencies provide a litmus test for inventory theories this paper shows that the stockout avoidance theory kahn j 1987 inventories and the volatility of production american economic review 77 667 679 has much better potential than other competing theories for explaining the seemingly paradoxical features of inventory fluctuations observed at different cyclical frequencies my analysis suggests that demand shocks are the main source of the business cycle

are european business cycles close enough to be just one abstract we propose a comprehensive methodology to characterize the business cycle comovements across european economies and some industrialized countries without imposing any given model but trying to leave the data speak we develop a novel method to show that there is no evidence of a european economy that acts as an attractor to the other economies of the area we show that the establishment of the monetary union has not significantly increased the level of comovements across euro area economies finally we are able to explain an important proportion of the distances across their business cycles using macrovariables related to the structure of the economy to the directions of trade and to the size of the public sector

productivity growth consumer confidence and the business cycle abstract the objective of this paper is to provide in the context of a dynamic general equilibrium model an answer to the following five questions 1 to what extent does an economy subject to regular variations in labor productivity growth differ from one where labor productivity is constant 2 what is the impact on major macro indicators of a one time change in labor productivity growth 3 what are the business cycle implications of autonomous non falsifiable changes in growth expectations 4 what is the potential of such expectation changes for explaining the volatility of consumption to output ratio 5 can autonomous changes in growth expectations help us understand recent business cycle episodes

on the aggregate welfare cost of great depression unemployment abstract the potential benefit of policies that eliminate a small likelihood of economic crises is calculated an economic crisis is defined as an increase in unemployment of the magnitude observed during the great depression for the u s the maximum likelihood estimate of entering a depression is found to be about once every 83 years the welfare gain from setting this small probability to zero can range between 1 and 7 of annual consumption in perpetuity for most estimates more than half of these large gains results from a reduction in individual consumption volatility

what happens during recessions crunches and busts we provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 oecd countries over the period 1960 2007 in particular we analyse the implications of 122 recessions 113 28 credit contraction crunch episodes 114 28 episodes of house price declines busts 245 61 episodes of equity price declines busts and their various overlaps in these countries over the sample period our results indicate that the interactions between macroeconomic and financial variables can play a major role in determining the severity and duration of a recession specifically we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions stijn claessens m ayhan kose and marco e terrones

divisia money in a composite leading indicator of inflation the principal objective of this paper is to compare the performance of the divisia m4 monetary index with the standard simple sum measure of broad money in the context of composite leading indicators of inflation in the united kingdom inflation targeting is an important component of current uk monetary policy and the construction of composite leading indicators of inflation is a potential advance over the current practice of monitoring a range of indicators of inflation the leading indicators proposed provide useful turning point information for inflation and advocate principal component analysis as a more sophisticated weighting mechanism for the constituent components indicators constructed using a divisia index measure of money were found to be more closely related to the inflation reference cycle than indicators using their simple sum counterparts when a principal components weighting mechanism was used

price discrimination using linear and nonlinear pricing simultaneously abstract price discrimination practiced by using linear and nonlinear pricing simultaneously raises the average price for heterogenous consumers paying linear price but lowers for homogeneous group who pay nonlinear price discrimination lowers consumer surplus for both groups but increases total surplus

willingness to consume and ability to consume abstract george katona 1960 introduced the distinction between ability to buy and willingness to buy ability to buy refers to the objective factors determining actual purchases whereas willingness to buy captures subjective factors such as attitudes or moods i show that katona s theory can be reconciled easily with standard models of intertemporal utility maximization if one allows for a time varying preference parameter that is exogenous to the consumer and determined by the social environment such a willingness to consume model is tested against standard alternatives using data from seven european countries the empirical evidence rejects the permanent income hypothesis and supports the willingness to consume model

cash flow investment and keynes minsky cycles this paper analyzes a dynamic model with 1 an investment function that emphasizes cash flow 2 a keynesian macroeconomic framework that determines cash flow endogenously 3 a dynamic labor market model that drives wage and price adjustments and 4 boundedly rational expectations simulations from the calibrated model generate endogenous cycles with characteristics described in hyman minsky s research the cycle arises from the link between investment interest rates debt service and cash flow the amplitude and frequency of the cycle are related to the importance of cash flow for investment the dynamics of inflation and the distribution of income

