the role of real and monetary shocks in explaining business cycle fluctuations the essay brings empirical evidence to bear on the ability of real and monetary shocks to explain busines cycles using vector autoregressive techniques it is found that both real and monetary shoc

the role of the trade channel in the propagation of oil supply shocks abstract this paper analyzes when and why idiosyncratic oil supply shocks produce large macroeconomic effects in an analytically tractable two country general equilibrium model we focus on a demand driven mechanism the trade channel which transmits oil shocks across economies through changes in the non oil goods terms of trade when the trade channel is operative we have three main consequences on the transmission of oil shocks first the macroeconomic impact of oil shocks may be large and asymmetric across countries second the magnitude of the effects is nonlinear in the size of the oil shock third terms of trade movements never ensure international risk sharing after an idiosyncratic oil supply shock

cyclical and causal relations between real wages and employment in the eu this paper analyses and compares the joint behaviour of real wages and employment over the business cycle in the european union eu economies using both annual and quarterly data since 1960 further investigation of the cointegrating properties and the existence of causal effects in the real wage employment relation is undertaken by employing appropriate var models the evidence suggests weak procyclical or acyclic behaviour of real wages relative to cyclical employment in the quarterly data and stronger procyclicality in the annual data thus confirming the dunlop tarshis result for the majority of the eu economies with a few exceptions no cointegrating relations were detected while the granger causality tests suggest either weak or lack of unidirectional causality finally the sensitivity analysis showed that the filtering method has not much influence on the results but the choice of deflator may overturn them in certain cases

oil price shocks and the macroeconomy this paper examines the impact of oil price shocks and attempts to explain why the rise in oil prices up to 2008 had little impact on the world economy it makes three main arguments first that oil prices have never been as important as is popularly thought second that the most important route through which oil prices affect output is monetary policy when oil prices pass through to core inflation monetary authorities raise interest rates slowing growth based on the second argument the third argument is that high oil prices have not reduced growth in recent years because they no longer pass through to core inflation so the monetary tightening previously seen in response to high oil prices is absent it also argues that oil prices had little impact on the global recession of 20089

energy consumption at business cycle horizons the case of the united states in this paper we propose a simple extension to a keynesian type macro model by augmenting it with energy consumption we show the relationship between energy consumption and output in a macroeconomic setting and ask the question do permanent shocks dominate changes in energy consumption and output at business cycle horizons for the united states to achieve the goal of this paper we undertake a variance decomposition analysis of shocks based on a common trend and common cycle framework within a vector error correction model our main finding is that permanent shocks explain the bulk of the variations in energy consumption and output at business cycle horizons for the united states

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

markov switching causality and the money output relationship the causal link between monetary variables and output is one of the most studied issues in macroeconomics one puzzle from this literature is that the results of causality tests appear to be sensitive with respect to the sample period that one considers as a way of overcoming this difficulty we propose a method for analysing granger causality which is based on a vector autoregressive model with time varying parameters we model parameter time variation so as to reflect changes in granger causality and assume that these changes are stochastic and governed by an unobservable markov chain when applied to us data our methodology allows us to reconcile previous puzzling differences in the outcome of conventional tests for money output causality

does money matter in canada evidence from a vector error correction model this paper investigates the statistical properties of a set of canadian and u s economic time series and uses the data to address the question of the importance of monetary variables in canadian business cycle fluctuations the individual time series are found to contain unit roots but the data reveal the existence of several economically meaningful cointegrating vectors a multivariate vector error correction model is estimated and canadian velocity which appears as an error correction term is significant in the canadian output equation this supports the contention that monetary variables have predictive content for real output copyright 1989 by mit press

reconsidering the role of money for output prices and interest rates abstract new keynesian models of monetary policy downplay the role of monetary aggregates in the sense that the level of output prices and interest rates can be determined without knowledge of the quantity of money this paper evaluates the empirical validity of this prediction by studying the effects of shocks to monetary aggregates using a vector autoregression var shocks to monetary aggregates are identified by the restrictions suggested by new keynesian monetary models contrary to the theoretical predictions shocks to broad monetary aggregates have substantial and persistent effects on output prices and interest rates

