inefficient credit booms this paper studies the welfare properties of competitive equilibria in an economy with financial frictions hit by aggregate shocks in particular it shows that competitive financial contracts can result in excessive borrowing ex ante and excessive volatility ex post even though from a first best perspective the equilibrium always displays under borrowing from a second best point of view excessive borrowing can arise the inefficiency is due to the combination of limited commitment in financial contracts and the fact that asset prices are determined in a spot market this generates a pecuniary externality that is not internalized in private contracts the model provides a framework to evaluate preventive policies which can be used during a credit boom to reduce the expected costs of a financial crisis copyright 2008 wiley blackwell

saving wealth and the exchange bequest motive a model of exchange motivated bequests based upon childrens attentions to parents provided when the children are young adults is joined to a standard life cycle specification to examine the consequences for wealth and savings the results of general equilibrium simulations show contribution to be far below some recent estimates exchange motivated bequests produce offsets to life cycle savings that limit their ability to increase total savings epargnes richesse et le legs motive par la logique de l echange l auteur combine un mod0e de legs motive par la logique de l 6change les parents obtenant en echange l attention de leurs enfants quand ceux ci sont jeunes adultes et une specification standard du modele

capital taxation and accumulation in a life cycle growth model almost all of the serious economic work on savings decisions within the past decade has relied on some variant of the life cycle hypothesis in which savings arise out of individual choices of an optimum lifetime consumption path this paper reexamines the incidence and welfare consequences of capital income taxes within a realistic life cycle model the results suggest that the elimination of capital income taxation would have very substantial economic effects for example a complete shift to consumption taxation might raise steady state output by as much as 18 percent and consumption by 16 percent the long run welfare gain from such a shift would for plausible parameter values exceed 150 billion annually stated somewhat differently shifting to consumption taxation would raise the lifetime utility of the representative consumer by the equivalent of about six years income in the new steady state these estimates dwarf estimates of the static welfare cost of taxation and significantly exceed even extreme previous estimates of the dynamic loss this study departs from earlier analyses of the effects of taxes on capital income in several respects probably the most important difference between this treatment and most preceding ones lies in the assumptions about the interest elasticity of saving it is shown below that the common two period formulation of saving decisions yields quite misleading results a more realistic model of life cycle savings demonstrates that for a wide variety of plausible parameter values savings are very interest elastic this implies that shifting away from capital income taxation would significantly increase capital formation making possible long run increases in consumption many studies of the welfare effects of capital income taxation have ignored the general equilibrium effects of increased capital formation in an economy with life cycle savings there is no presumption that the undistorted growth path corresponds to any sort of social optimum as peter diamond has shown life cycle savings can lead to a steady state capital intensity either greater or less than the golden rule level more generally it is clear that there is no reason to believe that a life cycle economy will maximize any particular intertemporal social welfare function a fundamental tenet of welfare evaluation is that preexisting distortions must be considered in evaluating the consequences of tax changes the results presented in this paper take explicit account of the nonoptimal character of the no tax steady state this explains in large part why such a sizeable welfare effect of capital taxes is found in an economy far from the golden rule level of capital intensity there are substantial gains in steady state consumption achievable through increased capital formation section i of the paper examines the aggregate savings function in a continuous time life cycle framework the second section clarifies the differences between wage and consumption taxes an aggregate production function is added to complete the model in the third section the effects of changes in capital taxes on both steady state incidence and welfare are considered within a general equilibrium framework the final section of the paper discusses some implications of the results and suggests areas which appear to warrant further study assistant professor of economics massachusetts institute of technology and research analyst national bureau of economic research i am grateful to alan auerbach martin feldstein laurence kotlikoff to the participants in the nber workshop on business taxation and to the harvard public finance seminar for useful discussions james poterba and james buchal performed the numerical calculations

