an estimated fiscal taylor rule for the postwar united states this paper documents the systematic response of postwar u s fiscal policy to fiscal imbalances and the business cycle using a multivariate fiscal taylor rule adjustments to taxes and purchases both account for a large portion of the fiscal response to debt while authorities seem reluctant to adjust transfers as expected taxes are highly procyclical purchases are acyclical and transfers are countercyclical neither pattern has changed much over time except that adjustment happens more slowly after 1981 than before 1980 the role of adjustments to purchases in stabilizing the debt indicates that the recent discussion about spending reversals is highly relevant

will business cycles in the euro area converge a critical survey of empirical research this survey of business cycle synchronization in the european monetary union focuses on two issues have business cycles become more similar and which factors drive business cycle synchronization we conclude that business cycles in the euro area have gone through periods of both convergence and divergence still there is quite some evidence that during the 1990s business cycle synchronization in the euro area has increased higher trade intensity is found to lead to more synchronization but the point estimates vary widely the evidence for other factors affecting business cycle synchronization is very mixed

endogenous government spending and ricardian equivalence many analyses of debt policy assume exogenous government expenditures instead the author uses an optimizing model in which the government endogenously selects values of taxes spending and debt to maximize welfare if demand for publicly provided goods is elastic a debt financed tax cut increases consumption because individuals rationally expect some reduced government spending in the future even though future taxes rise they do not offset the expansionary effect of the current tax cut on consumption depending on preferences the marginal propensity to consume out of tax cuts can take any value between zero and the marginal propensity out of ordinary income copyright 1992 by royal economic society

lag length selection and tests of granger causality between money and income one of the most widely accepred relationships in macroeconomics is the positive relationship between the rate of growth of the money supply and the rate of growth of income a diversity of opinion arises however with the attempt to identify a causal relationship between these variables while friedman and schwartz 1963 initiated the empirical investigation of money income causality sims 1972 made the most significant contribution to this literature with a practical application of the criterion developed by granger 1969 for identifying a causal relationship since the appearance of sims s approach and an alternative one advanced by sargent 1976 many researchers have applied these techniques to the investigation of the causal relationship between money and income l with two exceptions hsiao 1981 and mcmillin and fackler 1984 these researchers have arbitrarily chosen the lengths of their distributed lags the purpose of this paper is to test for granger causality between money and income this paper differs from previous work in that considerably more attention is focused on the effect of the lag specification on the test results in particular we investigate the extent to which rules of thumb arbitrary lag specifications and

the hodrick prescott filter the slutzky effect and the distortionary effect of filters abstract i construct a metric based on optimal filtering for measuring the distortionary effect of business cycle filters the distortionary effect of a filter depends both on the power transfer function of the filter and on the spectrum of the filtered time series the metric is used for two purposes first to determine the optimal value of the smoothing parameter in the hodrick prescott filter hp filter secondly to measure the size of distortions of ten different filters the slutzky effect is a special case of a more general pattern of distortions and it is shown that the alleged slutzky effect of the hp filter is due to an insufficient distinction between the effect of filtering with an ideal high pass filter and the distortionary effect of the hp filter

financial contagion and international portfolio flows financial contagion is an issue of interest to policymakers and portfolio managers in the presence of contagion the benefits of geographical diversification may be overstated contagion is defined independently of changes in macroeconomic fundamentals it corresponds to a situation in which shocks in one country spread to another country in a significantly more pronounced manner than during quiet times in the study reported here i attempted to measure contagion from daily cross border portfolio flows using data from state street bank and trust company i constructed three indexes for 1996 through 2000 i found little statistical evidence of contagion but the weighted index that measured the contagiousness of flows reached its four year low in august 1998 suggesting that the russian crisis was characterized by both contagion and large aggregate outflows i also found that contagion appears to be regional and that the developed countries seem to be sheltered from contagion

innovation and performance evidence at micro level this empirical study aims to shed light on the link between innovation and economic performance at micro level based on a comprehensive survey among dairy and crop farms in the netherlands we estimate a structural multi stage model to deliver evidence on the effect of engagement and investment in innovation on the production of product process and organizational or marketing innovations as well as on the effect of such innovations on farm level productivity the results suggest various market and farm behaviour related factors to stimulate an increase in innovation engagement and production furthermore the study reveals that indeed a greater innovation investment per unit innovation input leads to a higher probability of producing at least one successful product process and or organizational or marketing innovation innovation output the production of process and organizational or marketing related innovation leads to significant productivity gains various recommendations towards a more effective and efficient innovation policy are finally given