the asymmetric impact of oil prices interest rates and oil price uncertainty on unemployment in the us abstract in this study we investigate the presence of asymmetric interactions between oil prices oil price uncertainty interest rates and unemployment in a cointegration framework utilizing the nonlinear auto regressive distributed lag nardl approach we show the asymmetric responses of unemployment to changes in oil prices oil price uncertainty and interest rates in the long run more specifically the results of our analyses suggest that an increase in oil price results in increased unemployment while there is no significant impact of reduced oil prices on the one hand reduced oil price uncertainty leads to a decrease in unemployment whereas an increase in oil price uncertainty does not have an impact we also observe increased unemployment in response to a decrease in interest rates as the impact of increased interest rates is not significant last but not least we find that option implied oil price volatility as a measure of oil price uncertainty outperforms the conditional volatility of crude oil prices in predicting unemployment this study provides valuable implications for policymakers to design sound economic policies

path dependency and input substitution implications for energy policy modelling in most policy oriented energy models the effectiveness of energy policy instruments crucially depends both on the values of the substitution elasticities between the various inputs and on the rates of technological progress in this paper we argue that due to the fixed cost nature of adjustments to relative price changes these technological parameters are affected by past developments failing to account for the role of history will result in biased parameter estimates and hence the implication for energy policy modelling is that the estimation period should be carefully selected we provide an empirical illustration using data for the netherlands

on real and sticky price theories of the business cycle after presenting some facts about the growth of government in western industrialized countries possible causes of this development are analyzed from a public choice perspective next some empirically tested theories which seek to explain this growth are discussed finally possible consequences for efficiency and individual liberty are examined it is shown that both the number and size of interest groups age of democracy as stated by mancur olson 1982 and the increasing share of government expenditure in gdp seem to exert a negative influence on the growth rate of gdp copyright 1986 by ohio state university press

understanding the large negative impact of oil shocks this paper oers a plausible explanation for the close link between oil prices and aggregate macroeconomic performance in the 1970s although this link has been well documented in the empirical literature standard economic models are not able to replicate this link when actual oil prices are used to simulate the models in particular standard models cannot explain the depth of the recession in 1974 75 and the strong revival in 1976 78 based on the oil price movements in that period this paper argues that a missing multiplier accelerator mechanism from standard models may hold the key

the conventional treatment of seasonality in business cycle analysis does it create distortions abstract no so says one model that is broadly consistent with postwar u s seasonal and business cycle data

asymmetries in the responses of regional job flows to oil price shocks this paper studies the effect of oil price innovations on manufacturing job flows across u s states first i estimate a nonlinear structural equation model and compute impulse response functions by monte carlo integration i find asymmetries in the responses of job flows to positive and negative oil price innovations yet these asymmetries do not pass a test of symmetry on the impulse responses especially after accounting for data mining third i use a test for the absence of job reallocation to evaluate whether an unexpected increase in the real price of oil price triggers an important change in job reallocation i find that oil price shocks have limited regional allocative effects

a theory of monetary exchange the transactions cost for alternative exchange mechanisms for the household exchange problem can be characterized by the computational complexity of the exchange process the computational complexity for any exchange mechanism is at least nh where n is the number of goods and h is the number of households imposing the conditions of conservation nonnegativity and quid pro quo results in a command exchange mechanism whose computational complexity is nh multiparty barter exchange formalized using graph theory has computational complexity

money output and the expected real interest rate this paper tests the exclusion of lagged growth rates of money and output from regression equations with serially correlated disturbances for the expected real interest rate the authors empirical approach is an extension of the empirical strategies of eugene f fama 1975 and frederic s mishkin 1981 which invoke the orthogonality of the inflation forecast error to predetermined regressors under the maintained hypothesis of rational expectations they discuss the implications of their tests for simple real business cycle models copyright 1991 by mit press

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

crude oil and the macroeconomy tests of some popular notions a note perhaps no other economic events in the post world war ii era have generated as much attention as the series of crude oil price shocks that have jolted the world economy since the opec boycott of 1973 a tremendous amount of space in the popular and professional literature has been devoted to analyzing the impacts of these shocks on the developed economies and the adjustments these shocks have induced one residual of this literature has been a general impression that since 1973 the functional relationship between crude oil prices and the developed macroeconomies has been dramatically and fundamentally altered yet to our knowledge no one has formally tested this impression recent evidence of hamilton 1983 suggests that crude oil prices had a strong impact on the u s business cycle well before 1973 further while textbook treatments of oil price shocks tend to highlight cost push inflationary effects the research of berndt and wood 1975 1979 and wilcox 1983 indicates the net complementarity between energy and capital in the u s economy is quite strong both before and after 1973 thus oil price shocks may have stronger real effects than generally believed in this paper we formally test three popular notions associated with the so called

