dynamic employment and hours effects of government spending shocks in this paper we analyze the dynamic behaviour of employment and hours worked per worker in a stochastic general equilibrium model with a matching mechanism between vacancies and unemployed workers the model is estimated for the united states using the generalized methods of moments gmm estimation technique an increase in government spending raises hours worked

implicit contracts and the cyclicality of the skill premium to examine the cyclical behavior of the skill premium this paper introduces implicit labor contracts in a dsge model where production is characterized by capital skill complementarity and the utilization of capital is endogenous it is shown that this model can reproduce the observed cyclical patterns of wages and the skill premium the feature of capital skill complementarity coupled with variable capital utilization rates does not come at odds with the acyclical behavior of the skill premium the paper argues that the skill complementarity of capital is not a quantitatively significant factor at high frequencies the key aspects are the contracts and the capital utilization margin

the brevity and violence of contractions and expansions abstract early studies of business cycles argued that contractions in economic activity were briefer shorter and more violent rapid than expansions this paper systematically investigates this claim and in the process discovers a robust new business cycle fact contractions in employment are briefer and more violent than expansions but we cannot reject the null of equal brevity and violence for expansions and contractions in output the difference arises because employment typically lags output around peaks but they coincide in their troughs we discuss the performance of existing business cycle models in accounting for this fact and conclude that none can fully account for it we then show that a business cycle model with asymmetric adjustment costs on employment and a choice of when to scrap old technologies can account for the business cycle fact both qualitatively and quantitatively

variable capital utilization and international business cycles this paper develops a two country international business cycle model with variable capital utilization using a standard depreciation in use technology variable capital utilization significantly reduces the required size of productivity shocks needed to replicate observed output volatility by 20 40 further the model generates positive comovement across countries in wages hours and investment while preserving empirically accurate predictions regarding the relative cross country correlations of output and consumption and the countercyclical behavior of net exports finally accounting for variable capital utilization reduces cross country correlation of true productivity shocks relative to that of the standard solow residual

money and the business cycle with one period nominal contracts a modified version of the nominal contract developed by j a gray 1976 and s fischer 1977 is introduced in a general equilibrium model with money which has been used in the real business cycle literature money is introduced in the model through cash in advance constraint two kinds of contracts are examined namely a nominal wage contract and a nominal price contract the nominal wage contract improves the fit of the model in many respects the nominal price contract increases the output volatility enormously but it has some unrealistic features

economic determinants of the nominal treasury yield curve abstract macroeconomic shocks account for most of the variability of nominal treasury yields inducing parallel shifts in the level of the yield curve we develop a new approach to identifying macroeconomic shocks that exploits model based empirical shock measures technology shocks shift yields through their effect on expected inflation and the term premium shocks to preferences for current consumption affect yields through their impact on real rates and expected inflation for both shocks the systematic reaction of monetary policy is an important transmission pathway we find little evidence that fiscal policy shocks are an important source of interest rate variability

by force of demand explaining cyclical fluctuations of international trade and government spending abstract this paper explores the role of demand shocks as an alternative to productivity shocks in driving both domestic and international business cycles within the international real business cycle irbc framework in addition to those well documented domestic business cycle fluctuations e g the volatility and cyclicality of output consumption investment labor hours and labor productivity and international business cycle properties e g the countercyclical net export and the comovement puzzle this paper focuses on two additional stylized facts in the industrialized countries the procyclical trade openness the gdp fraction of trade volume and the countercyclical government size the gdp fraction of government spending using a parsimonious dynamic stochastic general equilibrium model we show that the model s predictions under productivity shocks are not consistent with these facts instead a demand shock driven model replicates the above facts while matching other domestic and international business cycle properties an estimated version of the model confirms the quantitatively important impacts of demand shocks

job matching and propagation in the u s labor market the vacancy unemployment ratio and employment react sluggishly to productivity shocks we show that the job matching model in its standard form cannot reproduce these patterns due to excessively rapid vacancy responses extending the model to incorporate sunk costs for vacancy creation yields highly realistic dynamics creation costs induce entrant firms to smooth the adjustment of new openings following a shock leading the stock of vacancies to react sluggishly

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

capacity utilization under increasing returns to scale abstract this paper overcomes an important objection against the empirical relevance of the benhabib farmer model as a potential account of actual business cycle fluctuations this is attributable to an elasticity effect and a returns to scale effect of capacity utilization these effects are closely related to the empirical puzzles that capital appears to play an insignificant role in explaining cyclical movements in output and that the estimated labor elasticity appears to be larger than labor s share due to these effects multiple equilibria and persistent fluctuations can easily occur in a growth model for externalities mild enough so that the aggregate labor demand curve is downward sloping analyses show that the propagation mechanism generated by capacity utilization under mild increasing returns is capable of explaining the periodic patterns of u s business cycles documented by watson journal of economic literature classification numbers e32 e22 c52

the demand for youth explaining age differences in the volatility of hours over the business cycle young workers experience much greater volatility of hours worked than prime aged workers this can arise from age differences in labor supply or labor demand characteristics to distinguish between these we document that for young workers both the cyclical volatilities of hours and wages are greater than those of the prime aged we argue that a general class of models featuring only age specific labor supply differences cannot reconcile these facts we then show that a simple model featuring labor demand differences can