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

fiscal policy and monetary integration in europe fiscal policy economists policy makers and the media often argue that the maastricht treaty and the stability and growth pact make it difficult for governments of emu countries to stabilize their economies with appropriate fiscal policy and to provide adequate public investment our empirical analysis offers little support to this view discretionary budget deficits have actually become more counter cyclical in emu countries after the maastricht treaty as well as in the other eu and non eu industrialized countries we study and while public investment has declined recently in emu countries a similar tendency is apparent in other countries and started well before the maastricht treaty was signed jordi gali and roberto perotti

have large budget deficits caused rising trade deficits for the united states the 1980s have been years of both large and unprecedented trade deficits as well as massive federal budget deficits the trade deficit rose from 25 billion in 1980 to 124 billion in 1985 during this same period federal budget deficits soared from 74 billion in 1980 to more than 212 billion in 1985 it is widely believed that the u s trade deficit rose mainly because of the skyrocketing federal budget deficit presenting such a view are for example hutchison and pigott 25 hutchison and pyle 26 clark 11 modigliani 30 and aschauer 2 besides economists many labor unions i e afl cio and official government documents see the economic report of the president particularly of 1984 have all shared similar views the issues involved have important policy implications suppose that the basic reason for rising trade deficits is indeed the escalating federal budget deficit in this case policy makers may focus on curtailing the budget deficit in order to resolve the trade deficit problem that has adversely affected several sectors such as manufacturing industries and agriculture however if such a view concerning the causal role of the budget deficit is incorrect then reductions in the federal budget deficit may not resolve the trade deficit dilemma and moreover attention will be diverted from more relevant and urgently needed policy options 6 the purpose of this paper is to empirically investigate the conventional argument that high federal budget deficit has been the prime cause of the escalating u s trade deficit finding only partial empirical evidence to support it in section ii i argue that most of previous studies in this area appear flawed by a methodological error rendering their tests unreliable for discriminating between a number of equally plausible hypotheses section iii describes the data and methodology used in the paper section iv presents the empirical results section v summarizes and concludes the paper

budget balance through revenue or spending adjustments abstract the paper provides a historical perspective on the issue of whether budget deficits are typically eliminated by increased taxes or by reduced spending by examining u s budget data from 1792 1988 i conclude that about 50 65 of all deficits due to tax cuts and about 65 70 of all deficits due to higher government spending have been eliminated by subsequent spending cuts while the remainder was eliminated by subsequent tax increases in contrast to previous studies the empirical analysis uses error correction models in a way that the intertemporal budget constraint is imposed in the estimation stage

reassessing discretionary fiscal policy in 1992 president bush proposed legislation intended to speed up the recovery from the 1990 91 recession congress rejected this proposal for countercyclical fiscal policy stimulus in early 1993 president clinton proposed his own stimulus package but congress rejected this proposal too many reasons were given for deciding against these two discretionary fiscal policy proposals but perhaps the most common one was the large federal budget deficit in the early 1990s with the rapid disappearance of budget deficits in recent years this reason to vote against a discretionary fiscal stimulus is unlikely to be mentioned in the next economic cycle discretionary countercyclical fiscal policy again appears to be a politically feasible option but should america use it after so many years of disuse much has happened in macroeconomics since the 1960s and 1970s when discretionary countercyclical fiscal policy was last considered a serious option in the united states first monetary policy making has changed substantially over the last two decades the federal reserve s interest rate decisions have become more explicit more systematic and more reactive to changes in both inflation and output the fed has placed a greater emphasis on keeping inflation low the experience with this new policy has been very favorable inflation has been low since the early 1980s and the real economy has been more stable the 1980s and 1990s saw two lengthy expansions separated by a relatively short and mild recession in terms of the tradeoff between output variability and inflation

comovement in gdp trends and cycles among trading partners abstract it has long been recognized that business cycle comovement is greater between countries that trade more intensively with one another however nations face shocks to both the cyclical and trend components of their gdp series contrary to the result for cyclical fluctuations we find comovement of shocks to the trend component of real gdp is weaker among countries that trade more intensively with one another we simulate changes in ten year output growth correlations corresponding to the estimated effects of trade and show that the impact of trade on trend comovement is quantitatively more important than its effect on cyclical comovement