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

breaking trends and the money output correlation this paper examines the impact on the money output correla tion of a univariate specification that allows time series to be characterized as stationary around a broken trend function though pretesting suggests that u s real output industrial production can be described as broken trend stationary this result has only limited impact on the money output correlation before 1985 there is a strong granger causal relationship between money and broken detrended output but not first differenced output even when different short term interest rates are used as regres sors however after 1985 this relationship weakens significantly whether or not one determines that output has a unit root

money market mutual fund maturity and interest rates the average maturity of money market mutual funds ranged from twenty nine to fifty three days during 1982 through 1990 according to the popular press changes in this time series provide interest rate forecasts the hypothesis is that fund managers lengthen their maturities when interest rates will be falling while the maturities are shortened when rate increases are imminent granger causality tests reject this hypothesis however there is a causal relation in the opposite direction interest rates granger cause average fund maturity indicating that on average fund managers respond to past rate changes copyright 1992 by ohio state university press

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

cointegration analysis of the advertising sales relationship the examination of stochastic properties of the annual advertising and sales data from the lydia pinkham company reveals that the series are cointegrated and therefore possess a long run equilibrium condition according to the estimates of the error correction model of the series in the short run advertising is found to be more responsive than sales in adjustments to eliminate departures from the long run equilibrium condition the author s analysis in general implies that the observed business firms decision rules fixing advertising spending as a percentage of sales revenue may hold as a long run equilibrium condition copyright 1991 by blackwell publishing ltd

money output granger causality revisited an empirical analysis of eu countries in this paper the evidence collected in the large literature on testing for granger causality from money to output is revisited using a broad data base of 14 eu countries plus canada the us and japan and quarterly data from the mid 1960s to mid 1990s a number of hypotheses from this literature is evaluated it is found that very few general conclusions can be sustained for instance in most countries it is not the case that the use of data in levels creates a bias in favour of finding granger causality effects of money on output compared to using differences neither does the significance of money lags decline when increasing the number of variables included in the model what appears to be robust though is that allowing for asymmetries clearly increases the likelihood of finding significant causality effects based on the granger causality test results a number of country groups are obtained using cluster analysis which are characterized by a similarly behaviour with respect to the money output

do gasoline prices asymmetrically affect us consumers economic outlook changes in gasoline prices can affect consumer sentiment which may then influence consumption we utilize the michigan surveys of consumers data on the index of current economic conditions icc and the index of consumer expectations ice in order to explore the dynamic relationship between us consumers economic outlook ice and real gasoline prices pg for 1993 2015 we find that ice and icc as well as ice and pg are cointegrated ice is positively related to icc and negatively related to pg in the long run in the short run ice responds symmetrically to icc movements but asymmetrically to pg movements that is ice remains unchanged when pg declines but deteriorates when pg rises

the dynamic effects of forward guidance shocks we examine the macroeconomic effects of forward guidance shocks at the zero lower bound empirically we identify forward guidance shocks using unexpected changes in futures contracts around moneta

gasoline prices transport costs and the u s business cycles abstract the effects of gasoline prices on the u s business cycles are investigated in order to distinguish between gasoline supply and gasoline demand shocks the price of gasoline is endogenously determined through a transportation sector that uses gasoline as an input of production the model is estimated for the u s economy using five macroeconomic time series including data on transport costs and gasoline prices the results show that although standard shocks in the literature e g technology shocks monetary policy shocks have significant effects on the u s business cycles in the long run gasoline supply and demand shocks play an important role in the short run

the effects of oil price shocks on job reallocation we investigate the effect of oil price innovations on u s manufacturing job flows using a simultaneous equation model that nests symmetric and asymmetric responses we find no evidence of asymmetry in the response of job flows to positive and negative oil price innovations we then inquire whether firms when facing positive shocks shed jobs faster than they create jobs we show that positive innovations lead to a decline in net employment and an increase in job reallocation possibly due to search and matching issues yet the latter effect becomes statistically insignificant when we control for data mining we demonstrate that the cumulative one year effect of oil price shocks on job creation and destruction was smaller during the great moderation but it was larger for gross job reallocation these variations were caused by a change in the transmission channel and not by smaller oil price shocks