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

the impact of monetary union on macroeconomic integration evidence from west africa data from 19 african nations is used to investigate the hypothesis that monetary union represented in this case by the cfa franc zone augments the extent of macroeconomic integration the paper covers two key dimensions of integration the volume of bilateral trade and the magnitude of cross country business cycle correlation restricting our attention to a part of the world in which for historical reasons monetary union membership is exogenous to economic characteristics we can test whether the large single currency effects claimed by a rose apply within a sample of less developed countries

macro economy stock market and oil prices do meaningful relationships exist among their cyclical fluctuations this paper examines the relationship among consumer price index industrial production stock market and oil prices in greece initially we use a unified statistical framework cointegration and vecm to study the data in levels we then employ a multivariate var model to examine the relationship among the cyclical components of our series the period of the study is from 1996 1 to 2008 6 findings suggest that oil prices and the stock market exercise a positive effect on the greek cpi in the long run cyclical components analysis suggests that oil prices exercise significant negative influence to the stock market in addition oil prices are negatively influencing cpi at a significant level however we find no effect of oil prices on industrial production and cpi finally no relationship can be documented between the industrial production and stock market for the greek market the findings of this study are of particular interest and importance to policy makers financial managers financial analysts and investors dealing with the greek economy and the greek stock market

the transition from payroll to consumption receipts with endogenous human capital abstract the transition from payroll to consumption receipts is simulated in a life cycle growth model featuring adult human capital as in other studies savings are higher under the consumption base however unlike those studies much of the additional savings here take human form human capital production increases for all cohorts in or yet to join the labor market as of the tax change the additional human capital production tends to dampen physical capital accumulation when compared with otherwise identical simulations which hold human capital constant the implications for intergenerational incidence are similar to that found in other examinations of the transition to a consumption base

regional integration in china a statistical model abstract we illustrate that a statistical model can be used to gauge the degree of market integration the model is applied to the case of china which is undergoing transition from a central planning to a market economy and there is a growing interest as to the evolution of its market integration

external shocks financial volatility and reserve requirements in an open economy abstract the performance of a simple countercyclical reserve requirement rule is studied in a dynamic stochastic model of a small open economy with financial frictions imperfect capital mobility a managed float regime and sterilized foreign exchange market intervention bank funding sources domestic and foreign are imperfect substitutes the model is calibrated and used to study the effects of a temporary drop in the world risk free interest rate consistent with stylized facts the shock triggers an expansion in domestic credit and activity asset price pressures and a real appreciation an optimal credit based reserve requirement rule based on minimizing a composite loss function helps to mitigate both macroeconomic and financial volatility with the latter defined both in terms of a narrow measure based on the credit to output ratio the ratio of capital flows to output and interest rate spreads and a broader measure that includes real asset prices as well greater reliance on sterilization implies a less aggressive optimal reserve requirements rule implying that the two instruments are partial substitutes

leverage cycles and the anxious economy ing opportunities for emerging economies their access to international markets has turned out to be very volatile with frequent periods of market closures even worse as we will show emerging economies with sound fundamentals are the ones that issue less debt during these closures the goal of this paper is to present a theory of asset pricing that will shed light on the problems of emerging assets like emerging markets that are not yet mature enough to be attractive to the general public their marginal buyers are liquidity constrained investors with small wealth relative to the whole economy who are also marginal buyers of other risky assets we will use our theory to argue that the periodic problems faced by emerging asset classes are sometimes symptoms of what we call a global anxious economy rather than of their own fundamental weaknesses

do currency unions deliver more economic integration than fixed exchange rates evidence from the franc zone and the eccu in this article we develop a model to identify determinants of macroeconomic integration in the african franc zone and in dollar pegging caribbean countries including members of the east caribbean currency union these two groups of countries each comprise states using several different local currencies on the one hand the uemoa cfa franc and the cemac cfa franc both pegged to the euro on the other the eccu dollar and other national dollar pegged currencies the purpose of the analysis is to distinguish the effect of monetary union on macroeconomic integration from the effect of pegging to a common oecd currency

taxes in a life cycle growth model with bequests and inheritances in a recent paper lawrence summers 1981 analyzes alternative taxes in a life cycle growth model this paper extends his analysis to include bequests and inheritances this inclusion is worth undertaking for several reasons first several recent empirical studies have suggested that bequests may account for an important share of the capital stock laurence kotlikoff and summers 1981 second it is important to explore whether the comparison of taxes is significantly affected when a bequest motive is introduced third the treatment of bequests under a consumption tax is controversial the endowment rationale calls for treating a bequest as taxable consumption by the deceased peter mieszkowski 1980 the real wage rationale calls for exempting bequests if such exemption raises the steady state capital intensity and real wage my 1980 article this paper confines itself to positive analysis of steady states transition paths and normative implications are explored elsewhere see my 1982 paper