employment and hours over the business cycle abstract approximately one quarter of the adjustment in total hours of employment over the business cycle represents adjustments in hours while the remainder is explained by changes in employment real business cycle models characterize agents as either continuously adjusting their hours or making only labor force participation decisions about jobs with indivisible hours in this paper we extend the representative agent framework to allow for decisions on both participation and hours we calibrate and simulate a dynamic version of the model and show that it is better able to mimic some features of the aggregate data

fiscal foresight and information flows news or foresight about future economic fundamentals can create rational expectations equilibria with non fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react using tax policies as a leading example of foresight simple theory makes transparent the economic behavior and information structures that generate non fundamental equilibria econometric analyses that fail to model foresight will obtain biased estimates of output multipliers for taxes biases are quantitatively important when two canonical theoretical models are taken as data generating processes both the nature of equilibria and the inferences about the effects of anticipated tax changes hinge critically on hypothesized information flows different methods for extracting or hypothesizing the information flows are discussed and shown to be alternative techniques for resolving a non uniqueness problem endemic to moving average representations

straight time and overtime in equilibrium abstract we formulate an equilibrium model of straight time and overtime wages by imposing restrictions on agents consumption sets and using a commodity space that includes employment lotteries we extract some time series implications from a linear quadratic approximation to our model evaluated at particular parameter values we use our model informally to interpret some features of observed time series for wages and employment

infrastructure provision and macroeconomic performance this paper studies the differences between private and government provision of infrastructure capital utilization decisions and their differential role in determining market prices for capital goods under the two regimes of infrastructure provision serve as a critical transmission mechanism for fiscal policy a subsidy to private providers of infrastructure is preferable to direct government provision irrespective of how the subsidy or expenditure is financed the case for private provision is much stronger in economies characterized by high levels of congestion the choice between private and government provision also has a crucial effect on the design of optimal fiscal policy 2011 elsevier b v all rights reserved

capital utilization economic growth and convergence abstract optimal decisions by economic agents regarding the utilization of capital lead to empirically plausible speeds of convergence in one sector models of economic growth the relationship between depreciation and capital utilization plays a crucial role in slowing down convergence to the steady state cross country differences in the extent to which the capital utilization decision is internalized along the transition path may lead to differences in convergence rates even for countries with similar initial and terminal conditions finally by assuming a constant depreciation rate and full capital utilization standard growth models may be overstating the magnitude of the steady state equilibrium

dynamic factor demands and the effects of energy price shocks a dynamic model is used to understand how sharp changes in energy prices affect investment behavior employment and energy use the authors discuss the theory behind their model selection model specifications estimation methods and data list parameter estimates and elasticities for the selected model and describe the simulations they conclude that 1 the data strongly reject the hypothesis of constant returns to scale within their specification of aggregate production 2 the data indicate adjustment costs on labor are small and 3 their results help reconcile some of the conflicting estimates of energy demand elasticities appearing in recent literature 23 references 3 figures 3 tables

negotiating contract types and contract clauses in the german construction industry during the third reich this article examines the determinants of contractual form and renegotiations in the german construction industry during the third reich at the beginning of world war ii firms dealt with growing uncertainty by convincing procurement agencies either to use cost plus contracts or to include an additional risk premium in fixed price contracts in the later years of the war procurement agencies initiated renegotiations over contract clauses to reduce the extraordinary profits resulting from information rents and high risk premiums this regulatory course undermined the credibility of the regulatory commitment thereby weakening the incentives of the fixed price contracts still in use

flexible prices and the business cycle business cycles models with flexible prices face two major empirical challenges one regards observed output dynamics the positive short run autocorrelation in gnp growth and the hump shaped trend reverting output response to transitory shocks cogley and nason 1995 the other regards the alleged persistent decline in employment following a positive technology shock gali 1999 no determinate model with flexible prices has so far been able to address all of the cogley nason gali challenges we show that the standard rbc model can do so if it contains a signal extraction problem involving permanent and temporary supply shocks

fiscal shocks and their consequences this paper investigates the response of hours worked and real wages to fiscal policy shocks in the post world war ii us we identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income and a persistent rise in aggregate hours worked as well as declines in real wages the shocks are also associated with short lived rises in aggregate investment and small movements in private consumption we describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock once we allow for habit formation and investment adjustment costs the model can also account reasonably well for the quantitative effects of a fiscal shock

the workweek of capital and its cyclical implications abstract the neoclassical growth model studied in the kydland and prescott time to build paper is modified to permit the capital utilization rate to vary the effect of this modification is to increase the amplitude of the aggregate fluctuations predicted by theory as the equilibrium response to technological shocks if following solow the changes in output not accounted for by changes in the labor and tangible capital inputs are interpreted as being the technology shocks the statistical properties of the fluctuations in the postwar united states economy are close in magnitude and nature to those predicted by theory

multinational companies technology spillovers and plant survival how does the presence of multinational companies affect plant survival in the host country we postulate that multinational companies can impact positively on plant survival through technology spillovers we examine the nature of the effect of multinationals using a cox proportional hazard model which we estimate using plant level data for irish manufacturing industries our results show that the presence of multinationals has a life enhancing effect only on indigenous plants in high tech industries suggesting the presence of technology spillovers in contrast multinationals compete with each other in low tech sectors in the host country