historical energy price shocks and their changing effects on the economy abstract the purpose of this paper is to identify the changes in the impact of energy shocks on economic activity with an interest in assessing if an economy s vulnerability and resilience to shocks improved with economic development using data on the united kingdom over the last three hundred years the paper identifies supply aggregate demand and residual shocks to energy prices and estimates their changing influence on energy prices and gdp the results suggest that the impacts of supply shocks rose with its increasing dependence on coal and declined with its partial transition to oil however the transition from exporting coal to importing oil increased the negative impacts of demand shocks more generally the results indicate that improvements in vulnerability and resilience to shocks did not progress systematically as the economy developed instead the changes in impacts depended greatly on the circumstances related to the demand for and supply of energy sources if these experiences are transferable to future markets a transition to a diversified mix of renewable energy is likely to reduce vulnerability and increase resilience to energy price shocks

a neoclassical model of unemployment and the business cycle this paper investigates a general equilibrium model of unemployment and the business cycle in which specialization of labor plays a key role a rational expectations equilibrium with fully flexible wages and prices can exhibit unemployment in which the marginal product of employed workers exceeds the reservation wage of those who are without jobs workers are unemployed either because they are in the process of relocating for a better job or because they are waiting for conditions in the depressed sector to improve moreover seemingly small disruptions in the supplies of primary commodities such as energy could be the source of fluctuations in aggregate employment and can exert surprisingly large effects on real output

a laissez faire approach to monetary stability this paper develops some diverse hints for a new monetary system offered separately by fischer black eugene fama and robert e hall for reasons that will become evident though we should perhaps say payments system instead of monetary system none of the economists mentioned has actually proposed the particular system set forth here nor examined all its properties and we call it the bfh system not to implicate them but only to give credit for some component ideas and to have a convenient label l regardless of who if anyone may actually advocate the system contemplating it is instructive it illuminates by contrast some characteristics of our existing and recent systems

heterogeneity and unemployment dynamics many previous articles have studied the contribution of inflows and outflows to the cyclical variation in unemployment but ignored the critical role of unobserved heterogeneity across workers thi

financial market variables do not predict real activity i introduction the past decade has seen an extensive empirical reassessment of the information content of financial market variables believed to be sensitive to monetary policy particularly provocative are papers suggesting that some interest rates and interest rate spreads contain more information about economic activity than monetary aggregates this paper reviews important methodological pitfalls in these studies we then show that none of the commonly employed indicators of monetary policy contain incremental information useful in forecasting real economic activity as measured by industrial production two conclusions are possible either monetary policy innovations have no significant real effects or we collectively have failed in our efforts to measure monetary policy the money income causality literature spawned by christopher sims in the 1970s has broadened in recent years to encompass a diverse set of measures of monetary policy more comprehensive and sophisticated empirical assessment strategies and a richer array of explanations for observed correlations between financial market variables and economic activity early contributors to this literature such as stock and watson 1989 friedman and kuttner 1992 and bernanke and blinder 1992 present evidence that particular interest rates and spreads not only dominate monetary aggregates as predictors of economic performance but are remarkably powerful predictors stock and watson 1989 and friedman and kuttner 1992 demonstrate that the spread between the interest rates on commercial paper and treasury bills is highly significant in explaining movements in real activity while bernanke and blinder 1992 made an equally convincing case for the federal funds rate these conclusions are qualified however in subsequent work both bernanke 1990 and stock and watson 1993 for example point out that the predictive power of the paper bill spread and interest rates more generally weakened during the second half of the 1980s and the early 1990s the results reported in these and related papers form the empirical core of the debate over the relative merits of various interest rates spreads and monetary aggregates as indicators of the stance of monetary policy subsequent empirical work has seen a shift from atheoretical to structural vector autoregressions strongin 1992 gordon and leeper 1994 and bernanke and mihov 1995 for example focus on more refined measures of monetary policy derived from explicit models of the reserve market and central bank operating procedures these papers address concerns that go beyond discriminating among variables on the basis of predictive power they grapple directly with the fundamentally difficult issue of identifying monetary policy shocks by positing and estimating structural models that take the form of identified vars the usefulness of these efforts as well as earlier efforts to measure monetary policy is in turn questioned by rudebusch 1996 who finds that the studies econometric results are fragile and at odds with other evidence on the nature of the fed s reaction function and monetary policy surprises the first part of our paper illustrates some of the methodological pitfalls common in the literature cited above and complements recent work by bernanke 1990 hess and porter 1993 thoma and gray 1995 rudebusch 1996 and emery 1996 we begin by demonstrating the advantages of rolling recursive regression techniques that directly and comprehensively address the question of sample sensitivity these techniques are used to illustrate the extreme sensitivity to sample period of the causality statistics and variance decompositions commonly used to assess the explanatory power of financial market variables indeed in the applications under review here such in sample measures of fit are sometimes heavily influenced by individual monthly observations