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

the confidence effects of fiscal consolidations we explore how fiscal consolidations affect private sector confidence a possible channel for the transmission of fiscal policy that has received particular attention recently as a result of governments embarking on austerity trajectories in the aftermath of the crisis panel regressions based on the annual action based datasets of devries et al 2011 and alesina et al 2014a show that consolidations and in particular their unanticipated components affect confidence negatively to obtain a more accurate picture of how consolidations affect confidence we construct a monthly dataset of consolidation announcements so that we can investigate the confidence effects in real time using an event study the results suggest that consumer confidence falls around announcements of consolidation measures an effect likely driven by revenue based measures moreover these effects are highly relevant for european countries with weak institutional arrangements as measured by the tightness of fiscal rules or budgetary transparency the effects on producer confidence are generally similar but weaker than for consumer confidence long term interest rates as a measure of confidence in the sovereign tend to fall around spending based consolidation announcements we have no evidence that the confidence effects of consolidation announcements are worse in slumps than in booms generally strengthening institutional arrangements may help in mitigating adverse confidence effects of consolidations

why do hot dogs come in packs of 10 and buns in 8s or 12s a demand side investigation this paper presents a theory that yields insight into the determination of package prices and sizes consumer heterogeneity in consumption rates storage costs and transactions costs costs of making trips to the store explains differences in package sizes and unit prices in the model fully informed consumers and a monopolist seller pursue optimizing behavior the seller chooses package sizes and prices to maximize profits and the consumers select package sizes that maximize their utilities the authors show that consumer heterogeneity may induce the seller to offer more than one size and that larger sizes would be sold either at unit price discounts or unit price premiums welfare implications and empirical tests of the theory are presented copyright 1987 by the university of chicago

optimal nonuniform prices we consider optimal nonuniform pricing schedules where the price depends upon the amount purchased such schedules are regularly used by public utilities and other services welfare optimal nonuniform prices are related to the theory of optimal uniform prices developed by ramsey we characterize situations in which upward or downward discontinuities in pricing schedules are optimal our results are applicable to a number of related problems including optimal taxation insurance and incentives economic theory has confined most of its attention to markets with uniform prices in which the price per unit charged is invariant to the level of a customer s purchases this focus is warranted when goods are resellable since any attempt to charge nonuniform prices could be circumvented by reselling amongst customers but when goods are not resellable nonuniform prices are not only possible but common public utilities have declining block pricing with lower unit charges for large levels of consumption many agencies providing services including communications transportation even education use two part pricing with a fixed entry or retainer charge and a further charge per unit consumption nonuniform price schedules can be expected to be ever more common as services become a larger fraction of total output the increasing prevalence of nonuniform pricing policies have made them the focus of recent public and economic attention oi 1971 feldstein 1972 and ng and weisser 1974 have examined optimal two part pricing policies leland and meyer 1976 examine block pricing and show by example that optimal welfare policies may require nonuniform prices if zero profit constraints are binding in this paper we consider arbitrary nonuniform pricing policies using variational techniques two part and block pricing schedules are of course special cases of the environment we consider the work most closely related to our examination is the seminal paper by spence 1978 and subsequent analysis by roberts 1979 spence however does not pay explicit attention to the key role played by constraints on optimal pricing schedules roberts considers upward price discontinuities which lead to bunching of consumers at a given level of consumption but not downward price discontinuities which lead to regions in which no consumer chooses to consume gaps bunching or gaps may appear in the optimal price schedule even when underlying demand and cost functions are smooth and well behaved the prevalence of discontinuous pricing schedules e g the block pricing structures of public utilities argues that these questions are of practical as well as theoretical interest

trade credit and the bank lending channel the bank lending channel theory posits that during monetary contractions banks restrict some firms loans thus reducing their desired investment independently of interest rates previous research finds small firms reduce while large firms accelerate loan growth we find that small firms increase trade credit a substitute credit indicating a strong loan demand it supports the bank lending channel they do not voluntarily cut bank loans since they increase a less desirable alternative using trade credit is propitious since unlike commercial paper investigated by previous researchers it is widely used by the small firms suffering the loan decline surprisingly we also find large firms increase trade credit a puzzle since they are typically assumed to have wide access to other credit using individual manufacturing firm data we find the reasons large firms use trade credit are financial in nature those without a bond rating increase trade credit that is without access to open market credit as relatively few firms have this mark of quality it implies that more firms are affected by credit constraints than previously believed