capital utilization and the foundations of club convergence abstract multiple steady states may arise in standard neoclassical growth models if the savings rate of wage income exceeds that of capital income this paper shows that endogenous capital utilization may produce such savings behavior in an otherwise standard solow model

balanced budget rules and aggregate instability the role of endogenous capital utilization schmitt grohe and uribe 1997 demonstrate that a balanced budget fiscal policy can induce aggregate instability unrelated to economic fundamentals the empirical relevance of this result has been challenged by subsequent studies in this paper we show both analytically and numerically that such extrinsic instability is an empirically robust plausibility associated with a balanced budget rule once endogenous capital utilization is taken into consideration this suggests that the design or operation of a balanced budget fiscal policy must recognize that it may constitute a practical source of self fulfilling prophecies and belief driven fluctuations

the role of investment specific technological change in the business cycle this is a quantitative investigation of the importance of technological change speci c to new investment goods for postwar us aggregate uctuations a growth model that incorporates this form of technological change is calibrated to us data and simulated using the relative price of new equipment to identify the process driving investmentspeci c technology shocks the analysis suggests that this form of technological change is the source of about 30 of output uctuations 2000 elsevier science b v all rights reserved

non separability and sectoral comovement in a sticky price model this paper resolves the sectoral comovement problem between nondurable and durable outputs that arises in response to a monetary shock in a two sector sticky price model with flexibly priced durable goods we analytically demonstrate that the non separability between aggregate consumption and labor can generate the comovement between nondurable and durable outputs in response to a monetary policy shock we then estimate the degree of non separability together with other parameters using a bayesian approach we find that the non separable preferences are supported by the data and our estimated model generates the sectoral comovement in response to a monetary shock

productivity and unemployment over the business cycle abstract the low correlation between cyclical unemployment and productivity over the post war period hides a large sign switch in the mid 1980s from significantly negative the correlation became significantly positive using a search model of unemployment with nominal rigidities and variable labor effort i show that technology shocks can generate a positive unemployment productivity correlation whereas non technology shocks i e aggregate demand shocks tend to do the opposite in this context i identify two events that can quantitatively explain the increase in the correlation i a sharp drop in the volatility of non technology shocks in the mid 1980s and ii a decline in the response of productivity to non technology shocks which from procyclical became acyclical in the last 25 years

cyclical productivity in a model of labor hoarding abstract this paper develops a dynamic model of labor hoarding to explain two empirical facts the cyclical behavior of total factor productivity and the dynamic correlations of sectoral productivity with aggregate variables the model features convex costs of adjusting the labor force which induce firms to vary the intensity of labor utilization over the cycle in particular cyclical variations in labor effort take place as a response to expected future changes in industry conditions i test the restrictions imposed by the model for several two digit manufacturing industries under different assumptions about market structure and returns to scale then using the assumption that aggregate variables carry information about future changes in industry conditions i simulate the model s dynamic response of hours and productivity to aggregate innovations and compare them to those estimated from the data

weekly employee hours weeks worked and intertemporal substitution abstract we show that the representative consumer model fits the aggregate consumption and employment data well if a choice of work is allowed both at the intensive and extensive margins the structural preference parameters recovered from the estimation of the euler equations of the model are economically meaningful and the null hypothesis of the overidentifying restrictions implied by our model is far from being rejected we find that the shares in preferences associated with leisure time in the weeks off and in the workweeks are quite large and about equal our estimates also uncover relatively large intertemporal substitution elasticities

a business cycle model with variable capacity utilization and demand disturbances abstract we develop a dynamic general equilibrium model with demand preference shocks estimated using hall s j labour economics 15 1997 223 residual that replicates u s business cycles well at least compared to the real business cycle models the key factor is cyclical capital utilization which is based on imperfect competition slow adjustments in capital stock and fixed requirement of labor input we also demonstrate theoretically that a representative agent economy with preference shocks could be viewed as the reduced form of a heterogeneous agents economy with incomplete markets specifically a heterogeneous agents economy with incomplete markets is aggregated into a representative agent economy with preference shocks this result would provide a microeconomic foundation for preference shock models it is also shown that a shock to marginal utility of consumption and a shock to marginal disutility of labor have different effects

cyclical factor utilization abstract we introduce procyclical labor and capital utilization as well as costs of rapidly increasing employment into a business cycle model plausible variations in factor utilization enable us to explain observed variability of real gnp with considerably smaller economy wide disturbances the costs of adjustment create very interesting and realistic lead and lag relationships employment does not peak until a full quarter after output workweeks effort capital utilization and productivity all sharply lead the business cycle

regulation of a risk averse firm abstract we extend the laffont tirole regulation model to the case of risk averse firms our main results are the impact of risk aversion is to shift the optimal contract toward a cost plus contract as compared with the risk neutral case distortions are greater and informational rents are smaller for high levels of risk aversion the optimal contract involves cost ceilings and the less efficient firms are bunched together journal of economic literature classification numbers d8 l5