the impact of oil prices on gdp in european countries an empirical investigation based on asymmetric cointegration this paper investigates the existence of a long term relationship between oil prices and gdp in 12 european countries to account for the fact that economic activity responds asymmetrically to oil price shocks we propose an approach based on asymmetric cointegration our results show that while standard cointegration is rejected there is evidence for asymmetric cointegration between oil prices and gdp in the majority of the considered european countries

oil price uncertainty in canada bernanke bernanke ben s irreversibility uncertainty and cyclical investment quarterly journal of economics 98 1983 85 106 shows how uncertainty about energy prices may induce optimizing firms to postpone investment decisions thereby leading to a decline in aggregate output elder and serletis elder john and serletis apostolos oil price uncertainty http ssrn com abstract 908675 2009 find empirical evidence that uncertainty about oil prices has tended to depress investment in the united states in this paper we assess the robustness of these results by investigating the effects of oil price uncertainty in canada our results are remarkably similar to existing results for the united states providing additional evidence that uncertainty about oil prices may provide another explanation for why the sharp oil price declines of 1985 failed to produce rapid output growth impulse response analysis suggests that uncertainty about oil prices may tend to reinforce the negative response of output to positive oil shocks

do exchange rates follow a random walk process in middle eastern countries abstract in this note we employ the kpss test in addition to the adf test to determine whether the real effective exchange rates in middle eastern countries follow a random walk process or they are stationary while in most cases the kpss test supported the stationary of the real effective rates thus the ppp the adf test did not the failure to support the ppp by the adf test is said to be due to its low power

the complexity of exchange the computational complexity of two classes of market mechanisms is compared first the walrasian interpretation in which prices are centrally computed by an auctioneer recent results on the computational complexity are reviewed the non polynomial complexity of these algorithms makes walrasian general equilibrium an implausible conception second a decentralised picture of market processes is described involving concurrent exchange within transient coalitions of agents these processes feature price dispersion yield allocations that are not in the core modify the distribution of wealth are always stable but path dependent replacing the walrasian framing of markets requires substantial revision of conventional wisdom concerning markets

what happened to the oil price macroeconomy relationship abstract strong evidence is found that oil prices no longer granger cause many u s macroeconomic indicator variables in data after 1973 a number of potential explanations are explored that sample stability issues are responsible that oil prices are now endogenous and that linear and symmetric specifications misrepresent the form of the oil price interaction none of these hypotheses are supported by the data the opec price increases do appear to have had significant impacts while the effects of the price declines of the 1980s are smaller and harder to characterize these results have potentially important implications for the large body of research which utilizes oil prices as an instrumental or explanatory variable

money and output viewed through a rolling window abstract we examine the extent to which fluctuations in the money stock anticipate or granger cause fluctuations in real output using a variety of rolling window and increasing window estimation techniques various models are considered using simple sum as well as divisia measures of m 1 and m 2 income prices and both the t bill rate and the commercial paper rate findings indicate that the relation between income money prices and interest rates is stable as long as sufficient data are used and that there is cointegration among the variables considered although cointegration spaces become very difficult to estimate precisely when smaller windows of data are used further both m 1 and m 2 are shown to be important predictors of income for the entire period from 1960 2 1996 3 based on modified versions of what we term the most damaging specifications from friedman and kuttner 1993 and thoma 1994 our new evidence is based in part on a rather novel model selection approach to examining the relationship between money and income 1998 elsevier science b v all rights reserved

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

how sensitive are consumer expenditures to retail energy prices abstract there is growing evidence that the primary effect of energy price shocks on the u s economy involves a reduction in consumer spending we quantify the direct effect on real consumption of unanticipated changes in discretionary income shifts in precautionary savings and changes in the operating cost of energy using durables the possibility of asymmetries in the response of real consumption to energy price shocks is also considered we demonstrate that linear models are consistent with the symmetric behavior of real consumption in 1979 when energy prices increased sharply and in 1986 when they fell sharply it is shown that historically energy price shocks have been an important factor in explaining u s real consumption growth but by no means the dominant factor