what caused the early millennium slowdown evidence based on vector autoregressions this paper uses a simple var for the usa and euro area to analyse the underlying shocks of the early millennium slowdown i e supply demand monetary policy and oil price shocks the results of two identification strategies are compared one is based on traditional zero restrictions and as an alternative an identification scheme based on more recent sign restrictions is proposed the main conclusion is that the recent slowdown is caused by a combination of several shocks negative aggregate supply and aggregate spending shocks the increase of oil prices in 1999 and restrictive monetary policy in 2000 these shocks are more pronounced in the usa than the euro area the results are somewhat different depending on the identification strategy it is illustrated that traditional zero restrictions can have an influence on the estimated impact of certain shocks copyright 2005 john wiley sons ltd

walras keynes equilibria coordination and macroeconomics in decentralised market economies supply constrained equilibria may persist as coordination failures sustained but not caused by price rigidities this feature may be arbitrarily severe even at prices compatible with competitive equilibrium the supply constraints may originate in rational expectations some implications for macroeconomics are drawn the possibility of coordination failures explains why organised labour may resist wage flexibility these features are illustrated in elementary macroeconomic prototypes like rbc or barro grossman malinvaud prototypes

the econometrics of macroeconomic forecasting when an econometric model coincides with the mechanism generating the data in an unchanging world the theory of economic forecasting is reasonably well developed however less is known about forecasting when model and mechanism differ in a non stationary and changing world the paper addresses the basic concepts the invariance of forecast accuracy measures to isomorphic model representations the roles of causal information parsimony and collinearity a reformulated taxonomy of forecast errors differencing and intercept corrections to robustify forecasts against biases due to shifts in deterministic factors the removal of structural breaks by co breaking and forecasting using leading indicators

debt deflation theory and evidence abstract in the early 1990s the most severe recessions occurred in those countries which had experienced the largest increases in private debt burdens was this an accident of history or did it reflect deeper forces affecting market economies the paper comprises three parts first it presents three stylised facts about debt and its impact on consumption growth in the 1930s and the 1990s second it discusses the reception of irving fisher s work on debt deflation by his contemporaries and argues that it is helpful to think of debt deflation as a real business cycle phenomenon third there is a theoretical discussion of the reaction of debt and consumption to shocks in the context of a model of precautionary saving central to the model is the role of distributional shocks which implies that aggregate demand may be a nonmonotonic function of the price of assets in terms of the consumption good multiple equilibria may exist leading to the possibility of financial instability the analysis of debt deflation requires the construction of real business cycle models without a representative consumer

consumption sentiment and economic news this paper investigates the influence of economic news on consumer sentiment and examines whether news shocks changes in coverage that would not be expected from incoming data on economic fundamentals have aggregate effects using monthly u s data and a structural vector autoregression i find that 1 sentiment is affected by news shocks 2 after filtering out effects of news shocks shocks to sentiment still have positive effects on consumer spending and 3 news shocks influence both spending and unemployment in significant though transitory ways these results are consistent with other evidence of a role of nonfundamental factors in aggregate fluctuations jel e21 e32 d12

co movement of public spending in the g7 abstract the size of government in the g7 countries in the last fifty years follows a common pattern see the left panel of fig 1 below it grows in the first three decades and then turns flat at the beginning of the nineties for all countries alike we highlight this common pattern in a dynamic factor model and argue that a satisfactory explanation for it would be desirable

living in an imaginary world that looks real abstract in the paper we show using standard approaches general equilibrium modeling and the assumption of complete rationality that the macroeconomic environment is endogenous and is indeterminate specifically it is argued without resorting to sunspot type arguments that microeconomic fundamentals do not suffice to characterize the economy at the macro level in particular we show how perceptions of rational agents of the workings of the economy a shape the environment b affect the environment sufficiently to ensure that rational economic agents find the observed environment consistent with their beliefs even though it is not as a by product we illustrate that endogenous macro uncertainty can arise as an outcome if rational economic agents whose expectations are anchored on endogenous variables expect them to arise finally we show that systematic errors can persist indefinitely under rationality

gross credit flows the paper estimates gross credit flows for the u s banking system between 1979 and 1999 and shows that sizable gross flows coexist at any phase of the cycle even within narrowly defined loan categories bank size categories and regional units to investigate the macroeconomic dimensions of gross credit flows the paper studies the cyclical behavior of aggregate credit flows and documents three key cyclical facts first excess credit reallocation is countercyclical for any given rate of change of net credit gross flows are larger in a recession than in a boom second gross credit flows are highly volatile with a cyclical volatility which appears more than an order of magnitude larger than gdp volatility third credit contraction is more volatile than credit expansion furthermore the behavior of gross flows over the 1991 recession suggests that persistent and historically high credit contraction is a key feature of the relatively mild cyclical downturn the results lends some support to aggregate models that emphasize the asymmetric behavior of credit expansion and credit contractions

anxious periods and bank lending we examine the lending behavior of banks during anxious periods the main characteristic of anxious periods is that the perceptions and expectations about economic conditions worsen for economic agents even though the economy is not in a recession we identify distinct periods of anxiety for consumers ceos firms and analysts subsequently we study the lending behavior of us banks during the anxious quarters from 1985 to 2010 using bank level data the results show that banks lending falls when consumers and analysts are anxious and this effect is more pronounced when banks hold a higher level of credit risk these effects are more pronounced in anxious periods that were followed by recessions and in these periods loan growth also responds negatively to the anxiety of ceos yet these effects are quite less prevalent in the period after 2001

consumer misperceptions uncertain fundamentals and the business cycle abstract this paper estimates the importance of shocks to consumer misperceptions noise shocks for u s business cycle fluctuations i embed imperfect information as in lorenzoni 2009 into a smets and wouters 2007 type dsge model agents only observe aggregate productivity and a signal about the permanent component contaminated with noise based on this information agents form beliefs about the temporary and the permanent component of productivity shocks to the signal noise shocks trigger aggregate fluctuations unrelated to changes in productivity bayesian estimation shows that noise shocks explain up to 14 percent of output and up to 25 percent of consumption fluctuations nominal rigidities and the specification of the monetary policy rule are crucial for the importance of noise shocks these features help to resolve conflicting results in the previous literature

corporate debt overhang and macroeconomic expectations one way in which corporate financial structure affects macroeconomic performance is by creating debt overhang debt overhang occurs when existing debt deters new investment because the benefits from new investment will go to the existing creditors not to the new investors if the economy is booming debt overhang will not bind because the returns to investing are high if the economy is stagnant debt overhang will bind because the returns to investing are low as a result high levels of debt can create multiple expectational equilibria in which animal spirits determine economy activity copyright 1995 by american economic association

macro economic forecasting and modelling confidence in macro economic forecasting has periodically been punctured by episodes of economic turbulence and concomitant predictive failure the poor performance in predicting the consumer boom in the late i98os and the depth and duration of the recession in the i99os can be viewed as merely the latest examples in a catalogue of failures with noteworthy antecedents including the under prediction of post war consumption and the i974 5 and i979 81 recessions periods of economic turbulence may be informative in highlighting model inadequacy but they also being into question the usefulness of economic forecasting 2 should we be surprised that such failures have occurred econometric theory comprises a body of tools and techniques for analysing the properties of prospective methods under hypothetical states of nature in the forecasting context the methods are forecasting models and procedures and the states of nature relate to the properties of the variables to be forecast for an econometric theory of forecasting to be useful in terms of delivering relevant conclusions about empirical forecasting those states must adequately capture thfie appropriate aspects of the real world to be forecast however the traditional text book theory of economic forecasting fails to allow for a number of vital features of the economy in particular analyses of forecasting have usually been based on assumptions that implicitly rule out structural change or regime shifts in the economy namely i a constant time invariant data generating process dgp 2 a stationary non integrated dgp 3 a unique model of the economy which coincides with the dgp under these assumptions particularly i and 3 forecasts calculated as the conditional expectation given the model are optimal in the sense that they are unbiased and efficient any other forecast will have a larger forecast error variance by definition if the model is the dgp then the expected future value of the variable given all information available at the present time is the conditional expectation with respect to the model in general forecasts are not financial support from the uk economic and social research council under grant rooo233447 is gratefully acknowledged by both authors neil ericsson provided many helpful comments on an earlier draft 1 spanos i989 considers the contemporary predictive failure of aggregate consumption functions over 1945 51 arguing that model mis specification played a role wallis i989 discusses the forecasting record of the major uk model based forecasting teams for the i974 5 and i979 8i recessions

does the dynamic time consistency model of inflation explain cross country differences in inflations dynamics dynamic time consistency models of monetary policy imply that the size of the inflationary response to price shocks and the persistence of inflation is inversely related to factors that enhance the central bank s ability to commit to low average inflation hence these models predict that the dynamics of inflation vary over time and across countries in response to changes in measures of political support for low inflation we find support for this hypothesis in data fromeighteen oecd countries over the period 1961 94 however political variables account for only a small fraction of the variation in inflation dynamics across countries 2004 elsevier ltd all rights reserved

are jumps in stock returns diversifiable evidence and implications for option pricing this paper studies the diversiflability of jumps in stock returns it presents a multivariate time series model of the stochastic process for an index and its component stocks that explicitly admits discrete common jumps maximum likelihood estimation for such a model is developed and applied to the daily major market index and its component stocks for the period 1985 through 1990 the paper finds that poisson distributed jumps observed from both the index and its component stocks constitute nondiversiflable risk implying that the standard assumption in option pricing that these jumps are not priced may be invalid

consumer confidence and economic activity a factor augmented var approach abstractthis study aims to analyse the effects of the consumer confidence on economic activity for the us market we use the empirical factor augmented vector autoregression favar method which enables us to incorporate a wide range of economic activity factors into the analysis the consumer confidence index cci is chosen as the principal variable that is presumed to represent the degree of optimism on the state of economic activity the results show that consumer confidence and economic activity are strongly correlated for manufacturing related factors such as industrial production and inventories we also observe strong relation among cci and personal consumption expenditures as well as housing market variables

nonlinear pricing and price cap regulation abstract this paper analyzes profit maximizing nonlinear pricing by a firm that is subject to price cap regulation two forms of regulatory constraint are considered i a cap on the firm s average revenue and ii a constraint that the firm must continue to offer each consumer the option of buying at the uniform price optimal nonlinear price schedules in these regimes are shown to have simple characterizations that are related to the nonlinear tariffs that an unregulated monopolist would charge of the regulatory regimes the firm prefers the average revenue constraint to the option constraint and likes uniform pricing least consumers in aggregate prefer the option regime to uniform pricing and like the average revenue constraint least but there are also distributional effects between consumers although the optional tariff regime pareto dominates uniform pricing it is ambiguous whether welfare is higher under uniform pricing or under the average revenue regime an example is used to illustrate the nature of the ambiguity

what starts inflation evidence from the oecd countries we use a pooled cross country time series framework to study the factors associated with the start of 73 inflation episodes in oecd countries since 1960 we find that policy makers pursuit of high real growthtargets and national elections were important factors in initiating inflation episodes u s inflation turns out to be a triggering event for simultaneous outbreaks of inflation across countries several other explanations for inflation starts including increases in the natural rate of unemployment oil price shocks changes in the political orientation of governments and government debt policy are not supported by the data

estimation of own and cross price elasticities of alcohol demand in the uk a pseudo panel approach using the living costs and food survey 2001 2009 the estimation of price elasticities of alcohol demand is valuable for the appraisal of price based policy interventions such as minimum unit pricing and taxation this study applies a pseudo panel approach to the cross sectional living cost and food survey 2001 2 2009 to estimate the own and cross price elasticities of off and on trade beer cider wine spirits and ready to drinks in the uk a pseudo panel with 72 subgroups defined by birth year gender and socioeconomic status is constructed estimated own price elasticities from the base case fixed effect models are all negative and mostly statically significant p 0 05 off trade cider and beer are most elastic 1 27 and 0 98 and off trade spirits and on trade ready to drinks are least elastic 0 08 and 0 19 estimated cross price elasticities are smaller in magnitude with a mix of positive and negative signs the results appear plausible and robust and could be used for appraising the estimated impact of price based interventions in the uk

did sunspot forces cause the great depression abstract we apply a dynamic general equilibrium model to the period of the u s great depression in particular we examine a modification of the real business cycle model in which the possibility of indeterminacy of equilibria arises in other words agents self fulfilling expectations can serve as a primary impulse behind fluctuations we find that the model driven only by these measured sunspot shocks can explain well the entire depression era that is the decline from 1929 to 1932 the subsequent slow recovery and the recession that occurred in 1937 1938

exchange rate stabilization in the erm identifying european monetary policy reactions abstract we develop the structural var models for european countries france denmark and germany during the erm period to examine the monetary policy reactions especially the within erm exchange rate stabilization in addition to analyzing the impulse responses and variance decomposition we present the full monetary reaction function in an interpretable manner without introducing additional assumptions the results suggest some asymmetry in exchange rate stabilization non german exchange rate stabilization is stronger than german exchange rate stabilization but do not support the hypothesis that german monetary policy was independent of the erm

cyclical dynamics of industrial production and employment markov chain based estimates and tests abstract the purpose of this paper is to understand differences in cyclical phenomena across a broad range of developed and emerging countries based on the behavior of two key economic times series industrial production and employment the paper characterizes the series in question as a recurring markov chain univariate processes are estimated for each series individually and a composite indicator is constructed by using information on both series based on tests of equality of the estimated markov chains across countries as well as the expected times to switch between different states we find evidence that i the developed and emerging economies are de coupled from each other in terms of their cyclical dynamics and ii the behavior of industrial production and employment growth are de coupled for the emerging economies our results suggest new directions for the analysis of emerging economy cyclical fluctuations