simple menus of contracts in cost based procurement and regulation in an influential paper jean jacques laffont and jean tirole 1986 formulated a principal agent model of cost based procurement and regulation and showed that the principal can implement the optimal mechanism by offering the agent a menu consisting of a continuum of linear contracts two related problems with applying this theory in practice have been that the economic logic and the underlying mathematics involved in calculating the optimal menu are quite complex and the principal must be able to specify the agent s entire disutility of effort function in order to calculate the optimal menu as a result the model has not been widely used in practice to either calculate actual incentive contracts or even to develop useful qualitative guidance about the nature of the optimal solution and how it is affected by various economic factors the purpose of this paper is to show that dramatically simpler menus which are easy to understand and calculate and which have lower informational requirements can at least in some cases capture a substantial share of the gains achievable by the fully optimal complex menu in particular this paper considers two item menus where one item is a cost reimbursement contract and the other item is a fixed price contract such menus are called fixed price cost reimbursement fpcr menus for the case where the agent s utility is quadratic and the agent s type is distributed uniformly it is shown that the optimal fpcr menu always captures at least three quarters of the gain that the optimal complex menu achieves where the gain is measured relative to the result of using a cost reimbursement contract this paper s research was originally motivated by a policy issue in defense procurement in the united states the department of defense dod purchases almost all major weapons systems from sole source contractors using contracting methods that essentially amount to using cost reimbursement contracts the best way to understand why dod uses costreimbursement contracting methods is that they perform precisely the function identified in laffont and tirole s principal agent model they guarantee in a situation that amounts to a bilateral monopoly that dod and the firm can reach an agreement i e they guarantee that the agent will always produce the good of course the use of cost reimbursement contracting methods

shadow economies at times of banking crises empirics and theory this paper investigates the response of the shadow economy to banking crises our empirical analysis based on a large sample of countries suggests that the informal sector is a powerful buffer which expands at times of banking crises and absorbs a large proportion of the fall in official output to rationalise our evidence we build a dynamic stochastic general equilibrium model which accounts for financial and labour market frictions and for nominal rigidities in line with the empirical literature on the shadow economy we assume that in the informal sector access to external finance is limited and the production technology is relatively more labour intensive following a banking shock in the official sector the model predicts a large negative transmission to the unofficial economy that substantially dampens the overall effect of the shock

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

factor hoarding and the propagation of business cycles shocks this paper analyzes the role of variable capital utilization rates in propagating shocks over the business cycle to this end we formulate and estimate an equilibrium business cycle model in which cyclical capital utilization rates are viewed as a form of factor hoarding we find that variable capital utilization rates substantially magnify and propagate the impact of shocks to agents environments the strength of these propagation effects is evident in the dynamic response functions of various economy wide aggregates to shocks in agents environments in the statistics that we construct to summarize the strength of the propagation mechanisms in the model and in the volatility of exogenous technology shocks needed to explain the observed variability in aggregate u s output other authors have argued that standard real business cycle rbc models fail to account for certain features of the data because they do not embody quantitatively important propagation mechanisms these features include the observed positive serial correlation in the growth rate of output the shape of the spectrum of the growth rate of real output and the correlation between the forecastable component of real output and various other economic aggregates allowing for variable capital utilization rates substantially improves the ability of the model to account for these features of the data

declining effects of oil price shocks in recent years output responses to oil price shocks have not only been weaker but have also reached their trough earlier this paper builds a model that incorporates a realistic structure of u s petroleum consumption and explores three possible explanations for the changes the possible factors considered are i deregulation in the transportation industry ii improved energy efficiency and iii a lower degree of persistence of oil price shocks under realistic parameter values the three factors play an important role quantitatively accounting for half of the reduction in the largest impact on output of an oil price shock over time

on measuring the welfare cost of business cycles lucas 1987 argues that the gain from eliminating aggregate fluctuations is trivial following lucas a number of researchers have altered assumptions on preferences and found that the gain from eliminating business cycles are potentially very large however in these exercises little discipline is placed on preference parameters this paper estimates the welfare cost of business cycles allowing for potential time non separabilities in preferences where discipline is placed on the choice of preference parameters by requiring that the preferences be consistent with observed fluctuations in a model of business cycles that is a theoretical real business cycle world is constructed and the representative agent is then placed in this world the agent responds optimally to exogenous shocks given the frictions in the economy the agent s preference parameters along with other structural parameters are estimated using a bayesian procedure involving markov chain monte carlo methods two main results emerge from the paper first the form for the time non separability estimated in this paper is very different than the forms suggested and used elsewhere in the literature second the welfare cost of business cycles is close to lucas s estimate

inventories employment and hours abstract this paper develops a model that integrates inventory and labor decisions we extend a model of inventory behavior to include a detailed specification of the role of labor input in the production process distinguishing between employment hours and effort per worker we estimate jointly the euler equations for inventories and employment a labor compensation schedule and an hours requirement function with the cross equation restrictions imposed the econometric results shed light on several important topics including the shape of the marginal cost of output the role of labor hoarding as an explanation of pro cyclical productivity and the persistence of inventory stocks

task assignment over the business cycle in this article i evaluate the hypothesis that firms respond to negative demand shocks by assigning workers to tasks that require less skill than the tasks they normally carry out using changes in employment in state industry cells as a measure of demand conditions facing individual firms i provide evidence in favor of the hypothesis furthermore the skill requirements of the tasks carried out by workers are procyclical the results are consistent with a specific capital model where employers move workers between tasks so that layoffs are concentrated on workers with low levels of firm specific human capital