oil prices and economic downturns the case of spain abstractwe address the macroeconomic effects of an oil price shock in spain we apply a vector autoregression model var analysis to quarterly data for the spanish economy since 1986 to elucidate the effects of variations in the oil price on the economy considering the three main causes of disruptions in the oil markets oil supply shocks oil demand shocks and oil specific precautionary demand shocks we conclude that the effects in spain strongly depend on the type of shock the consumer price index cpi has mainly been influenced by oil demand shocks output has only reacted to oil supply shocks and monetary policy has mainly reacted after precautionary shocks second round effects caused by the behaviour of nominal wages have not been found additionally we discuss two facts the ability of firms to increase markups in a context of rising demand and the procyclical role of monetary policy when faced with oil demand shocks

the economic effects of energy price shocks large fluctuations in energy prices have been a distinguishing characteristic of the u s economy since the 1970s turmoil in the middle east rising energy prices in the u s and evidence of global warming recently have reignited interest in the link between energy prices and economic performance this paper addresses a number of the key issues in this debate what are energy price shocks and where do they come from how responsive is energy demand to changes in energy prices how do consumers expenditure patterns evolve in response to energy price shocks how do energy price shocks affect u s real output inflation and stock prices why do energy price increases seem to cause recessions but energy price decreases do not seem to cause expansions why has there been a surge in the price of oil in recent years why has this new energy price shock not caused a recession so far have the effects of energy price shocks waned since the 1980s and if so why as the paper demonstrates it is critical to account for the endogeneity of energy prices and to differentiate between the effects of demand and supply shocks in energy markets when answering these questions

efficient tests of long run causation in trivariate var processes with a rolling window study of the money income relationship this paper develops a simple sequential multiple horizon non causation test strategy for trivariate var models with one auxiliary variable we apply the test strategy to a rolling window study of money supply and real income with the price of oil the unemployment rate and the spread between the treasury bill and commercial paper rates as auxiliary processes ours is the first study to control simultaneously for common stochastic trends sensi tivity of causality tests to chosen sample period null hypothesis over rejection sequential test size bounds and the possibility of causal delays evidence sug gests highly significant direct or indirect causality from m1 to real income in particular through the unemployment rate and m2 once we control for cointe gration

energy price shocks and the macroeconomy the role of consumer durables so far the literature on dynamic stochastic general equilibrium models with energy price shocks uses energy on the production side only in these models energy shocks are responsible for only a negligible share of output fluctuations we study the robustness of this finding by explicitly modeling private consumption of energy at the household level in addition to energy use at the firm level to account for total energy use in the economy additionally we distinguish between investment in consumer durables and investment in capital goods the model economy is calibrated to match total energy use and durable goods consumption as observed in the u s data simulation results indicate that despite higher total energy use this economy has an even smaller proportion of output fluctuations attributable to energy price shocks productivity shocks continue to be the primary force behind business cycle fluctuations the driving force behind our results is that the household now has the flexibility to rebalance its investment portfolio specifically the energy price hike is absorbed by reducing durable goods investment more than investment in capital goods thereby cushioning the hit to future production at the expense of current consumption hence our model better matches the consumption volatility observed in the data jel classification e32 q43

responses in output to monetary shocks and the interest rate a rational expectations model with working capital abstract empirical studies show that when the interest rate is included money loses its predictive power on output this paper explains this finding by using a rational expectations model where production decisions of firms require debt financed working capital the cost of working capital the interest rate affects the supply side monetary shocks affect the interest rate and thus affect the price and output produced by firms the model shows that this can cause the predictive power of monetary shocks on output to diminish when the interest rate is used in empirical analysis the model also alludes to the effects of monetary policy on the price level through the supply side cost push factors

money and output new evidence based on wavelet coherence abstract we reassess the relationship between money and output using quarterly data from the us economy we use several tools based on wavelets the wavelet power transform and the wavelet coherence with which we analyze this relationship in both time and frequency we find evidence of a weaker relationship within the great moderation as well as a stronger relationship during the great recession

a crude shock explaining the short run impact of the 2014 16 oil price decline across exporters abstract the sharp long lasting decline in oil prices in 2014 16 tested the resilience of oil exporters we examine the degree to which economic fundamentals entering the oil price decline explain the impact on economic growth across oil exporting economies and derive policy implications as to what factors help to mitigate the negative effects we find that pre existing fundamentals account for about half of the cross country variation in the impact of the shock oil exporters that weathered the shock better tended to have a stronger fiscal position higher foreign currency liquidity buffers a more diversified export base a history of price stability and a more flexible exchange rate regime within this group of countries the impact of the shock is not found to be related to the size of oil exports or the share of oil in fiscal revenue or economic activity

