the new classical macroeconomics and stabilization policy the new classical macroeconomics ncm is not particularly useful in explaining stark episodes to be successful the new classical approach will have to be developed in a number of areas including coordination problems and political economy issues of stabilization these modifications can in principle be worked into the ncm classical approach but that will change the main thrust so far the message reads markets clear productivity shocks are the dominant source of fluctuations intertemporal substitution in consumption and labor supply are the chief amplifying factors and government policy is substantially irrelevant on these key propositions the evidence fails and the emphasis is misdirected the issue is not whether markets work but rather how they work a concern rightly emphasized by the new keynesian economics

business cycle analysis with a markov switching model this article explores the hamilton markov switching model through an analysis of the business cycles of eight developed market economies forecasting and specification tests suggest only marginal improvements over linear autoregressive models yet filtered and smoothed conditional probabilities indicate turning points in business cycles that closely correlate with turning points from traditional methods tests regarding the asymmetry of business cycles reject the null of symmetry for most countries

statistical analysis of shapes in macroeconomic time series is there a business cycle burns and mitchell considered business cycles as recurrent patterns in macroeconomic time series this article develops formal ways of identifying the occurrence of such patterns and testing their significance in particular it calculates the probability that a linear time series model that fits the data well can generate the patterns observed in macroeconomic time series

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

do long swings in the business cycle lead to strong persistence in output abstract this paper investigates how the occasional long swing in the business cycle can produce long memory behavior in us output to prove this theoretical relationship we extend the hamilton markov chain regime switching model of real aggregate output to include the occasional long regime we do this by modeling the duration length of the expansion and recession regimes as draws from a fat tailed distribution with realized durations that are high in variability and occasionally extreme in value empirically we find that the tail indices for the length of us economic booms and busts correspond with the long memory parameter estimates of diebold and rudebusch 1989 long memory and persistence in aggregate output journal of monetary economics 24 189 209 and sowell 1992a modeling long run behavior with the fractional arima model journal of monetary economics 29 277 302 for real us output estimates of our extended regime switching model produce better short and long run forecasts of output in comparison to forecasts with a fractionally integrated model furthermore our estimated regime switching model finds us expansions to be fragile during their infancy but become more and more likely to continue after surviving the first seven quarters

duration dependence in us expansions a re examination of the evidence abstract it is commonly accepted that economic expansions do not exhibit duration dependence that is the probability of an expansion terminating in the near future is thought to be independent of the length of the expansion when looking at the probability of entering a recession within a year or 2 years we find considerable evidence of economically significant duration dependence this pattern suggests that certain types of macroeconomic vulnerabilities may be accumulating as the expansion ages causing the arrival of a recession to become more likely

what do the leading indicators lead the authors find that the composite leading index cli is useful for forecasting gross national product gnp both in sample and in an out of sample real time exercise they propose a nonlinear specification in which cyclical shifts of the cli precede those in gnp however the authors find that better forecasts are provided by a simple linear relation between current gnp growth and the growth rate of the cli during the previous quarter along with an error correction term corresponding to the previous quarter s logarithmic difference between the level of the cli and the level of gnp copyright 1996 by university of chicago press

measuring business cycles a modern perspective in the first half of this century special attention was given to two features of the business cycle 1 the comovement of many individual economic series and 2 the different behavior of the economy during expansions and contractions both of these attributes were ignored in many subsequent business cycle models which were often linear representations of a single macroeconomic aggregate however recent theoretical and empirical research has revived interest in each attribute separately notably dynamic factor models have been used to obtain a single common factor from a set of macroeconomic variables and nonlinear models have been used to describe the regime switching nature of aggregate output we survey these two strands of research and then provide some suggestive empirical analysis in an effort to unite the two literatures and to assess their usefulness in a statistical characterization of business cycle dynamics

credit constraints equity market liberalization and growth rate asymmetry abstract this paper provides evidence that financial openness is an important determinant of growth rate asymmetry in emerging markets i exploit exogenous shocks to financial flows and examine the impact of equity market liberalization on the skewness of output growth for 93 countries during the 1973 2009 period i show that opening the economy to foreign portfolio investment results in a substantially higher negative skewness of output growth this result obtains with equal strength in the aggregate data and in the sectoral data and it is disproportionately stronger in sectors that require more external finance the skewness effect of financial openness is stronger in countries which experienced a banking crisis after liberalization

the private returns to public office we study the wealth accumulation of indian state politicians using public disclosures required of all candidates the annual asset growth of winners is 3 5 percent higher than that of runners up a difference that holds also in a set of close elections the relative asset growth of winners is greater in more corrupt states and for those holding ministerial positions these results are consistent with a rent seeking explanation for the relatively high rate of growth in winners assets

business cycle turning points a new coincident index and tests of duration dependence based on a dynamic factor model with regime switching the synthesis of the dynamic factor model of stock and watson 1989 and the regime switching model of hamilton 1989 proposed by diebold and rudebusch 1996 potentially encompasses both features of the business cycle identified by burns and mitchell 1946 1 comovement among economic variables through the cycle and 2 nonlinearity in its evolution however maximum likelihood estimation has required approximation recent advances in multimove gibbs sampling methodology open the way to approximation free inference in such non gaussian nonlinear models this paper estimates the model for u s data and attempts to address three questions are both features of the business cycle empirically relevant might the implied new index of coincident indicators be a useful one in practice do the resulting estimates of regime switches show evidence of duration dependence the answers to all three would appear to be yes

federal reserve interest rate targeting rational expectations and the term structure abstract the amount of information in the yield curve for forecasting future changes in short rates varies with the maturity of the rates involved indeed spreads between certain long and short rates appear unrelated to future changes in the short rate contrary to the rational expectations hypothesis of the term structure this paper estimates a daily model of federal reserve interest rate targeting behavior which accompanied by the maintained hypothesis of rational expectations explains the varying predictive ability of the yield curve and elucidates the link between fed policy and the term structure

asymmetries and nonlinearities in italian macroeconomic fluctuations this paper reports the results of an empirical investigation of business cycle asymmetries in the italian economy macroeconomic time series both annual post unity and quarterly post world war ii are subjected to nonlinearity and asymmetry tests the dynamics of recessions and expansions are then modelled with threshold autoregressive and markov switching models the paper shows that allowing for two regimes is sufficient to account for the finding of neglected nonlinearity the results indicate that business cycle asymmetries can provide both an intuitive economic interpretation and a parsimonious representation of nonlinearities in macroeconomic time series

the politics of public good provision evidence from indian local governments this paper uses village and household survey data from south india to examine how political geography and politician identity impacts on public good provision we provide evidence that the nature of this relationship varies by type of public good for high spillover public goods residential proximity to elected representative matters in contrast for low spillover public goods sharing the politician s group identity is what matters jel d78 h40

directly unproductive profit seeking dup activities this paper propses directly unproductive profit seeking dup activities as a general concept that embraces a wide range of recently analyzed economic activities including the subset of rent seeking activities considered by krueger it then proceeds to provide a synthesis and generalization of the welfare theoretic analysis of such activities by developing a fourfold categorization of cases depending on the levels of distortions before and after the dup activity thus a unification and overview of the subject are achieved

endogeneous protection factor returns and resource allocation we consider a heckscher ohlin samuelson trade model with two lobbies representing the interests of factor owners and two political parties the lobbies contribute resources to politics equating their returns to political and economic activity at the margin while the parties maximize their probability of election trading off general voter dissatisfaction with protection against the electioneering resources that favorable policies attract from the lobbies the equilibrium level of protection of a factor and its expected rate of return increase with its relative endowment if this relative endowment is high low then the factor will be better worse off than under free trade but at intermediate factor endowment ratios both factors will be worse off under parameter changes making lobbies more sensitive to the commodity price the lobbies contribute more resources to politics and can both be worse off even though the parties are proposing lower trade distortions

don t touch my road evidence from india on affirmative action and everyday discrimination summary this article investigates whether affirmative action in the form of electoral quotas affects group based discrimination the redistributive effect of quotas is subject to debate and their ultimate target is discrimination to identify the effect of electoral quotas i take advantage of their rotation across space and over time in india to proxy discrimination i use a measure of caste based exclusion from a public infrastructure namely streets in 2006 44 5 household members of the marginalized castes labeled scheduled castes sc still suffered from caste based exclusions i document that ongoing sc quotas reduce the likelihood of caste based exclusion for members of the scs by about one fifth the results also imply that the effect is not persistent it disappears with the end of the sc quota from a policy maker s perspective these results are mixed since electoral quotas do affect everyday discrimination even if the effect does not last these results are consistent with a temporary change in the behavior of members of the dominant castes after a one shot electoral quota these results are inconsistent with either a change in the stereotypes held by members of the dominant castes or a change in the aspirations of members of the lower castes

contraception as development new evidence from family planning in colombia there has been considerable debate in the last decade about whether or not family planning programmes in developing countries reduce fertility or improve socio economic outcomes this article provides new evidence by studying the expansion of one of the worlds oldest and largest family planning organisations profamilia of colombia it finds that family planning explains less than 10 of colombias fertility decline during its demographic transition as in wealthy countries however lowering the costs of first birth postponement produced important socio economic gains enabling young women to obtain more education and to work more and live independently later in life

do recessions permanently change output abstract this paper examines whether negative innovations to gnp are more or less persistent than positive innovations we find that once we allow for the impulse response of gnp to be asymmetric negative innovations to gnp are observed to be much less persistent than positive ones in particular the effect of a recession on the forecast of output is found to be negligible after only eight to twelve quarters while the effect of a positive shock is estimated to be persistent and amplified over time our results may therefore help reconcile two antagonistic views about the nature of business cycle fluctuations

inventories and the three phases of the business cycle this article demonstrates that recessions typically are followed by high growth recovery phases that push output back to its prerecession level thus postwar fluctuations in real output in the united states have consisted of three sequential phases rather than two contractions high growth recoveries and moderate growth periods following recoveries data from before world war ii also exhibit this pattern for the postwar period the three phase pattern is shown to reflect swings in inventory investment and suggests that output fluctuations have an important transitory component the evidence in this article supports delong and summers s output gaps view and friedman s plucking model view of fluctuations

on the periodic structure of the business cycle this article tests whether an economic recovery is equally likely to occur in any month of the year i test this hypothesis with a homogeneous markov switching regime model and use the turning point dates for business cycles marked by the national bureau of economic research and romer i tend to find unequal probabilities to switch from recession to expansions in particular the spring and the month of december appear to have higher incidence of economic recovery my results also imply that recessions and expansions are on average longer or shorter depending on what time of the year they start this suggests the presence of a seasonal pattern in business cycle durations though such a notion of seasonality is quite different from the common one based on unobserved component linear time series models i investigate issues that go beyond linear dependence between seasonality and business cycles

real business cycles investment finance and multiple equilibria abstract this paper develops a simple neo classical model of the business cycle characterised by multiple equilibria produced by the interaction of the investment and production processes for the usual symmetric information model the source of the multiple equilibria may be found in non linearities in the production function under asymmetric information another possible source of multiple equilibria is non linearities in the investment wealth relationship persistence is generated by changes in the supply of funds and hence in the capital stock journal of economic literatureclassification numbers d50 e32

assessing the incidence and efficiency of a prominent place based policy abstract this paper empirically assesses the incidence and efficiency of round i of the federal urban empowerment zone ez program using confidential microdata from the decennial census and the longitudinal business database using rejected and future applicants to the ez program as controls we find that ez designation substantially increased employment in zone neighborhoods and generated wage increases for local workers without corresponding increases in population or the local cost of living the results suggest the efficiency costs of first round ezs were relatively modest jel h26 h77 j31 r23 r58

does growth vary over the business cycle some evidence from the g7 countries in this paper we analyse the dynamics of business cycles in the g7 countries our aim is to answer the question of whether growth varies in an absolute sense over the business cycle and hence to examine whether the simple two phase characterization downturn upturn is an appropriate description of the business cycle to study growth over the cycle we estimate single country equations and then a pooled regression that takes into account the important interactions of international business cycles the results confirm the steepness asymmetry of the growth cycles and show that growth varies systematically within upturns and downturns these are consistent with the notion of deepness asymmetry which implies that contractions are more pronounced in the later stages of a downturn whereas expansions are stronger immediately after troughs

democracy and demography societal effects of fertility limits on local leaders we investigate whether restricting elected leadership positions to candidates with desirable characteristics leads to society wide adoption of those characteristics in a low income democracy with high political participation exploiting quasi experimental variation in fertility limits imposed on village council members in india to curb population growth we find that rural couples significantly decreased fertility in response socially disadvantaged families exhibit the greatest reduction in marginal fertility immediately following the passage of these limits but the decline in the long run stock of children is more evenly spread across socioeconomic groups the limits however also increased the already male biased sex ratio at birth in castes with strong son preference therefore while restricting access to elected office may aid in achieving social objectives it can also worsen inequality

international capital markets and interest groups capital market integration has increased the scale and mobility of capital movements within and among nations to unprecedented levels integration is fairly recent frankel concludes from his review of the literature that barriers in the major world financial markets were sufficiently low that by 1989 financial markets could be viewed as being fully integrated the scale and mobility of capital flows among nations has numerous implications to currency values interest rates wealth and through current capital account linkages to relative product and factor prices capital flows that have real economic effects also affect the functioning of policy instruments and how effective they are in remunerating an interest group at the expense if any of others this paper provides insights into the process and linkages by which the integration of capital markets has altered economic policy through interest group pressures on government if economic policy is viewed as the outcome of interest groups seeking through the power of the state that which cannot be provided by the market alone then capital market adjustments that affect the return to policy instruments can also affect the returns to lobbying resources and hence the balance of political influence among the various groups 2 this type of explanation for economic policy has been forwarded under the rubric of models of rent seeking krueger 1974 3 the paper is organized as follows 4 selected historical evidence linking capital markets to pressures for legislation in the united states and other countries is briefly reviewed in some cases capital market adjustments have eased pressures for protection while in other cases adjustments either forced policy change because of a liquidity constraint or made unprofitable the lobbying for sustaining policy in face of these adjustments the discussion in the next section provides deeper insight into capital market lobbying linkages discussion focuses on the results from a simple model of rent seeking where government intervenes in markets and provides sector specific public goods

housing market cycles and duration dependence in the united states and canada housing wealth is a large component of households total wealth and plays an important role in aggregate business cycles in this article we explore data on real house price cycles at the aggregate level and city level for the us and canada using a panel of 137 cities we examine the duration and characteristics of housing market cycles in north america we find that north american housing cycles are long averaging 5 years of expansion and 4 years of contraction we estimate a discrete time survival model with a probit specification for house price expansions and contractions this model allows us to test for duration dependence we find that us housing market expansions have positive duration dependence since their exit probabilities increase with duration while contractions seem to have no duration dependence canadian house price cycles did not exhibit duration dependence standard determinants of house prices interest rates income and population growth are included as controls

a nonparametric investigation of duration dependence in the american business cycle does the termination probability of a business expansion or contraction increase with age this question may be formally addressed by analyzing the nature of duration dependence in aggregate economic activity our null hypothesis is that there is no duration dependence which we test via intentionally nonparametric procedures we also argue that common notion of business cycle periodicity can be usefully interpreted in terms of whole cycle duration dependence we find some evidence for duration dependence in whole cycles and in prewar expansions but little evidence elsewhere

nonlinear business cycle dynamics cross country evidence on the persistence of aggregate shocks i introduction economists have long been interested in the dynamics of business cycles particularly regarding the symmetry of expansions and contractions more recently the specification of stochastic trends in economic growth has generated concerns about the relative persistence of positive and negative shocks to the economy several papers have looked at the persistence of business cycles including nelson and plosser 1982 campbell and mankiw 1987 cochrane 1988 diebold and rudebusch 1989 balke and fomby 1990 zelhorst and de haan 1994 and bradley and jansen 1995 while results vary especially on the issue of a unit root in output the overarching result is that output fluctuations are highly persistent one question not asked by the above authors is whether business cycle dynamics are asymmetric this issue has been investigated by neftci 1984 falk 1986 delong and summers 1986 hamilton 1989 diebold and rudebusch 1990 and terasvirta and anderson 1991 these authors take a variety of approaches but they reach a general conclusion that there is some evidence of asymmetric business cycle dynamics however most of these studies ask if contractions are shorter and steeper than expansions except hamilton 1989 they do not ask if there is a difference in persistence due to the asymmetries in a recent paper beaudry and koop 1993 propose a set of methods for simultaneously examining these two questions specifically beaudry and koop bk recommend the augmentation of the standard arma representation of real output growth through the inclusion of a nonlinear term that captures the relative state of the economy this augmentation provides for nonlinear dynamics and the possibility of asymmetric dynamic responses to positive and negative shocks in addition calculation of the implied impulse responses permits detection of the relative persistence implied by the combination of asymmetric cycle dynamics and stochastic trend based upon their analysis of u s data bk conclude that the response of the economy to positive and negative shocks is indeed asymmetric and the imposition of symmetry on impulse responses has likely led to misleading measures of persistence bk p 162 as a result bk conclude we find that the effects of negative shocks to be mainly temporary and the effects of positive shocks to be very persistent bk p 162 if bk s results are correct they have strong implications for the way macro economists view economic fluctuations and will in their words contribute to a reappraisal of some macroeconomic theories that is bk s results suggest that macroeconomic models must be revised to provide for temporary effects of negative shocks but permanent effects of positive shocks because of the potential importance of bk s results we examine the robustness of those results by modifying and extending bk s proposed methods of testing not only do we extend the analysis to the other six g7 countries besides the united states but also we redefine in a sensible way the nature of the nonlinear dynamics overall our results from other economies provide only mixed support for the asymmetry of cyclical dynamics and the lack of persistence of negative shocks ii the model to be estimated in the bk framework the estimated model includes an asymmetric response term the asymmetry is generated by a variable that measures the strength of a recession the variable is calculated as the distance between current real gdp and the previous peak level of real gdp that is bk define a measure they call current depth of the recession cdr where 1 cdr sub t max y sub t j sub j greater than or equal to 0 y sub t with this definition in place bk recommend augmenting an autoregressive model of real gdp growth as 2 phi l delta y sub t delta omega l 1 cdr sub

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

do population control policies induce more human capital investment twins birthweight and china s one child policy in this paper we address the issues of whether reductions in fertility increase human capital investments per child and whether twinning can identify the quantity quality q q trade off we show that estimates of the effects of twinning at higher parities on the outcomes of older children in prior studies do not identify family size effects but are confounded by inter child allocation effects because of the endowment deficit and close spacing of twins however examining the effects of twinning by birth order net of the effects stemming from the endowment deficit of twins can provide upper and lower bounds on the trade off between the family size and average child quality our estimates based on data from china indicate that an extra child at parity one or at parity two net of one component of birth endowment effects associated with birth weight significantly decreases the schooling progress the expected college enrolment grades in school and the assessed health of all children in the family despite the evident significant trade off between number of children and child quality in china the findings suggest that the contribution of the one child policy in china to the development of its human capital was modest copyright wiley blackwell

booms and slumps in world commodity prices abstract this paper examines the duration and magnitude of cycles in world commodity prices cycles are a dominant feature of commodity prices and dealing with the economic consequences of booms and slumps in prices continues to be one of the most challenging issues facing policymakers in commodity exporting developing countries we find that there is an asymmetry in commodity price cycles as price slumps last longer than price booms how far prices fall in a slump is found to be slightly larger than how far they tend to rebound in a subsequent boom in addition for most commodities the probability of an end to a slump boom in prices is independent of the time already spent in the slump boom

dormancy risk and expected profits of consumer loans abstract a bank that lends money to a household faces two types of risk frequently mentioned is the risk of default seldom referred to is the risk of an early redemption of the loan leading to dormancy in this paper we model the transition of consumer loans from an active to a dormant state to this end we use data on 4786 individuals who were granted credit by a swedish lending institution between september 1993 and august 1995 and estimate a semi parametric duration model we analyze the factors that determine the time to maturity on consumer loans and investigate the ability of the model to match the maturities observed in the data moreover we derive the distribution of conditional expected durations of loans and show how a loan application can be evaluated by calculating its expected profit