towards a quantitative theory of automatic stabilizers the role of demographics employment volatility is larger for young and old workers than for the prime aged at the same time in countries with high tax rates the share of total hours supplied by young old workers is lower these two observations imply a negative correlation between government size and business cycle volatility this paper assesses in a heterogeneous agent olg model the quantitative importance of these two facts to account for the empirical relation between government size and macroeconomic stability

reprint to infrastructure provision and macroeconomic performance abstract this paper studies the differences between private and government provision of infrastructure capital utilization decisions and their differential role in determining market prices for capital goods under the two regimes of infrastructure provision serve as a critical transmission mechanism for fiscal policy a subsidy to private providers of infrastructure is preferable to direct government provision irrespective of how the subsidy or expenditure is financed the case for private provision is much stronger in economies characterized by high levels of congestion the choice between private and government provision also has a crucial effect on the design of optimal fiscal policy

inflation dynamics marginal cost and the output gap evidence from three countries recent studies have argued that the new keynesian phillips curve calvo pricing model is empirically valid provided that real marginal cost rather than detrended output is used as the variable driving inflation one interpretation of this result is that real marginal cost is not closely related to the output gap and so models for monetary policy need to include labormarket rigidities an alternative interpretation is that marginal cost and the output gap are closely related but that the latter needs to be measured in a manner consistent with dynamic general equilibrium models to date there has been little econometric investigation of this alternative interpretation this paper provides estimates of the new keynesian phillips curve for the u s the u k and australia using theory consistent estimates of the output gap using this theory to measure the output gap leads to a considerable improvement in the empirical performance of output gapbased phillips curves

the role of technology and nontechnology shocks in business cycles this article proposes a method to identify technology and nontechnology shocks that permanently affect labor productivity and applies this method to data for the g7 countries in most cases whereas technology improvements have negative or weak effects on hours worked positive permanent nontechnology shocks are expansionary permanent nontechnology shocks play an important role in business cycles particularly in the united states and japan and account for 71 of a large reduction in japan s detrended output from 1991 to 2002 credit conditions are likely to be an important driver of variations in permanent nontechnology shocks

time to enter and business cycles abstract this paper examines a model in which market entry forms a business cycle propagation mechanism during expansionary periods new firms enter previously monopolized markets creating efficiency gains that amplify the effect of technology and fiscal policy shocks on employment market entry is delayed creating a dynamic pattern to output growth closer to that observed in the us economy than the standard rbc model

sectoral solow residuals this paper presents capital utilization corrected measures of technology shocks for aggregate and disaggregated two digit standard industrial classification code industries we correct for variations in capital utilization by employing industrial electrical use as a measure of capital services in contrast the standard measures of technology shocks used in the real business cycle literature are based on economy wide data and assume that capital services are proportional to the stock of measured capital to assess the impact of these differences we contrast selected properties of the competing technology shock measures we argue that the properties of technology shocks for the manufacturing sector are quite different than those used in the rbc literature we also find that correcting for capital utilization has important implications for the properties of the solow residual

news shocks in the data olympic games and their macroeconomic effects we examine the macroeconomic effects of bidding for the olympic games using panel data for 188 countries during the period 1950 2009 our findings confirm that economies react to news shocks investment consumption and output significantly increase 9 to 7 years before the actual event in bidding countries hosting countries also experience significant increases in investment consumption and output 5 to 2 years before the hosting of the games mapping the olympics into a macroeconomic model we show that we can match our empirical findings if we assume that an olympic bid represents news about increases in government investment

interpreting the procyclical productivity of manufacturing sectors can we really rule out external effects recent empirical contributions on procyclical productivity have focused on the dynamic implications of persistent aggregate fluctuations on sectoral productivity given a permanent innovation in aggregate output unobserved variations of labour or capital utilization may have only a transitory effect on measured productivity whereas external effects should produce permanent effects it is found that persistent aggregate fluctuations have a permanent effect on productivity of four digit us manufacturing industries while a number of alternative explanations of this evidence are discussed and ruled out the findings are consistent with a simple model with external or thick market effects

an amplification mechanism in a model of energy this paper investigates a propagation mechanism of the energy price shock in a model where capital utilization is associated with costly energy consumption endogenous depreciation is an important element of the model as it has been shown to produce a significant negative effect of energy prices on output i show that the amplifying effect of endogenous depreciation is determined by the choice of the functional form and calibration strategy for the energy cost function my estimates of the energy cost function allow to conclude that the energy price shock has only a moderate effect on output in this model while endogenous depreciation mitigates rather than amplifies the effect of the energy price shock

technology growth and the business cycle using a partial equilibrium model that allows for factor hoarding i construct series on input utilization rates for ten oecd countries these series are used in growth accounting computations of total factor productivity which filter out cyclical variations in input utilization rates the main findings are as follows i adjusted solow residuals grow consistently faster than standard measures ii the variability of the adjusted solow residual is in some cases smaller than the standard residual s iii adjusted solow residuals are less procyclical than standard residuals and fare better at usual exogeneity tests iv supply shocks are no more synchronized between european countries than elsewhere and v observed increased output synchronization in europe is due to demand factors