economic and monetary union in europe the european council s maastricht agreement maps out a precise route to monetary union and the eventual introduction of a common currency my discussion begins with a look at the general arguments for and against monetary union i shall then discuss the proposed constitution of the european central bank and whether it is likely to be conducive to monetary stability together with some of the problems posed by the transition to the new regime finally i will turn to the issue of rules for the conduct of fiscal policy and the question of fiscal federalism

macro prudential policies the global financial cycle and the real exchange rate abstract this paper examines whether a global financial cycle originating from center economies affects the real exchange rates in peripheral economies and to what extent macro prudential policies can isolate peripheral economies from this external shock we build a dynamic stochastic general equilibrium dsge model to describe how macro prudential policies mitigate the fluctuations of the real exchange rate in a small open economy in response to external shocks in which households are subject to liquidity constraints using a sample of 37 emerging and small advanced economies we show that a counter cyclical macro prudential policy implementation is effective in mitigating the fluctuations in the real exchange rates caused by a u s interest rate shock

business cycles in switzerland a comparative study abstract the goal of this paper is to provide an empirical description of business cycles in switzerland and a comparison with business cycles in other countries we adopt a view of business cycles as a set of regularities in the movements and the co movements of economic aggregates common to all decentralized economies lucas 1977 and test whether switzerland conforms to this view in order to identify the appropriate cyclical series we follow a procedure proposed by hodrick and prescott 1980 we then compute correlations of various types we test their stability through time and compare with corresponding estimates for the u s france germany and the u k

are aggregate consumption relationships similar across the european union carruth a gibson h and tsakalotos e 1999 are aggregate consumption relationships similar across the european union reg studies 33 17 26 the answer to the question posed in the title of the paper may have some bearing on whether consumer spending will respond in similar ways to common shocks across the european union the dhsy model is implemented its robustness and its commonality assessed for the 15 eu countries the model performs encouragingly well across this group of countries though there is evidence that the long run unit elasticity restriction is not valid for a number of countries our results do not support the hypothesis of common aggregate consumption behaviour for these countries similar tests across the five core countries germany france the netherlands belgium and luxembourg show somewhat greater conformity in the dhsy consumption estimates as might be expected but nevertheless the coefficient estimates are not similar at conventional significance levels carruth a g

a macroeconomic model with a financial sector this paper studies a macroeconomic model in which financial experts borrow from less productive agents we pursue four sets of results i the economy is prone to instability and occasionally enters volatile episodes as volatility spikes agents precautionary motive increases depressing prices even further log linear approximations fail to capture these non linear effects that can cause economies to be significantly depressed for long periods of time ii endogenous risk during volatile episodes increases asset price correlations iii financial experts impose a negative externality on each other and on the labor sector by not maintaining adequate capital cushion and funding structure iv while risk sharing within the financial sector through securitization and derivatives contracts reduces many inefficiencies it can also amlify systemic risks

international evidence on the historical properties of business cycles we contrast properties of real quantities with those of price levels and stocks of money for ten countries over the last century although the magnitude of output fluctuations has varied across countries and periods relations among real quantities have been remarkably uniform properties of price levels however exhibit striking differences between periods inflation rates are more persistent after world war ii than before and price level fluctuations are typically procyclical before world war ii and countercyclical afterward fluctuations in money are less highly correlated with output in the postwar period but are no more persistent than in earlier periods jel e32 e31

the after tax rate of return affects private savings level of savings and the rate of capital formation are of central concern to both economists and policymakers although the welfare effects of tax reforms do not directly depend on their impact on savings the effects of taxes on savings is crucial to considerations of tax incidence and equity and to the issue of long run growth the impact of the rate of return on consumption and savings decisions also bears on questions regarding the appropriate government discount rate the short run crowding out effects of fiscal policy and the effects of public indebtedness on capital intensity the traditional view among economists is that changes in the rate of return are likely to have only a small effect on the savings rate this consensus is supported by theoretical arguments pointing to the opposing income and substitution effects associated with changes in the rate of return the ambiguous implications of theory are matched by empirical studies which yield conflicting estimates as to the size of the impact of changes in the rate of return the polar empirical estimate is michael boskin s 1978 suggestion that the interest elasticity of savings is 4 this estimate is widely regarded as too high