fishing quota markets abstract in 1986 new zealand responded to the open access problem by establishing the world s largest individual transferable quota itq system using a 15 year panel dataset from new zealand that covers 33 species and more than 150 markets for fishing quotas we assess trends in market activity price dispersion and the fundamentals determining quota prices we find that market activity is sufficiently high in the economically important markets and that price dispersion has decreased we also find evidence of economically rational behavior through the relationship between quota lease and sale prices and fishing output and input prices ecological variability and market interest rates controlling for these factors our results show a greater increase in quota prices for fish stocks that faced significant reductions consistent with increased profitability due to rationalization overall this suggests that these markets are operating reasonably well implying that itqs can be effective instruments for efficient fisheries management

the effect of monetary policy on corporate bankruptcies evidence from the united states in this article we study the relationship between monetary policy and corporate bankruptcies in the usa the main hypothesis is that an increase in the monetary base or a decrease in the federal f

news driven business cycles insights and challenges there is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations the news view of business cycles offers a formalization of this perspective in this paper we discuss mechanisms by which changes in agents information due to the arrival of news can cause business cycle fluctuations driven by expectational change and we review the empirical evidence aimed at evaluating their relevance in particular we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations while at the same time we emphasize the many challenges that must be addressed before a proper assessment of the role of news in business cycles can be established jel d83 d84 e13 e32 o33

time to implement and aggregate fluctuations in this paper we slightly modify the canonical rbc model by adding an implementation lag in the technology to reproduce the fact that consumption is a leading indicator of output indeed we assume that agents have today some information on the realization of the technology shock that will occur tomorrow today inventions are known and give information on the innovations which will be implemented tomorrow the model is estimated and tested on us data by a simulated method of moments using some suitable reconstructed data that are compatible with that model the results are in favor of this implementation lag hypothesis the model is not rejected by us post war data

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

optimal contract length in a reputational model of monetary policy we develop a reputational model of monetary policy with endogenous contract length in choosing contract length private sector agents trade off recontracting costs against the expected costs resulting from trading under contracts based on incorrect inflation expectations however due to an externality the private and socially optimal contract lengths differ when selecting individual contract length private agents do not consider the effect of contract length on the surprise inflation output trade off in a reputational model of monetary policy this results in an excessive equilibrium inflation rate the socially optimal outcome may be achieved by public policies that reduce recontracting costs

irreversible investment real options and competition evidence from real estate development abstract we examine the extent to which uncertainty delays investment and the effect of competition on this relationship using a sample of 1214 condominium developments in vancouver canada built from 1979 1998 we find that increases in both idiosyncratic and systematic risk lead developers to delay new real estate investments empirically a one standard deviation increase in the return volatility reduces the probability of investment by 13 percent equivalent to a 9 percent decline in real prices increases in the number of potential competitors located near a project negate the negative relationship between idiosyncratic risk and development these results support models in which competition erodes option values and provide clear evidence for the real options framework over alternatives such as simple risk aversion

a theory of demand shocks this paper presents a model of business cycles driven by shocks to consumer expectations regarding aggregate productivity agents are hit by heterogeneous productivity shocks they observe their own productivity and a noisy public signal regarding aggregate productivity the public signal gives rise to noise shocks which have the features of aggregate demand shocks they increase output employment and inflation in the short run and have no effects in the long run numerical examples suggest that the model can generate sizable equilibrium dsge models of the business cycle include a large number of shocks to technol ogy monetary policy preferences etc but typically do not include expectational shocks as independent drivers of short run fluctuations 1 this paper explores the idea of expectation driven cycles looking at a model where technology determines equilibrium output in the long run and consumers receive noisy signals about technology in the short run the presence of noisy signals produces expectational errors this paper studies the role of these expectational errors in gener ating volatility at business cycle frequencies the model is based on two ingredients first consumers take time to recognize permanent changes in aggregate fundamentals although they may have good information on the current state of the individual firm or sector where they operate they have only limited information regarding the long run determinants of aggregate activity second consumers have access to public information that is relevant to estimate long run productivity this includes news about technological innovations publicly released macroeconomic and sectoral statistics financial market prices and public statements by policy makers however these signals provide only a noisy forecast of the long run effects of technological innovations this opens the door to noise shocks which induce consumers to temporarily overestimate or underestimate the productive capacity of the economy