keynesian impulses versus solow residuals identifying sources of business cycle fluctuations we employ a neoclassical business cycle model that builds on the greenwood hercowitz and huffman 1988 variable utilization framework to study two sources of business cycl e fluctuations marginal efficiency of investment shocks and total factor productivity shocks the parameters of the model are estimated using a bayesian procedure that accommodates prior uncertainty about their magnitudes from these estimates posterior distributions of the two shocks are obtained the postwar u s experience suggests that both shocks are important in understanding fluctuations but that total factor productivity shocks are primarily responsible for beginning and ending recessions

variable effort business cycles and economic welfare abstract recent literature has shown that productivity driven business cycles are beneficial to consumers in the context of market clearing real business cycle model in this paper we argue that this notion of welfare improving business cycles does not jointly satisfy 1 the balanced growth path property and 2 micro evidence on the frisch labor supply elasticity we then show that once variable effort a channel that plays an important role in the business cycle frequency but has been ignored by the previous literature on the welfare cost of business cycles is introduced into the model welfare improving business cycles can be achieved in relatively plausible parameter regions

endogenous markups intensity of competition and persistence of business cycles in order to study the propagation mechanism of business cycles in particular to investigate how the intensity of competition affects market structure and output persistence over business cycles this paper presents a real business cycle model with imperfect competition and increasing returns to scale this analysis considers the markups of price over cost to be endogenous with endogenous markups two standard forms of oligopolistic competition bertrand and cournot are considered results show that 1 the propagation mechanism in the sense of output persistence is greater under cournot 2 the propagation mechanism is unequivocally greater with imperfect competition regardless of whether markups are endogenous or not and 3 under imperfect competition the propagation mechanism is greater with endogenous markups than with exogenous markups overall these results suggest that more intense competition produces lower persistence in output growth and thus a weaker propagation mechanism in a calibration exercise these differences were also found to be quantitatively important

endogenous capital depreciation and technology shocks i examine the dynamic impact of capital maintenance on key aggregates through the depreciation rate i find that two factors are crucial for the short run effects of total factor productivity and investment specific shocks i the marginal efficiency of maintenance and its connection with the rate of utilization and ii the interplay between the intertemporal effect of maintenance and the substitution effect between maintenance and utilization the latter is expressed by the relative size of the elasticity of maintenance to the hicksian elasticity of complementarity between maintenance and utilization these theoretical results suggest that to match the observed responses of the macroeconomic aggregates the sign of the cross derivative should be negative and that the relative size of the hicksian elasticity should be smaller than the maintenance elasticity of marginal depreciation finally the model suggests that the main macroeconomic aggregates react procyclically with the exception of maintenance the behavior of which depends on the type of the shock

firm entry excess capacity and endogenous productivity abstract we show that sluggish firm entry causes productivity to vary endogenously in response to technology shocks the endogenous productivity effect is caused by incumbent firms utilizing excess capacity as entry adjusts we develop a nonparametric model of endogenous sunk costs and monopolistic competition to show that imperfect competition and dynamic entry are necessary and jointly sufficient conditions for endogenous productivity fluctuations quantitatively we show the endogenous productivity effect is as large as that from a traditional capital utilization effect

endogenous capacity utilization and macroeconomic persistence abstract this paper presents a monetary dynamic general equilibrium model featuring a strong internal propagation mechanism limited short run factor substitutability and idiosyncratic demand uncertainty play a prominent role in the results firms are ex post heterogeneous and a well defined distribution of capacity utilization rates characterizes the equilibrium of the model the economy responds gradually to aggregate shocks since firms with excess capacity can raise production without experiencing large increases in their marginal costs the modeling framework presented in this paper offers a plausible microeconomic interpretation for reduced form mark up shocks typically considered in the new keynesian literature

physical productivity of new firms it is not as high as it appears this paper argues that the physical productivity of new firms is not as high as it is measured with conventional approaches the overestimation is due to two reasons both of which are related to t

energy and value abstract energy theories of value are reviewed and a new variant introduced based on the empirical relationship between price per unit mass and energy requirement per unit mass for a wide range of commodities the demand pattern of households in the uk and the usa for energy would tend to produce a declining ratio of energy to gross domestic product gdp however the tendency of goods with low energy intensity to be associated with low productivity gains introduces a counteracting effect and energy gdp ratios are fairly stable over time a simple relationship connecting energy intensity fuel price and time constant of adjustment is used to forecast retrospectively the energy use per dollar of gdp in each of seven countries for the year 1976

energy aesthetics and knowledge in complex economic systems it is argued that the fact that economic systems are dissipative structures must be taken fully into account in economics if we are to understand the nature of the economic ecological interface and how to deal with emergent environmental problems such as global warming such problems are a product of economic growth which is widely accepted to be the outcome of the acquisition and application of knowledge drawing upon disparate literatures within and outside economics it is argued that economic growth should be more properly viewed as the outcome of a co evolutionary process that involves the autocatalytic interaction of new knowledge and access of increasing amounts of free energy to do increasingly specialized forms of work specifically the relevance of the energy hypothesis associated with erwin schrodinger and more recently revived by eric schneider and his collaborators is assessed this hypothesis states that all dissipative structures have as their primary objective the reduction of accessible free energy gradients it is concluded that such a hypothesis cannot be rejected in the context of economic behaviour and that this opens up an important research agenda for economists