business cycle convergence in emu a first look at the second moment we analyse the dynamics of the standard deviation of demand and supply shocks as well as of the demand component of gdp across countries in the european monetary union emu this analysis allows us to evaluate the patterns of cyclical comovement in emu and compare them the cyclical performance of the new members of the eu and other oecd countries we make use of sigma convergence methods to identify synchronization patterns in business cycles the eurozone has converged to a stable lower level of dispersion across business cycles during the end of the 80s and the beginning of the 90s the new eu members have also experienced a strong pattern of convergence from 1998 to 2005 when a strong divergence trend appears an enlargement of the emu to 22 members would not significantly decrease its optimality as a currency area there is evidence for some europe specific characteristics as compared to global comovements in business cycles authors abstract

credit cycles and capital flows effectiveness of the macroprudential policy framework in emerging market economies abstract i assess the effectiveness of macroprudential policy tools in containing credit cycles per se or the impact of portfolio inflows on the cycles in major emerging market economies the results show that borrower based tools measures with a domestic focus and domestic reserve requirements are particularly effective the findings are in most cases stronger for the recent period during which most of the macroprudential actions are undertaken and generally hold for alternative definitions of credit cycle the monetary policy stance and portfolio inflows weaker results emerge for financial institutions based or foreign currency related macroprudential tools

business cycles in the united kingdom facts and fictions this paper documents the statistical properties of contemporary business fluctuations in the united kingdom we study the period 1956 90 using quarterly detrended data on key aggregate variables we compute selected moments of the data compare our results with those for the united states and rigorously test for dynamic instabilities our findings confirm the existence of substantive cyclical regularities both across countries and across time some notable cross country differences are also identified conclusions about stability are shown to be potentially sensitive to the method of testing in general cross correlations are appreciably more stable than standard deviations

inventory investment and production in europe during the great recession is there a pattern abstract the paper examines the nexus between inventory investment and the change in aggregate production during the great recession of 2008 09 for 29 european countries a fairly uniform pattern emerges inventory investment is positively correlated with changes in production and follows the latter with a time lag of two to three quarters very few countries austria greece spain and switzerland diverge from the typical pattern this might hint to problems with respect to data quality

detrending stylized facts and the business cycle the stylized facts of macroeconomic time series can be presented by fitting structural time series models within this framework we analyse the consequences of the widely used detrending technique popularised by hodrick and prescott 1980 it is shown that mechanical detrending based on the hodrick prescott filter can lead investigators to report spurious cyclical behaviour and this point is illustrated with empirical examples structural time series models also allow investigators to deal explicitly with seasonal and irregular movements that may distort estimated cyclical components finally the structural framework provides a basis for exposing the limitations of arima methodology and models based on a deterministic trend with a single break

capital flow management measures what are they good for abstract are capital controls and macroprudential measures related to international exposures successful in achieving their objectives assessing their effectiveness is complicated by selection bias countries which change their capital flow management measures cfms often share specific characteristics and are responding to changes in variables that the cfms are intended to influence this paper addresses these challenges by using a propensity score matching methodology we also create a new database with detailed information on weekly changes in controls on capital inflows capital outflows and macroprudential measures related to international transactions from 2009 to 2011 for 60 countries results show that these macroprudential measures can significantly reduce some measures of financial fragility most cfms do not significantly affect other key targets however such as exchange rates capital flows interest rate differentials inflation equity indices and different volatilities one exception is that removing controls on capital outflows may reduce real exchange rate appreciation therefore certain cfms can be effective in accomplishing specific goals but most popular measures are not good for accomplishing their stated aims