leading economic indicators new approaches and forecasting records preface 1 editors introduction part i new concepts and methods 2 toward a theory of leading indicators frank de leeuw 3 a time series framework for the study of leading indicators salih n neftci 4 a probability model of the coincident economic indicators james h stock and mark w watson 5 an international application of neftci s probability approach for signalling growth recessions and recoveries using turning point indicators michael p niemira 6 on predicting the stage of the business cycle roy h webb 7 bayesian methods for forecasting turning points in economic time series sensitivity of forecasts to asymmetry of loss structures arnold zellner and chansik hong 8 new developments in leading economic indicators geoffrey h moore part ii forecasting records and methods of evaluation 9 forecasting cyclical turning points the record in the past three recessions stephen k mcnees 10 turning point predictions errors and forecasting procedures hermon o stekler 11 forecasting peaks and troughs in the business cycle on the choice and use of appropriate leading indicator series stephen j silver 12 using a consensus of leading economic indicators to find right ball park for real gnp forecasts edward f renshaw 13 some australian experience with leading economic indicators allan p layton 14 turning point prediction with the composite leading index an exante analysis francis x diebold and glenn d rudebusch 15 forecasting recessions under the gramm rudman hollings law victor zarnowitz and geoffrey h moore 16 leading indicators of inflation howard l roth part iii new economic indicators 17 commodity prices as a leading indicator of inflation james m boughton and william h branson 18 a leading indicator of inflation based on interest rates susmita dasgupta and kajal lahiri 19 using composite leading indicators of consumption to forecast sales and to signal turning points in stock market michael p niemira 20 economic indicators for australia s service sector ernst a boehm 21 purchasing management survey data their value as leading indicator philip a klein and geoffrey h moore 22 an agenda for inventories input to leading composite index feliks tamm index

macroeconomic releases and the interest rate term structure abstract we extract two systematic economic factors from a wide array of noisy and sparsely observed macroeconomic releases and link the dynamics and market prices of the two factors to the interest rate term structure the two factors predict 77 9 82 1 of the daily variation in libor and swap rates from one month to 10 years shocks on inflation related releases have large positive impacts on interest rates of all maturities leading to parallel shifts of the yield curve but shocks on output related releases have larger impacts on the short rate than on the long rate thus generating a slope effect

information animal spirits and the meaning of innovations in consumer confidence we show that unexplained innovations in several variables representing survey responses to forwardlooking questions on the michigan survey of consumers have powerful prognostic implications for the future paths of macroeconomic variables we attempt to distinguish the hypothesis that these impulse responses indicate a causal channel from autonomous movements in sentiment to economic outcomes the animal spirits view from the alternative interpretation that the surprise confidence movements summarize information about future economic prospects the information view in natural rate models animal spirits shocks are associated with overshooting of among other variables consumption that attenuates when agents come to grips with their overreaction while information shocks about the long future are followed by gradual movements in macroeconomic variables that are not subsequently reversed in a baseline vector autoregression involving consumption income and confidence the data come down sharply in favor of the information view the impulse responses of consumption and gdp show no tendency to attenuate even after a number of years further confidence innovations have strong implications for labor productivity many quarters into the future in somewhat larger vars with an information block that includes inflation and or stock prices the impulse responses to confidence innovations continue to have the permanent shape that defines information shocks but they are smaller in magnitude we demonstrate that this is due to the fact that both inflation and stock price innovations have prognostic implications for future productivity that are very similar to the implications of innovations in confidence addition of unemployment to the system induces a transitory component that changes the shape of the impulse responses and somewhat weakens the previously airtight case against animal spirits but it does not provide constructive evidence of such effects

alternative indicators for predicting the probability of declining inflation evidence from the us the performance of inflation indicators for predicting the probability of inflation falling inside constant and moving targets is considered with a probit model using us data given the federal reserve system s emphasis on achieving price stability particular attention is given to the target that future inflation will be below recent inflation in contrast with earlier years the unemployment and capacity utilisation rates do not perform well in forecasting the direction of inflation in the mid and late 1990s we suggest that extending the keynesian phillips curve analysis to consider changes in labour market conditions technological advance and worker skills and openness will increase understanding of these issues

theory and history behind business cycles are the 1990s the onset of a golden age the theory presented in this paper ties together profits investment credit stock prices inflation and interest rates the author discusses new estimates of profit and investment functions with important roles for growth and demand and productivity price and cost levels risk perception credit volume and credit difficulties the relationships among these endogenous variables are viewed as constituting an enduring core of business cycles the exogenous shocks and policy effects as more transitory and peripheral