aggregate employment real business cycles and superior information abstract we test whether dynamic stochastic general equilibrium artificial economies associated with several labor market structures provide an adequate characterization of aggregate employment volatility and dynamics our test is robust to possible misspecifications about the information set used by economic agents to forecast future events accounting for agents superior information we find that the divisible labor indivisible labor labor adjustment costs and labor hoarding structures replicate employment volatility in contrast to the nominal wage contracts structure also the labor hoarding structure provides a substantially better account of employment dynamics

capital utilization and retirement this empirical analysis assesses the determinants of firms capital retirement particular attention is paid to the impact of the business cycle and the capital usage intensity compared to previous studies we directly control for the capital utilization and disentangle the short run mechanisms from the long run ones the analysis is carried out with an original and large firm level dataset the main results of the analysis may be summarized as follows i the retirement rate increases during slowdowns and decreases during booms this corresponds to a countercyclical capital retirement ii the capital retirement rate increases with the capital usage intensity in the long run this corresponds to a wear and tear effect which is small compared to the countercyclical one iii the capital retirement rate increases with the average age of capital iv the profit rate and the wage cost per capita do not have a significant impact on the retirement rate

endogenous growth and time to build the ak case abstract in this paper a continuous time ak model is fully analyzed under the time to build assumption the existence and uniqueness of a real balanced growth path as well as oscillatory convergence are proved transversality conditions and capital depreciation are highlighted moreover it has been shown how the introduction of the time to build assumption supports some interesting empirical evidences such as the negative link between mean output growth and output growth volatility finally numerical simulations are provided for different choices of the time to build delay in order to clarify the analytical results

measures of per capita hours and their implications for the technology hours debate structural vector autoregressions give conflicting results on the effects of technology shocks on hours the results depend crucially on the assumed data generating process for hours per capita we show that the standard measure of hours per capita and productivity have significant low frequency movements that are the source of the conflicting results hodrick prescott hp filtered hours per capita produce results consistent with those obtained when hours are assumed to have a unit root we show that important sources of the low frequency movements in the standard measure are sectoral shifts in hours and the changing age composition of the working age population when we control for these low frequency components to determine the effect of technology shocks on hours using long run restrictions we get one consistent answer hours decline in the short run in response to a positive technology shock we further extend the analysis by examining the effects of demographic controls on the impulse responses to investment specific technology shocks our results are less conclusive

international capital movements and the locomotive effect abstract in this paper we build a two country two good model in which domestic and foreign investment goods are perfect or imperfect substitutes and the utilization rate of capital is variable if investment goods are imperfect substitutes the model succeeds in mimicking the output cross country correlation in particular a country specific technological shock leads to an increase in output in the two countries which reveals a locomotive effect thus substitution elasticity between domestic and foreign investment goods is a key parameter of the international transmission of the business cycle in the model

market entry and international propagation of business cycles abstract in this paper pro cyclical market entry acts as an international transmission mechanism for business cycle shocks in an imperfectly competitive dynamic equilibrium model an expansion in one open economy leads to additional business formation in a parallel large open economy through demand spillovers business formation causes a decline in markups leading to an expansion in employment production and investment in both economies the modeling of the entry decision is critical only when the entry game is modelled as sequential with incumbents enjoying a first mover advantage are markups sufficiently elastic to cause international comovement

labor market search endogenous disasters and the equity premium puzzle abstract the present paper investigates i the endogenous disaster mechanism in a textbook search and matching model when calibrated with a constant flow value of unemployment that is close to average labor productivity and ii its contribution to solve the equity premium puzzle i offer a simple explanation for the core of the disaster mechanism the lower bound say xkink on the annuitized costs the firm incurs from investing in a match lies sufficiently close to the body of productivity s distribution if labor productivity drops close to or even below xkink for consecutive periods the firm s annuitized share in expected future productivity of a worker can either only barely or even no longer at all break even the annuitized lower bound of the costs the firm faces vacancies become unprofitable and the economy quickly enters a downward spiral the core of the mechanism relies critically on an unreasonably high and constant flow value of unemployment disasters disappear entirely for slightly smaller or procyclical values and the effects cannot be compensated by empirically plausible adjustments of the model s remaining parameters while the model can generate a sizeable equity premium combined with a small risk free rate if the flow value of unemployment is large and constant and if the coefficient of relative risk aversion and the elasticity of intertemporal substitution are both high premia again collapse by an order of magnitude in the versions of the model without disasters

introduction to sunspots in macroeconomics abstract this introduction provides an overview of the three papers included in this symposium and highlights their contribution to the literature journal of economic literature classification numbers e00 e3 o40

human capital formation and business cycle persistence abstract in this paper we examine the role of the formation of human capital in propagating shocks over the business cycle we show that a two sector equilibrium business cycle model with human capital is able to generate persistence in the growth of output and other aggregate variables comparable to that observed in the post war us data a key feature is the relatively low elasticity of substitution between skilled and unskilled labor in the production of human capital

technology utilization and inflation what drives the new keynesian phillips curve we argue that the new keynesian phillips curve literature has failed to deliver a convincing measure of real marginal costs we start from a careful modeling of optimal price setting allowing for nonunitary factor substitution nonneutral technical change and time varying factor utilization rates this ensures the resulting real marginal cost measures match volatility reductions and level changes witnessed in many u s time series the cost measure comprises conventional countercyclical cost elements plus procyclical and covarying utilization rates although procyclical elements seem to dominate the components of real marginal cost components are becoming less cyclical over time incorporating this richer driving variable produces more plausible price stickiness estimates than otherwise and suggests a more balanced weight of backward and forward looking inflation expectations than commonly found our results challenge existing views of inflation determinants and have important implications for modeling inflation in new keynesian models

energy requirements of household consumption a case study of the netherlands this article describes the results of several research programmes that together aim at the development and application of methodologies that enable the study of long term environmental effects mainly related to the total household energy demand of household consumption in relation to other economic sectors this is usually described as the household metabolism approach in this article we use energy consumption and co2 emissions as proxies for long term impacts on the environment the major long term environmental effects of several hundred dutch household consumption categories have been determined by means of the hybrid energy analysis methodology total energy consumption and related co2 emission data have been calculated as a function of household income and family type past trends have been studied by a time series 1950 1990 analysis technical reduction potentials have been calculated for mid and long term scenarios it is concluded that the set of methodologies described form a useful tool for the analysis of unsustainable trends in household consumption patterns and associated energy requirements in the past and the present the results indicate that present trends lead towards unsustainability however reversal of these trends is feasible if this starts in the immediate future and if it is maintained for decades c 1999 elsevier science b v all rights reserved

the cyclical behavior of marginal cost and price the author examines the cyclical behavior of price marginal cost margins for u s manufac turing after 1956 short run marginal cost is markedly procyclical this is primarily due to procyclical overtime payments incurred beca use employment is not perfectly flexible in most industries output price fails to respond to the cyclical movement in marginal cost so price marginal cost margins are markedly countercyclical the res ults contradict business cycle theories that explain low production i n a recession by a high real cost of producing they support theories that explain low production in a recession by the inability of firms to sell their output copyright 1987 by american economic association

on demand shocks and international business cycle puzzles abstract this note studies a parsimonious dynamic stochastic general equilibrium model driven by demand shocks to explain two central puzzles in open economy macroeconomics the comovement puzzle backus et al 1992 and the backus smith puzzle backus and smith 1993 while matching a large set of domestic and international business cycle properties observed in the industrialized countries features such as non separable preferences non tradable sector or market incompleteness do not appear to be preconditions for resolving these long standing puzzles

welfare costs of sticky wages when effort can respond abstract we examine the impact of wage stickiness when employment has an effort as well as hours dimension despite wages being predetermined the labor market clears through the effort margin consequently welfare costs of wage stickiness are potentially much much smaller

the shifts in lead lag properties of the u s business cycle we document shifts in the lead lag properties of the u s business cycle since the mid 1980s specifically 1 the well known inverted leading indicator property of real interest rates has completely vanished 2 labor productivity switched from positively leading to negatively lagging output and labor inputs over the cycle and 3 the unemployment rate shifted from lagging productivity negatively to leading positively many contemporary business cycle models produce counterfactual cross correlations revealing that popular frictions and shocks provide an incomplete account of business cycle comovement determining the underlying sources of these shifts in the lead lag properties and their consequences for macroeconomic forecasts is therefore a promising direction for future research jel e24 e32 e43

labor productivity in the efficiency wage model a consideration of the firm s death rate it is inappropriate to equate the representative firm with the typical firm particularly for economies which consist of small enterprises where a large number of jobs are created or disappear as establishments are born or die if workers care about the job disappearance risk their utility and effort offered will be influenced by the death rate of firms this paper sets out an efficiency wage model and takes the probability of the firm s closure into account by extension it is shown that equilibrium labor productivity is plausibly procyclical under certain circumstances which is consistent with the stylized facts observed in many countries

resource accounting an application to development planning abstract economic projections because they are based on assupmtions about future values become increasingly unreliable as they move into the long term future in a search for a more robust way of assessing a country s long term development prospects in the light of feasible or seemingly desirable policies with respect to population resources agriculture and development a concept called resource accounting has been explored here one measures the physical effort required to carry through an economic activity rather than its cost the concept rests on the observation that if any economic activity is analyzed retrospectively in physical terms ultimately all output is found to rest on present and past labor and present and past energy use since labor in terms of quantity if not quality is generally in surplus in any economy enjoying technological progress one can quantity economic activities in terms of present and past energy use to establish the future feasible level of material welfare of an economy and its approach to sustainability in the context of its present status and known resources this concept has been put to work as a simulation model iniatially development for unesco s population division in order to assess the potential for enhancing the sustainable carrying capacity of nation states

chronicle of a war foretold the macroeconomic effects of anticipated defence spending shocks we identify us defense news shocks as shocks that best explain future movements in defense spending over a ve year horizon and are orthogonal to current defense spending our identied shocks are strongly correlated with the ramey 2011 news shocks but explain a larger share of macroeconomic uctuations and have signicant demand eects fiscal news induces signicant and persistent increases in output consumption investment hours and the interest rate standard dsge models fail to produce such a pattern we propose a sticky price model with distortionary taxation variable capital utilization capital adjustment costs and rule of thumb consumers that replicates the empirical ndings