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

a small open economy model with transaction costs in foreign capital abstract in this paper we develop a stochastic dynamic general equilibrium model for a small open economy in the real business cycle modeling tradition household preferences depend on private and public consumption and leisure production technology depends on public capital government finances its investment consumption and transfer payments by means of a proportional income tax rate households buy and sell foreign assets in an international capital market with transaction costs and also receive transfer payments from abroad we calibrate the model for the greek economy the volatility persistence and co movement properties of the business cycle component of the data generated by the model are broadly consistent with the actual behavior of the corresponding actual data we use the model to investigate the response of major macroeconomic variables to temporary and permanent changes in government policy variables foreign transfers and the rate on return of foreign assets we find that increasing government consumption and domestic transfers financed through distorting taxation lowers capital labor in most cases and output while it increases foreign asset holdings both in the short and the long run increasing government investment financed by distorting taxation eventually increases capital and output and decreases labor finally transfers from abroad decrease capital labor and output while they increase consumption

international business cycles what are the facts abstract modern business cycle theory involves developing models that explain stylized facts for this strategy to be successful these facts should be well established in this paper we focus on the stylized facts of international business cycles we use the generalized method of moments and quarterly data from twenty industrialized countries to estimate and test hypotheses concerning pairwise cross country correlations of macroeconomic aggregates a remarkable common feature emerges these correlations are mostly positive not very high and of a similar order of magnitude the most important discrepancy with the theory is the low cross country correlation of consumption

procyclical labour productivity a closer look at a stylized fact at 4 digit united states manufacturing industry level we find evidence suggesting that the stylized fact of procyclical labour productivity should be treated with great caution we use the nber manufacturing productivity database to investigate the relationship between hourly labour productivity and real output for 450 industries for the years 1958 91 labour productivity is significantly procyclical in 63 of industries and acyclical in 36 in the latter respect a high proportion of investment goods industries display acyclical productivity cross section regressions are carried out that seek to explain the interindustry distribution of cyclicality the analysis attributes a significant role to variations in materials costs as a proxy for fluctuations in factor utilization

comparisons of business cycles in the ec idiosyncracies and regularities annual data since 1960 and the real business cycle model as a guidance the evidence suggests that there are remarkable similarities between the business cycle pattern of these countries despite significant differences in the patterns of fiscal and monetary policies and the terms of trade we take this evidence to suggest that the type of shocks and the propagation mechanism is fairly similar across the ec countries hence the process of european integration under a set of uniform institutions and policies should not be a problem as far as the business cycle is concerned

interest rate effects and intertemporal consumption abstract a small but growing body of literature has examined the intertemporal relationship between consumption saving and the rate of interest unfortunately a survey of the empirical evidence reveals inconsistencies associated with the estimated sign of the interest rate given the current controversy surrounding the effects of the rate of interest on consumption saving the present paper attempts to reconcile as well as to extend out empirical knowledge

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

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

income consumption and wage taxation in a life cycle model separating efficiency from redistribution the desirability of switching from an income tax base to a wage or consumption tax base hinges critically on the potential efficiency gains from doing so the overlapping generations life cycle model developed by lawrence summers 1981 cannot easily be used to answer this question because individuals of different ages alive at the time of the tax substitution differ in their shares of income consumption wages and savings propensities steady state welfare changes include redistribution of taxes and factor incomes the effects of redistribution on the calculation can be controlled for by tracing the transition in another paper summers 1980 used myopic expectations individuals assume that current prices will prevail and solved the economy s equilibrium for 100 years gains and losses were discounted and summed alan auerbach laurence kotlikoff and jonathan skinner 1983 hereafter referred to as aks employed a perfect foresight model they used lumpsum payments to keep the utility of those alive at the time of the tax change fixed and allowed equal equivalent variations to all future generations 1 a perfect foresight model requires simultaneous solution of many years of equilibria 150 years in the aks model although these techniques eliminate distributional elements such models are so costly to construct modify and use that the study of relative efficiency of alternative tax regimes is now greatly hampered by computational complexity this study has two major contributions first it introduces a much simpler method of separating the efficiency and redistributional components of steady state gains rather than tracing the transition it uses a system of transfers which ensures that changes in welfare in the steady state do not arise from redistribution of income to or from transitional generations while this approach does not allow calculation of the transition its application to the aks model suggests that very little information about the magnitude of efficiency effects is lost by forgoing the tracing of the transition for estimating the relative efficiency of income consumption and wage taxation or the extent to which assumptions drive the results this approach greatly simplifies the researcher s task 2 this simplification becomes increasingly valuable as more detail is introduced into models which could involve thousands of equations using an approach that traces the transition secondly my calculations suggest that switching tax bases may not be worthwhile this result differs from the results of summers 1981 and auerbach and kotlikoff 1987 which strongly suggest that the consumption tax is always superior on efficiency grounds using a 0 25 intertemporal substitution elasticity and a cobb douglas production function the steady state wel congressional research service library of congress washington dc 20540 i thank christophe chamley don fullerton yolanda henderson don kiefer larry kotlikoff jonathan skinner tom woodward dennis zimmerman and three anonymous referees for helpful comments and discussions the views in this paper do not necessarily represent those of the congressional research service or the library of congress 1the aks model is confined to one good charles ballard 1984 1989 lawrence goulder 1985 and ballard and goulder 1987 develop multisector models 2the suggestion of a method for separating efficiency from redistribution is not intended to imply that there is no value to tracing the transition tracing the transition can provide information about intergenerational redistribution in an uncompensated change and insights into the realism of the model