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

trends and cycles in macroeconomic time series two structural time series models for annual observations are constructed in terms of trend cycle and irregular components the models are then estimated via the kalman filter using data on five u s macroeconomic time series the results provide some interesting insights into the dynamic structure of the series particularly with respect to cyclical behavior at the same time they illustrate the development of a model selection strategy for structural time series models

external factors in emerging market recoveries an empirical investigation abstract we estimate conditional duration models to analyse recovery processes in emerging market economies our reduced form specification is parsimonious as we focus on exogenous factors such as the effect of growth in the us eu and japan on the prospects for recovery in emerging market economies experiencing recessions the model confirms the importance of external factors in recovery processes however the short run effect of japanese growth on recovery prospects is unconventional weak economic conditions in japan turn out to facilitate recoveries

causality between dairy farm size and productivity the direction of causality between dairy farm size and productivity is examined for each state using multivariate granger causality tests the results only partially support the view that technological change has caused increases in dairy farm size the direction of causality appears to be more from size to productivity changes in productivity and average herd size appear driven by price changes

asset correlations in single factor credit risk models an empirical investigation abstractthe internal ratings based irb approach based on a single risk factor model was designed by the basel committee on banking supervision bcbs to determine banks regulatory credit risk capital key inputs of the model asset correlations are prescribed by the regulator relevant banks must use them for capital determination to ascertain whether these correlations are too onerous or too lenient empirical asset correlations embedded in loss data spanning different loss milieu were backed out of the regulatory model static and rolling correlations over a period of time were compared with the prescribed correlations for developed and developing economies and found to be significantly more conservative

money output and inflation in the longer term major industrial countries 1880 2001 i introduction the empirical role of money growth in the macroeconomy has been studied by many researchers using different data and methods the most prominent studies focusing on the quantity theory of money are those of friedman and schwartz 1963 1982 using data averaged over the phases of the business cycle in order to capture longer run movements with u s and u k data back to 1867 the study by mccandless and weber 2001 is a representative example for a different approach for 110 countries in the post wwii period longer run growth rates are approximated by growth of a variable over a 30 year period average growth rates 1 the problem with phase averaging is that it does not deal with possible nonstationarity of the data 2 the problem with growth averages over long periods while informative to a degree is that they have limitations too it is impossible to assess the timing of movements in these variables 3 in the frequency domain the long run is associated with frequency zero which in our terminology is the long run trend previous studies in the frequency domain on the long run neutrality of money at zero frequency include the studies of lucas 1980 and geweke 1986 the theory of spectral analysis provides a rigorous framework for extracting specific frequency bands from the data instead of considering only frequency zero stock and watson 1998 applied the band pass filter of baxter and king 1999 to extract cycles frequency bands for u s data and focused on the business cycle and on mostly the post wwii period christiano and fitzgerald 2003 proposed an improved band pass filter and provided an application to the longer run relation of money and inflation for bands of 8 20 years and 20 40 years in the united states from 1900 to 1997 4 the usefulness of monetary aggregates for conducting monetary policy has been seriously called into question because of the instability of money demand a prominent empirical study is that of estrella and mishkin 1997 recent mainstream new keynesian models have no explicit role for money woodford 2008 a contrasting view is that the longer term role of money is still of relevance for monetary policy the european central bank explicitly emphasizes a supporting role that monetary aggregates should play in order to provide an anchor for inflation expectations hafer haslag and jones 2007 issing 2006 king 2002 nelson 2003 christiano motto and rostagno 2007 provided a theoretical new keynesian model where inflation expectations lose their anchor unless money is monitored and reacted to also beck and wieland 2008 presented a new keynesian model where cross checking with money growth movements improves inflation control similarly assenmacher wesche and gerlach 2006 2007 found a significant role for a low frequency low pass filtered component of money in the empirical new keynesian phillips curve equation 5 in the spirit of friedman 1961 we use long time spans so that our results are unlikely to be because of a specific policy rule in place in a given period we have 122 years of annual data from 1880 to 2001 before the introduction of the euro in 2002 we have real gross domestic product gdp money and consumer price indices cpis with no gaps for 11 industrialized countries 6 the countries included in our study differ in such terms as their institutions fiscal and monetary policies and economic growth rates nonetheless at least in peace time they were similar in generally having comparatively free markets in which prices and interest rates were determined our aim is to apply analytic methods that are free from economic and statistical models as much as possible in order to explore empirical regularities or stylized facts in the data also the focus of our research is the longer run we employ band pass filters to pick out cycles from each time series that last 8 40 years that is the longer term component

the seasonal cycle and the business cycle almost all recent research on macroeconomic fluctuations has worked with seasonally adjusted or annual data this paper takes a different approach by treating seasonal fluctuations as worthy of study in their own right our results show that seasonal fluctuations are an important source of variation in all macroeconomic quantity variables but are small or entirely absent in both real and nominal price variables the timing of the seasonal fluctuations consists of increases in the second and fourth quarters a large decrease in the first quarter and a mild decrease in the third quarter the paper demonstrates that with respect to each of several major stylized facts about business cycles the seasonal cycle displays the same characteristics as the business cycle in some cases even more dramatically than the business cycle that is we find that at seasonal frequencies as well as at business cycle frequencies output movements across broadly defined sectors move together the timing of production and the

fiscal stimulus with spending reversals abstract the short run effects of fiscal policy depend not only on current tax and spending choices but also on expectations about future policy adjustment while general equilibrium models typically restrict medium term adjustment to taxation we highlight the importance of government spending dynamics first we provide time series evidence for the united states suggesting that an exogenous increase in government spending prompts a rise in public debt followed over time by a reduction in spending below trend second we show how expected spending reversals alter the short run impact of fiscal policy in a new keynesian model bringing it closer in line with the evidence

structural and productivity change in us agriculture 1950 1982 this paper tests whether structural change in us agriculture is an important channel to tfp growth and evaluates the relative impact of i public research and education policies ii private r d and market forces and iii government farm programs on structural change we specify a structural econometric model fit it to us state aggregate data 1953 1982 and use the associated reduced form model to perform counter factual policy simulations the findings include structural change is a channel to tfp growth in both crop and livestock subsector i e specialization size and part time farming do impact tfp holding other variables constant public r d and education have been at least as important as private r d and market forces for changing livestock specialization farm size and farmers off farm work participation over the study period but private r d and market forces have been relatively more important for crop specialization changes in farm commodity programs had little impact on farm structure over these study period overall we conclude that if public r d and education policies had been unchanged at their 1950 values over 1950 1982 major structural changes in us agriculture would have occurred anyway the forces of private r d and market forces were at work including a decline in the price of machinery services and agricultural chemicals relative to the farm wage

electricity forward curves with thin granularity theory and empirical evidence in the hourly epexspot market we propose a constructive definition of electricity forward price curve with cross sectional timescales featuring hourly frequency on the curve is jointly consistent with both risk neutral market information represented by baseload and peakload futures quotes and historical market information as mirrored by periodical patterns exhibited by the time series of day ahead prices from a methodological standpoint we combine nonparametric filtering with monotone convex interpolation such that the resulting forward curve is pathwise smooth and monotonic cross sectionally stable and time local from an empirical standpoint we exhibit these features in the context of epex spot and eex derivative markets we perform a backtesting analysis to assess the relative quality of our forward curve estimate compared to the benchmark market model of benth koekebakker and ollmar 2007

the cyclical component of u s economic activity quarterly data on industrial production and deflated gross national product in the united states from 1947 through 1985 are decomposed into independent nonstationary trend and stationary cycle components using kalman filtering and smoothing techniques estimates of the model parameters imply that at least half of the quarterly innovation in u s economic activity can be attributed to a stationary cyclical component that persists over periods of time as long as five years this finding is inconsistent with the hypothesis that most of the apparent variation in u s economic activity can be attributed to a nonstationary trend component

business cycles in developing countries are they different abstract this paper demonstrates that developing countries differ considerably from their developed counterparts when focus is on the nature and characteristics of short run macroeconomic fluctuations cycles are generally shorter and the stylized facts of business cycles across countries are more diverse than those of the rather uniform industrialized countries supply side models are generally superior in explaining changes in output but a one size fits all approach in formulating policy is inappropriate our results also illustrate the critical importance of understanding business regularities as a stepping stone in the process of designing appropriate stabilization policy and macroeconomic management in developing countries