volatility spillovers and cross hedging between gold oil and equities evidence from the gulf cooperation council countries the paper examines the return and volatility spillovers between crude oil gold and equities and investigates the usefulness of the two commodities in hedging equity portfolios using daily data from january 20043 to may 2016 for the gulf cooperation council countries a dcc garch model is used to estimate dynamic correlations and hedge ratios we find significant spillovers from oil to equities highlighting the heavy dependence of the local economies on oil moreover the spillovers of gold on the stock markets are insignificant suggesting that gold price fluctuations do not necessarily influence equity investment decisions in the opposite direction we find that equities do not exert significant influence on the two commodities which we attribute to the relatively small capitalisation of the exchanges our results reveal low dynamic correlations and hedge ratios with a few spikes during crises indicating that oil and gold are cheap hedges for stocks albeit not good ones while they could be considered as weak safe havens but at a considerable cost

does money still matter for u s output abstract in this note we use an out of sample approach to investigate whether money growth granger causes output growth in the united states we find that after the great moderation the granger causal role of money appears to have vanished completely

automobile externalities and policies this paper discusses the nature and magnitude of externalities associated with automobile use including local and global pollution oil dependence traffic congestion and traffic accidents it then discusses current federal policies affecting these externalities including fuel taxes fuel economy and emissions standards and alternative fuel policies summarizing insofar as possible the welfare effects of those policies finally we discuss emerging pricing policies including congestion tolls and insurance reform and summarize the appropriate combination of policies to address automobile externalities

unemployment in regional labor markets using structural theories to understand local jobless rates in west virginia the author uses a range of structural labor market models to understand differing regional jobless rates in a state affected by pockets of structural unemployment four theories of regional structural unemployment are presented and their hypotheses are statistically evaluated using west virginia county panel data the author then presents case study evidence to compare these statistical results with the realities of the county labor markets both types of empirical evidence suggest that a segmented non market clearing model in which structural unemployment stems from queuing for above market clearing wages in both a high wage primary sector and a lower wage secondary sector can shed the most light on regional unemployment rates in west virginia

larger crises cost more impact of banking sector instability on output growth we propose a method for calculating the macroeconomic costs of banking crises that controls for the downward impact of recessions on banking activity in contrast to earlier research we estimate the cost of crises based on the size of banking crises the extent of a crisis is measured using banking sector aggregates the results based on our method and data from over 100 banking crises suggest that the size of a crisis matters for economic growth lower credit deposit and money growth during crises cause gdp growth to decline

more evidence on the money output relationship i introduction the empirical relationship between money and real output continues to produce conflicting evidence stock and watson 1989 using monthly u s data for the period 1960 85 report that while actual money growth m1 does not granger cause the growth of industrial production its detrended component does krol and ohanian 1990 internationalize stock and watson s study and find that both actual and detrended ml growth granger cause output growth in the u k but that neither series affects output growth in japan canada and germany friedman and kuttner 1992a 1992b 1993 question the role of money in explaining output behavior they report 1993 that even though the stock watson specification is used simply updating the sample through 1990 yields the result that detrended m1 growth no longer explains output growth friedman and kuttner also argue that the commercial paper rate or the spread between the three month treasury bill and the commercial paper rate provides a better gauge for output s reaction to monetary policy changes replacing the treasury bill rate used by stock and watson with the commercial paper rate or the spread friedman and kuttner find that m1 growth has no marginal explanatory power over output a feature of recent investigations of the money output link is the general use of a var specification based on the presumption that the series are difference stationary e g feldstein and stock 1994 several recent studies however have questioned this presumption due to the low power of unit root tests dejong et al 1992 dejong 1992 dejong and whiteman 1991a 1991b and rudebusch 1993 these studies suggest that it is difficult to distinguish between difference stationary as the null and trend stationary as the alternative hypothesis given the uncertainty about the existence of a unit root in economic time series we re examine the money output relation by specifically considering the affect of assuming that the series are trend stationary or difference stationary such an investigation is important to determine if permanent temporary changes in money and other series create permanent temporary shifts in real output for example if real output and money contain a unit root i e they are best represented by the difference stationary model permanent money shocks may produce permanent shifts in output put another way permanent money shocks may have a long run impact because they affect the stochastic trend component of output and thus change the output level for all future horizons on the other hand if output and other series are represented by a trend stationary model fluctuations around a trend level of these series are stationary mean reverting under this model a transitory money shock may only have a short run impact on output as it quickly returns to its trend level to analyze the sensitivity of results to different stationarity assumptions used we estimate two var systems one system uses the log levels of the variables along with a deterministic time trend the other uses the log difference of the series and excludes the trend term the first system represents the trend stationary specification and the second one represents the difference stationary specification there is some evidence that the money output link may be sensitive to the presence of a deterministic trend term e g eichenbaum and singleton 1986 stock and watson 1989 even so our study provides a direct comparison based on identical data sets of the effects that the two different stationarity specifications have on the money output results while testing the robustness of the money output connection is our main focus we also provide some different perspectives on the debate one is to use both long and short term data sets most studies limit the analysis to quarterly data from the post 1960 era we study the link between money interest rates and output using annual data over the extended period 1915 1993

sectoral shifts labor market sorting and aggregate fluctuations a model of sectoral reallocation is constructed where intersectoral friction is not caused by search or mobility costs instead a sectoral disturbance has a negative effect on production possibilities because it reduces the value of previous sorting in the labor market in equilibrium a measure of sectoral dispersion is positively correlated with the unemployment rate an increase in the incidence of sectoral disturbances increases unemployment at cyclical peaks and at cyclical troughs copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the role of model uncertainty and learning in the u s postwar policy response to oil prices abstract this paper studies optimal monetary policy in a framework that explicitly accounts for policymakers uncertainty about the channels of transmission of oil prices into the economy more specifically using postwar us data i examine the evolution of the policy recommendations originating from an optimal linear regulator problem that encompasses model uncertainty and learning as proposed by cogley and sargent 2005b in this environment i find that one of the underlying models dominates the robust interest rate response to oil prices and i show that this result is due to the instability of this specification in the sample period under analysis

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model

detrending and the money output link international evidence 1 introduction and background the question of whether there exists an empirical link between nominal money and real output has been subjected to a variety of modern econometric techniques producing conflicting results for example stock and watson 1989 use a vector autoregressive var model that accounts for several important economic variables and find that money exerts a statistically significant effect on real economic activity friedman and kuttner 1992 1993 on the other hand show that using the same specification as stock and watson but extending their sample through the 1980s obviates the money income link friedman and kuttner s results indicate that interest rates are relatively more useful in explaining movements in output thoma 1994 also reports that changes in money do not have a statistically significant impact on output in the united states more recent studies both theoretical and empirical also have shown money to have little or no direct effect on economic cycles rudebusch and svensson 1999 2002 for example conclude that the behavior of money real or nominal has no marginally significant impact on deviations of real output from potential the output gap once past movements in the gap and real rates of interest are accounted for such findings on the basis of what meyer 2001 refers to as the consensus macro model have achieved an influential position among macroeconomists and policymakers 2 other studies challenge the argument that money does not affect real output an early study by christiano and ljungqvist 1988 using a bivariate var model reports the existence of a statistically significant money to output relation in u s data davis and tanner 1997 using monthly u s data extending back to the mid 1800s find that even after interest rate effects are allowed for money remains statistically significant in explaining short run movements in real output using a rolling regression approach swanson 1998 reports a statistically significant relation between money measured as simple sum aggregates and as divisia measures and output even after an interest rate spread variable is added to the model hafer and kutan 1997 considered whether different stationarity properties of the data have influenced reported outcomes since most prior studies assume difference stationarity hafer and kutan demonstrate that estimating var models that include money and interest rate variables under the existence of trend stationarity can dramatically affect the conclusion indeed they find that using a trend stationarity assumption yields the finding that money significantly affects real output movements in the united states a common characteristic of this literature is its focus on the united states there are a few exceptions for example krol and ohanian 1990 apply the stock watson specification to data for canada germany japan and the uk although money actual and detrended significantly affects output in the uk krol and ohanian find no such affect in japan canada and germany they conclude that although detrending the growth rate of u s money affects conclusions about the role of money little is gained from this approach when applied to the other countries another exception to the u s focus is a recent study by hayo 1999 using data from 14 european union eu countries plus canada japan and the united states hayo shows that money output test results are not sensitive to the use of data in levels versus data in differences an obvious question to ask then is whether nominal money is relatively more useful than interest rates in explaining movements in real output across a wider variety of countries that includes industrial and developing economies although the studies of krol and ohanian and hayo represent a broader analysis they too focus on the money output relation in relatively industrialized financially developed countries