ciclos economicos e metodos de filtragem fatos estilizados para o caso brasileiro the paper examines the business cycle properties of a small set of real brazilian macroeconomic time series using a variety of detrending methods it is shown that both quantitatively and qualitatively stylized facts of brazilian business cycle vary widely across detrending methods and that alternative detrending filters extract different types of information from the data the paper also provides simulations of the hansen and prescott s 1995 and hansen s 1985 dynamic general equilibrium models the standard rbc model and the indivisible labor model and tries to match the facts of the artificial economy with those of the real economy implications and suggestions for current macroeconomic practice are provided

inventory investment over the business cycle in the eu and the us abstract this paper investigates the business cycle properties of aggregate inventory investment in the countries of the european union eu and the us given the experience of the latest recessions this issue becomes particularly interesting for the study of the propagation mechanism of business cycles the kydland prescott methodology was used to derive and organize the business cycle features the results showed that business cycle fluctuations in the eu are more volatile than those in the us the contribution of the declines of inventory investment in recessions has also been greater in the eu important similarities though were identified as to the extent of the destabilizing effect of inventory investment cycles in the overall economic activity

swedish business cycles 1861 1988 abstract we examine swedish business cycle data for 1861 1988 in the time domain as well as in the frequency domain there is evidence of a business cycle in the form of considerable spectral mass for cycles between three and eight years the variability of the series varies considerably over time for most series it is highest in the inter war period relative variability is fairly stable over time cross section ratios between moving standard deviations for the series do not change much comovements are also stable over time correlation coefficients do not change much either

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

the interest elasticity of saving and the functional form of the utility function the interest elasticity of aggregate saving rate is a key parameter for a number of important questions concerning the government s influence on capital formation recently significant attempts have been made to examine and estimate the effects of interest rate changes on aggregate saving hamburger 9 and wright 17 attempted to estimate the interest elasticity of saving subsequent studies have reported divergent results and with the publication of boskin s 5 controversial study the profession has moved away from a consensus on this issue in a challenge to the widely held view that the elasticity is low summers 16 claimed to have formulated a realistic life cycle model yielding a large and positive interest elasticity of saving in fact he made the strong claim that the theory when formulated realistically implies interest elasticities well in excess of unity 16 534 the claim has been questioned by evans 7 who showed that with negative time preferences the interest elasticities are far lower furthermore he incorporated intergenerational transfers into the model and demonstrated that negative elasticities are not implausible seidman 13 introduced bequests into the model and obtained results that are qualitatively similar to those of summers the studies by summers 16 evans 7 and seidman 13 share a common feature in that each employed a standard homothetic ces utility function shces to represent the preferences of the individual none of these authors addressed the issue of the interest elasticity of saving in relation to alternative functional forms of the utility function a natural and fruitful way of generalizing the utility function considered by these authors is to introduce minimum or subsistence consumption levels as its argument according to the literature on consumer theory utility functions that make allowance for subsistence consumption levels are desirable for various reasons first to capture the notion that consumers require some minimal consumption levels for physiological and psychological needs in order to survive second to account for the habit forming nature of some goods and to make allowance for the future habit forming effect of current consumption third to reflect the fact that some consumption expenditures are contractually fixed and therefore prevent consumers from adjusting some portion