non uniform pricing output and welfare under monopoly which the price varies with the quantity purchased than by charging a uniform price in general the profit maximizing non uniform price schedule and the welfare maximizing schedule do not coincide thus there may be scope for improving market performance through regulation the paper considers a regulator who has limited information and authority the issues addressed centre around the question of whether the level of total market output can be taken as a measure of market performance conditions under which welfare is a monotonic function of the level of total output are derived

can non linear time series models generate us business cycle asymmetric shape abstract fifteen univariate non linear time series models of us output are evaluated by their ability to reproduce the asymmetric shape of the us business cycle two models account for the growth being faster after a trough and slower before a peak

crazy explanations of international business cycles international real business cycle models have been unable to provide a good explanation for the consumption output anomaly in theoretical economies consumption is more strongly correlated across countries than is output whereas the opposite is the case in the data this paper examines an increasing returns to scale model in which the economy is subject to belief shocks that affect the consumption euler equations rather than productivity under the assumption that there are no contingent claim markets on the realizations of sunspots the belief driven model can account for the consumption output anomaly even with a separable period utility function copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

new index of coincident indicators a multivariate markov switching factor model approach abstract this paper extends the univariate markov switching unobserved component model to the multivariate markov switching factor model of coincident economic indicators an approximate ml method is developed to estimate the model the extracted markov switching factor may be interpreted as the coincident index and is comparable to the stock watson index which differs only by the markov switching component using four constituent series of the doc coincident index for the period january 1960 to june 1992 the proposed model generates recessionary and expansionary periods which are remarkably consistent with the nber chronology of the business cycles from the noisy monthly data this paper also finds that duration dependence does matter

asymmetric business cycles theory and time series evidence abstract we offer a theory of economic fluctuations based on intertemporal increasing returns agents who have been active in the past face lower costs of action today this specification explains the observed persistence in individual and aggregate output fluctuations even in the presence of i i d shocks because individuals respond to the same shock differently depending on their recent past experience the exact process for output the sharpness of turning points and the degree of asymmetry are determined by the form of heterogeneity our general formulation under certain assumptions reduces to a number of popular state space unobserved components models we find that on us data our general formulation performs better than many of the existing econometric models largely because it allows sharper downturns and more pronounced asymmetries than linear models and is smoother than discrete regime shift models our estimates imply that only modest intertemporal returns are needed for our model to explain us gnp and that heterogeneity across agents plays an important role in the propagation of business cycle shocks

bad news in the great depression the great recession and other u s recessions a comparative study in economic recessions consumption usually drops in tandem with other aggregate quantities as output or employment following the permanent income hypothesis these drops can be rationalized by the idea that consumers have pessimistic views about their long run income using a standard signal extraction model we show that this pessimism can be due either to a persistent fall of aggregate productivity before and during the recession signaling a future decline of income or to other negative information unrelated to contemporaneous fundamentals which we label bad news we classify u s recessions from 1919 to 2015 according to a bad news index reflecting this negative information we find that both the great depression and the great recession score highest in this index the index is such that we can rule out that this is due merely to the length or the depth of these recessions instead these two recessions are similar in that both were aggravated by a wave of pessimism about future income which cannot be related to contemporaneous fundamentals

increasing returns and the evolution of violent crime the case of colombia abstract this paper presents an explanation of the recent escalation of violent crime in colombia the paper considers three implicit models that isolate different types of externalities among criminals in the first model criminals make crime more appealing to nearby residents by congesting the law enforcement system and hence lowering the probability of punishment in the second model the interaction of career criminals and local crooks speeds up the diffusion of criminal know how and criminal technology in the third model the daily contact of youth with criminal adults and criminal peers results in the erosion of morals and hence in a greater predisposition toward crime the paper shows that a myriad empirical evidence both statistical and anecdotal lends support to the previous models in general and to the congestion in law enforcement model in particular

does detrending matter for the determination of the reference cycle and the selection of turning points we examine the sensitivity of turning points classification to detrending and compare the implied cycles to those derived by nber or doc researchers two dating rules are considered turning point dates are broadly insensitive to detrending with one dating rule but not the other and many procedures generate false alarms and miss several common turning points with the latter one amplitude and duration properties are also sensitive detrending and dating rules the hodrick and prescott and a frequency domain filters are best in mimicing nber and doc cycles regardless of the dating rule used