rational habit formation abstract this paper discusses consumer demand under rational habit formation if consumer tastes change endogenously through habit stocks depending on past consumption the rational consumer will make allowance of the future habit forming effects of current consumption a model with rational habit formation is made formally equivalent to an intertemporal consumer model without habit formation by redefining the cost of consumption and wealth the cost of consumption is obtained by adding the cost of future induced consumption to the rental price of the commodity the extended wealth concept is obtained by subtracting the cost of the initial stocks of habits and the cost of future physically necessary consumption from wealth the paper also investigates the implication of rational habit formation for constructing one period cost of living indices

savings and wealth in models with altruistic bequests during recent years much attention has been given to the role of bequests in explaining various aspects of economic behavior for example authors have studied the impact of bequests on physical wealth accumulation laurence kotlikoff and lawrence summers 1981 the interest elasticity of savings owen evans 1983 tax reform laurence seidman 1984 and the distribution of wealth alan blinder 1976a more recently economists have begun to distinguish between human and physical bequests gary becker and nigel tomes 1986 acknowledging the presence of bequest in human form is important in analyzing each of the issues mentioned above outlays on children affect the shape of the family s labor supply and expenditure profiles upon which the level of aggregate savings crucially depends if these outlays are interest sensitive substitutes for physical bequests they will also influence the interest elasticity of savings in the area of tax reform the neutrality of the consumption tax depends on the ability of the government to identify human capital bequests from general consumption raymond batina 1987 if this is not possible the portfolio choice of investment in human versus physical capital may be distorted at the margin finally the unequal transmission of wealth across generations may be explained by the lack of physical bequests and the inefficiently low levels of human bequests made by wealthconstrained households becker and tomes 1986 to distinguish clearly the behavior of constrained households from unconstrained households who make sizeable physical bequests both types of bequests must be recognized this paper introduces a model that makes explicit examination of these issues possible it extends lord s 1989 multiperiod model of life cycle savings and adult human capital investment by adding altruistically motivated human and physical bequests 2 the model is calibrated using microeconomic data on earnings time and goods expenditures on children s human capital and physical bequests we then use the model to examine the contribution of bequests to wealth accumulation and the level of savings this topic is the source of an important but yet unresolved debate between franco modigliani 1988 and kotlikoff 1988 kotlikoff maintains that u s wealth accumulation is primarily the consequence of bequests as opposed to life cycle savings for retirement one type of evidence cited by kotlikoff comes from simulation results demonstrating the failure of realistically calibrated life cycle models to generate sufficiently high saving rates and wealth income ratios alan auerbach and kotlikoff 1987 we show however that if a pure life cycle

information forecasts and measurement of the business cycle the beveridge nelson bn technique provides a forecast based method of decomposing a variable such as output into trend and cycle when the variable is integrated of order one i 1 this paper considers the multivariate generalization of the bn decomposition when the information set includes other i 1 and or stationary variables we show how the relative importance of the cyclical component depends on the size of the information set and is necessarily higher with multivariate bn decompositions the results are illustrated using post wwii united states data an explanation is also provided for the empirical finding of a positive association of the multivariate bn cycle with output growth

understanding the evolution of world business cycles abstract this paper studies the changes in world business cycles during the period 1960 2003 we employ a bayesian dynamic latent factor model to estimate common and country specific components in the main macroeconomic aggregates output consumption and investment of the g 7 countries we then quantify the relative importance of the common and country components in explaining comovement in each observable aggregate over three distinct time periods the bretton woods bw period 1960 1 1972 2 the period of common shocks 1972 3 1986 2 and the globalization period 1986 3 2003 4 the results indicate that the common g 7 factor explains on average a larger fraction of output consumption and investment volatility in the globalization period than it does in the bw period

macroprudential policies and housing prices a new database and empirical evidence for central eastern and southeastern europe several countries in central eastern and southeastern europe used a rich set of prudential instruments during the recent credit and housing boom and bust cycles we construct a comprehensive database of these policy measures covering 16 countries at a quarterly frequency we use this database to investigate whether the policy measures had an impact on housing price inflation the measures that appeared to be effective were capital measures minimum capital adequacy ratio maximum ratio of lending to households to share capital and nonstandard liquidity measures marginal reserve requirements mrrs on foreign funding mrrs linked to credit growth

cooperative and non cooperative fiscal stabilization policies in the emu in this paper we analyze the interaction of fiscal stabilization policies in the economic and monetary union emu the excessive deficits procedure of the maastricht treaty and its elaborations in the recent stability and growth pact introduce a set of fiscal stringency requirements on national fiscal policies situations might arise where the need for fiscal flexibility and the fiscal stringency requirements will create a conflict and suboptimal macroeconomic policies are implemented we analyze macroeconomic adjustment under non cooperative and cooperative fiscal policy design in the emu using a dynamic games approach in particular we consider how fiscal stringency requirements like the stability and growth pact affect fiscal policy design under emu and study the consequences of the introduction of a fiscal transfer mechanism between countries

the consumption tax in the presence of altruistic cash and human capital bequests with endogenous fertility decisions abstract we provide an analysis of the consumption tax policy in the presence of cash bequests human capital investments in children and endogenous fertility decisions it is shown that the consumption tax is no longer neutral if the tax rate is constant over the taxpayer s life cycle labor supply is exogenous and the parent expects the offspring to pay the same tax rate if the number of children is chosen optimally by the parent neutrality breaks down because the shadow prices of both bequests and fertility are interlinked it is more expensive to produce a child the larger either bequest is and it is more expensive to make a bequest of either type to each child the larger the number of children produced several examples are provided where imposing the consumption tax induces an increase in the number of children produced and a decrease in net capital formation

tools for managing financial stability risks from capital inflows abstract we examine whether macroprudential policies and capital controls can enhance financial stability in the face of the risks typically associated with large capital inflows we construct new indices of foreign currency fx related prudential measures domestic prudential measures and financial sector specific capital controls for 51 emerging market economies over the period 1995 2008 our results indicate that both capital controls and fx related prudential measures are associated with a lower proportion of fx lending in total domestic bank credit and with a lower proportion of portfolio debt in total external liabilities other prudential policies appear to help restrain the intensity of aggregate credit booms experience from the global financial crisis suggests that prudential and capital control policies in place during the boom enhanced economic resilience during the bust

excessive dollar debt financial development and underinsurance we propose that the limited financial development of emerging markets is a significant factor behind the large share of dollar denominated external debt present in these markets we show that when financial constraints affect borrowing and lending between domestic agents agents undervalue insuring against an exchange rate depreciation since more of this insurance is present when external debt is denominated in domestic currency rather than in dollars this result implies that domestic agents choose excessive dollar debt we also show that limited financial development reduces the incentives for foreign lenders to enter emerging markets the retarded entry reinforces the underinsurance problem

redistributive taxation in a simple life cycle model an overlapping generations model with rich and poor life cycle planners is developed positive aspects of redistributive capital and labor taxation are then analyzed the conditions required for feldstein s result that the long run capital labor ratio is invariant to wage taxations are discussed the utility frontier is shown to generally have a slope with an absolute value different from one in the neighborhood of a no tax equilibrium labor income is clearly a more efficient base for long run redistribution only if the economy is dynamically inefficient and the rich household benefits from an increase in the gross interest rate even in this case the labor income base may not be considered more desirable when transitional effects are considered copyright 1989 by the london school of economics and political science

financial integration productivity and capital accumulation understanding the mechanism through which nancial globalization aects eco nomic performance is crucial for evaluating the costs and bene ts of opening nancial markets this paper is a rst attempt at disentangling the eects of nancial inte gration on the two main determinants of economic performance productivity tfp and investment i provide empirical evidence from a sample of 70 countries observed between 1975 and 1999 the results for both de jure and de facto indicators suggest that nancial integration has a positive direct eect on productivity while it does not directly aect capital accumulation i also control for indirect eects of nancial globalization through nancial development and banking and currency crises while nancial integration does not systematically increase domestic nancial depth it may raise the likelyhood of banking crises though only to a minor extent yet the overall eect of nancial liberalization remains positive for productivity and negligible for investment

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite