macroeconomic implications of production bunching factor demand linkages abstract existing empirical evidence suggests that output is more variable than consumption so that production smoothing is not apparently present in this paper we investigate some macroeconomic implications of the proposition that the empirical evidence reflects the presence of some firms in the economy that produce with nonconvex technologies overall when activities are sufficiently complementary and inventory holding is sufficiently costly nonconvexities at the firm level can generate a pattern of output and sales such that the variance of output exceeds that of sales at an aggregate level in this way nonconvexities at the individual firm level may have macroeconomic consequences

idiosyncratic and common shocks to investment decisions this paper shows how microeconomic data on investment plans can be used to study the structure of risk faced by firms revisions of investment plans form a martingale and thus reveal the underlying shocks driving investment we decompose revisions in investment plans into micro sector and aggregate shocks and exploit stock market data to distinguish between structural valuerelated shocks and measurement error in investment revisions using panel data for us firms we find that microshocks are not the dominant source of risk in investment decisions and that much of the observed microvariation is actually due to heterogeneity in firm level responses to aggregate shocks firms are able to diversify most idiosyncratic investment risk and they do not appear to be liquidity constrained

the input output approach to instrument selection this article proposes a new method of selecting demand shift instruments for disaggregated industries i use prior information from input output tables to identify industries whose output fluctuations are likely to function as approximately exogenous demand shocks for other industries after motivating this idea theoretically i implement the input output approach using data from the 1977 detailed input output study i conduct a systematic instrument search for over 450 u s manufacturing industries and find over 200 industries possessing plausible instruments i conclude with a brief application showing how input output instruments can be used to estimate the short run supply curve of the cement industry

micro vs macro explanations of post war us unemployment movements abstract this paper considers contributions of industry sectoral micro shocks vs aggregate macro shocks a dynamic factor model is estimated with maximum likelihood method in the frequency domain and decomposes us unemployment movements into industry sectoral and common components sectoral shocks account for around half unemployment movements

a multi sector inventory model abstract two competing paradigms for firm level inventory behavior are production smoothing and s s empirical evidence that aggregate production varies more than sales and inventory investment is positively correlated with sales appears to contradict the buffer stock production smoothing motivation work by blinder and maccini suggests that an s s model better explains these stylized facts i simulate a multi sector model with sequential interaction of heterogeneous agents representing manufacturing wholesale and retail agents who use either smoothing or s s inventory decision rules the results demonstrate that the stylized facts can be explained by a model of this type

cross sector misallocation with sector specific distortions in this paper i seek to sharpen the understanding of the economic channels through which sector specific distortions affect aggregate outcomes i pay special attention on how cross sector misallocation might arrive as a result of these distortions and clarify how models of resource misallocation across heterogeneous firms differ from models of resource misallocation across sectors i present facts that suggest the presence of such distortions in mexico a noteworthy developing country the paper highlights the importance of understanding the origin and nature of sector specific distortions for policy design

factor demand linkages technology shocks and the business cycle abstract this paper argues that factor demand linkages can be important for the transmission of both sectoral and aggregate shocks we show this using a panel of highly disaggregated manufacturing sectors together with sectoral structural vars when sectoral interactions are explicitly accounted for a contemporaneous technology shock to all manufacturing sectors implies a positive response in both output and hours at the aggregate level otherwise there is a negative correlation as in much of the existing literature furthermore we find that technology shocks are important drivers of the business cycle

twister employment responses to the 3 may 1999 oklahoma city tornado this research examined the impact of the 3 may 1999 tornado on the oklahoma city labour market we estimated time series models that allow for time varying variance in employment growth the models include intervention variables designed to capture the tornado s effect at initial impact as well as over the post tornado period in terms of total employment growth the oklahoma city metropolitan statistical area msa experienced an increase in employment growth and a reduction in labour market risk in the sample period following the tornado the analysis also examined the effect of the weather event on eight industrial sectors five of eight sectors experienced significant decreases in labour market risk after the tornado our evidence suggests that oklahoma city and surrounding communities that make up the metropolitan statistical area survived the disaster without suffering any extended adverse labour market effects our results indicate that at least in the aggregate the labour market improved what

asymmetric phase shifts in u s industrial production cycles abstract we identify cyclical turning points for 74 u s manufacturing industries and uncover new empirical regularities a industries tend to comove between expansion and contraction phases over the business cycle b clusters of industry turning points are highly asymmetric between peaks and troughs troughs are much more concentrated and sharper than peaks c the temporal pattern of phase shifts across industries supports the spillovers through input output linkages and d macroeconomic shocks such as unanticipated changes in monetary policy government spending oil prices and financial conditions are significant drivers of industrial phase shifts

sectoral price rigidity and aggregate dynamics abstract this paper studies the business cycle implications of sectoral heterogeneity in price rigidity using a highly disaggregated multi sector model the model is estimated by the simulated method of moments using a mix of aggregate and sectoral u s data the frequencies of price changes implied by our estimates are consistent with those reported in micro based studies we show that heterogeneity in price rigidity is the primary factor explaining the heterogeneity in the responses of sectoral output and inflation to a monetary policy shock we also find that ignoring sectoral heterogeneity in price rigidity leads to the mismeasurement of the relative importance of aggregate and sector specific shocks in aggregate and sectoral fluctuations

trade exposure export intensity and wage volatility theory and evidence this paper addresses the link between trade exposure and wage volatility first it shows in a simple model that trade exposure magnifies the impact of domestic productivity shocks on industry specific labor demand particularly for the less export intensive industries and that if labor is not perfectly mobile this implies a rise in wage volatility then it tests these predictions using industry data the empirical results confirm that wage volatility increases with an industry s degree of openness and that it declines with an increase in the industry s export intensity

complementarities and comovements short run interindustry comovement may be due either to common shocks or to complementarities that progagate shocks across sectors this paper assesses the importance of input output linkages aggregate activity spillovers and local activity spillovers to comovement in postwar u s manufacturing i find that input output linkages and local activity spillovers are important to comovement while aggregate activity spillovers are not important i find that complementarities are important to aggregate volatility even after i remove observable aggregate shocks from the data local spillovers are particularly important explaining between 15 and 36 percent of manufacturing employment volatility the importance of local spillovers stems from the fact that industries that cluster together in space also comove through time contrary to the marshallian idea that industries with negatively correlated fluctuations should cluster together in order to stabilize local demand

sectoral shocks and business cycles a disaggregated analysis of output fluctuations in the uk in this paper we first show that it is possible to modify linear real business cycle models to allow for disaggregate industry specific factors in the generation of macroeconomic fluctuations we then try to determine the relative importance of aggregate and sectoral shocks by doing principal components analysis on the residuals from a var of output growth rates in 19 uk industrial sectors we find that a significant percentage of the innovations in sectoral output growths can be accounted for by a single unobserved component however since the model only sets an upper bound to the explanatory power of aggregate impulses the importance of using sectoral data to extract additional information to bear on the analysis of economic fluctuations is confirmed by our findings

employment fluctuations in u s regions and industries the roles of national region specific and industry specific shocks this study quantifies the roles of national region specific and industry specific shocks in aggregate employment fluctuations in u s regions and industries variation among the growth rates of major regions and industries is decomposed into unobserved national region and industry specific components the results reject the view that any heterogeneity in regional fluctuations is attributable to differences in industry composition after controlling for industry mix effects roughly 40 of the variance of the cyclical innovation in any region s growth rate is particular to that region in addition region specific shocks appear to propagate across regions over time

sectoral versus aggregate shocks a structural factor analysis of industrial production using factor methods we decompose industrial production ip into components arising from aggregate and sector specific shocks an approximate factor model finds that nearly all of ip variability is associated with common factors we then use a multisector growth model to adjust for the effects of input output linkages in the factor analysis thus a structural factor analysis indicates that the great moderation was characterized by a fall in the importance of aggregate shocks while the volatility of sectoral shocks was essentially unchanged consequently the role of idiosyncratic shocks increased considerably after the mid 1980s explaining half of the quarterly variation in ip

sectoral shifts and cyclical unemployment a reconsideration sectoral shifts and cyclical unemployment a reconsideration the debate over the relative importance of sectoral and aggregate shocks in explaining fluctuations in the aggregate unemployment rate has centered on the relationship between unemployment job vacancies and the dispersion of sectoral employment growth rates which proxies for sectoral shocks this paper examines some possible theoretical relationships between these variables and after decomposing unemployment into components attributable to sectoral and aggregate shocks estimates the importance of each if finds that fluctuations in unemployment are principally caused by aggregate shocks but sectoral shifts explain a significant albeit steady amount of unemployment i introduction in a controversial paper lillien 1982 argued that much of the rise in aggregate unemployment experienced in the 1970s and 1980s was attributable to increases in the natural rate of unemployment these increases he said arose from shifts of demand between the different sectors of the national economy these demand shifts increased unemployment because labor market frictions prevented the immediate reallocation of workers from declining sectors to expanding sectors lillien used a dispersion index of sectoral employment growth rates as a proxy for the extent of sectoral shifts and found that aggregate unemployment could be explained by this dispersion with a positive distributed lag given the much discussed changing composition of output and employment in the u s this interpretation of unemployment quickly won adherents such as barro 1984 more recent work by abraham and katz 1986 challenges this view they argue that the rise in aggregate unemployment was attributable to aggregate demand disturbances they showed that if sectors had different cyclical sensitivities aggregate demand disturbances such as those resulting from monetary policy or fluctuations in animal spirits could produce counter cyclical fluctuations in the dispersion of sectoral employment growth rates the finding that unemployment was a distributed lag of this dispersion did not therefore distinguish between the two hypotheses instead abraham and katz found vacancy rates to be negatively related to dispersion with a distributed lag they interpreted this result as confirmation of the aggregate demand hypothesis since it was consistent with a movement along the beveridge curve 1 my paper further explores the relationships between sectoral shifts aggregate unemployment and aggregate vacancies the theoretical section demonstrates that sectoral shifts are also consistent with a movement along the beveridge curve and a negative relation between vacancies and the dispersion of sectoral employment growth rates this result potentially invalidates abraham and katz s claim and at the same time provides a novel explanation of the beveridge curve in the empirical section i use the implications of the two hypotheses to decompose the dispersion of sectoral employment growth rates into parts attributable to sectoral shifts and aggregate shocks respectively these new measures are then used to estimate the relative contributions of sectoral shifts and aggregate disturbances to aggregate unemployment this paper is linked to an emerging literature on the sources of macroeconomic fluctuations the seminal paper by long and plosser 1983 showed how real business cycle models could explain comovements of output across sectors on the basis of sector specific shocks in a subsequent paper long and plosser 1987 sought to identify the relative importance of aggregate versus sector specific shocks using a single factor model of output growth they found that aggregate shocks explained only a relatively small amount of the convariation of output across sectors and concluded that sectoral shocks are largely responsible for cyclical fluctuations

the importance of sectoral and aggregate shocks in business cycles the importance of sectoral and aggregate shocks in business cycles the theoretical literature on business cycles proposes numerous causes for their occurrence this paper attempts to measure the relative importance of aggregate whether real or nominal and sectoral factors in generating real economic fluctuations as well as to identify economic variables that are correlated with the various factors empirical results indicate that both aggregate and industry level factors are statistically significant in explaining variations in output with the aggregate factor being the most important some evidence is presented that links the aggregate factor with monetary variables i introduction prior to the keynesian revolution a great deal of theoretical and empirical research was conducted on the business cycle 1 with the acceptance of keynesian ideas the emphasis of macroeconomic research shifted from the study of business cycles to the study of macroeconomic policies required to reduce economic fluctuations this research program continued until the 1970s when oil price increases and the generally poor predictive performance of keynesian models caused many macroeconomists to question this research program as a result some economists such as robert lucas edward prescott and thomas sargent began to employ stochastic general equilibrium models to explain the main characteristics of the business cycle movements in output or real economic activity arise from the interaction of economic shocks and internal mechanisms which propagate their effects in this general framework which is based on the work of frisch 1933 and slutsky 1937 unanticipated disturbances or shocks are spread through the propagation mechanism resulting in serially correlated fluctuations in output while most theories of economic fluctuations can be fitted into this general framework there are disagreements over the form of the propagation mechanism and the source of the disturbances some models stress the role of aggregate demand shocks while other models such as the real business cycle models focus on real technological shocks such technological shocks may be sector specific and thus represent a set of disaggregate disturbances that cannot be viewed in the manner of aggregate shocks there is little agreement as to the main sources of disturbances knowledge of the relative importance of sector specific and aggregate shocks would be a significant development in theoretical work on business cycles this paper attempts to determine the relative importance of aggregate and disaggregate shocks in generating macroeconomic fluctuations it extends norrbin and schlagenhauf 1988 in a number of important ways the relative contribution of aggregate and sectoral shocks in generating real economic fluctuations is measured using disaggregated industrial production data which we believe is a better measure of real economic activity in addition we employ a more detailed disaggregation of manufacturing and mining industries covering a longer time period the robustness of the results is more carefully identified finally the methodology used to determine the relative importance of the shocks is substantially different in this paper 2 ii a time series model of disaggregate output the work of frisch 1933 and slutsky 1937 suggests that movements in output can be decomposed into an impulse effect and a propagation effect in this section we present a multivariate time series model of output for the united states this model is in the tradition of frisch s and slutsky s work and is sufficiently general to encompass most competing linear business cycle theories the model is developed at a disaggregate industry level allowing a propagation of output changes between industries in addition output fluctuations can arise from national industry group specific or idiosyncratic factors

sources of output fluctuations in the united states during the inter war and post war years abstract this paper attempts to decompose the sources of fluctuations in industry output into 1 an aggregate national shock 2 industry group specific shocks and 3 idiosyncratic factors the empirical methodology is the engle watson dynamic mimic model the work is motivated as an attempt to compare empirically aggregate single factor theories of the cycle with real business cycle theories emphasizing technology shocks disaggregate data from the inter war and post war periods are examined conclusions on the relative importance of the various shocks seem to be dependent on the period being considered the single index theory of the cycle seems more appropriate for the inter war period

capital allocative disturbances and economic fluctuations permanent sector specific productivity shocks alter the relative marginal products of capital and labor across sectors such that the existing factor allocations are suboptimal the subsequent factor reallocations may involve the costly movement and redeployment of capital and labor across sectors to proxy the magnitude of these disturbances this paper focuses on capital rather than labor allocative disturbances since firms can make temporary adjustments in employment levels in response to transitory sectoral shocks empirical evidence is provided that these costs reduce output from what it otherwise would have been and that this effect persists for up to three quarters copyright 1993 by mit press

the aggregate effects of sectoral reallocations abstract can a one time permanent change in the fundamentals behind the sectoral composition of the economy prompt an aggregate downturn can this downturn be non negligible even if one uses us data to determine the relative size of gross vs net job flows and the importance of job creation costs can one consider the military build down of the 1990s as a plausible cause for the 1990 1991 recession do sectoral reallocations generate responses that are qualitatively similar to productivity shocks we use a variant of the mortensen pissarides 1994 review of economic studies 61 397 415 job creation destruction model calibrate it to us labor market data and run experiments that suggest one can answer yes to all these questions

an examination of business cycle features in uk sectoral output this article examines business cycle features of uk gross domestic product gdp sectors with regard to trends cycles and growth the empirical study adopts the kalman filter to decompose these gdp sectors into trend and cycle components the general model of this study encompasses a number of alternative specifications about trend growth therefore accommodating diverse views on growth there is reasonable support in the results for a mean reverting stochastic growth model for the uk economy the characteristics in trends and cycles of uk gdp sectors are discussed focusing on their similarities and differences around business cycles

the role of international factors in the business cycle a multi country study abstract empirical research has been conducted on the various theories of the business cycle over many countries however very little research has attempted to undertake a multi country disaggregate investigation into the sources of output change this paper decomposes fluctuations in industry output in a particular country into 1 a nation specific shock 2 an industry specific shock 3 a common shock and 4 an idiosyncratic factor using a dynamic factor analysis state space approach the paper finds that the industry specific impulse explains a significant but small part of the variance of the forecast error this provides limited support for the disaggregated real business cycle paradigm

signalling and renegotiation in contractual relationships this paper examines how the possibility of renegotiation affects contractual outcomes in signaling games when an infinite number of rounds of renegotiations are allowed before contracts are executed the main results of the paper are 1 contracts may still contain distortions 2 the popular efficient separating equilibrium outcome is never an equilibrium outcome with renegotiation 3 incentive compatibility constraints can be generalized to incorporate renegotiation 4 equilibrium outcomes can be separating and nevertheless depend on the uninformed player s prior and 5 renegotiation in signaling games may lead to outcomes similar to equilibrium outcomes of screening games in which multiple contract purchases are allowed copyright 1993 by the econometric society

cash holdings and labor heterogeneity the role of skilled labor firms differ in their dependence on skilled labor and face labor adjustment costs that increase with their workers skill level we show that firms with a higher share of skilled workers and thus less flexibility to adjust their labor demand in response to cash flow shocks hold more precautionary cash the effect of labor skills on cash holdings is more pronounced for financially constrained firms and varies with exogenous differences in firing and hiring costs we address endogeneity concerns by using subsamples of firms with reasonably similar characteristics propensity score matching and a quasi experimental shock to labor markets

regional and sectoral evidence of the macroeconomic effects of labor reallocation a panel data analysis this paper revisits the sectoral shifts hypothesis by examining unemployment fluctuations for 48 u s states over the period 1990 01 2011 12 we develop a panel approach that incorporates dynamics parameter heterogeneity aggregate factors and cross sectional dependence our findings provide support for a positive and significant effect of the employment dispersion index on unemployment this outcome is robust under alternative specifications and measures of employment dispersion the empirical evidence corroborates the presence and relevance of cross sectional dependence and heterogeneity among states the results show that once unobserved common factors and cross state heterogeneity are taken into account labor reallocation has a significant effect on unemployment that is half the size of the estimate when cross sectional dependence is not taken into account

dynamics of sectoral business cycle comovement abstractsectoral comovement accounts for a considerable share of the variance of aggregate variables however little is known about its time varying aspects by now in this article a multivariate dcc garch framework is employed to study dynamics of sectoral comovement across manufacturing sectors both in the united states and in germany to account for possible nonlinearities asymmetric effects in conditional volatilities as well as in conditional correlations are being assessed we find that comovement across sectors is not stable but shows irregular movements particularly contractions tend to be more synchronized than expansions in manufacturing sector moreover we examine the role of various aggregate factors for the fluctuations in conditional correlations our findings reveal that both the non constant variability of common factors and the changes in the effects of these factors play role for the fluctuations in sectoral comovement

regional income fluctuations common trends and common cycles this paper investigates trend and cycle dynamics in per capita income for the major u s regions during the 1956 1995 period cointegration and serial correlation common features information are used in jointly decomposing the series into trend and cycle components we find considerable differences in the volatility of regional cycles controlling for differences in volatility we find a great deal of comovement in the cyclical response for all regions but the far west possible sources underlying differences in regional cycles are explored such as the share of a region s income accounted for by manufacturing defense spending as a proportion of a region s income oil price shocks and the stance of monetary policy somewhat surprisingly we find that the share of manufacturing in a region seems to account for little of the variation in regional cycles relative to national cycles but manufacturing share differentially affects trend growth for four of the seven regions studied

interpreting aggregate fluctuations looking at sectors abstract a dynamic factor model is used to investigate on the variability in labor productivity and hours across the 2 digit us manufacturing industries two kind of shocks emerge as quantitatively relevant during the postwar period they can be reasonably interpreted as technology shocks to the production of equipment and economy wide shocks the former induces a positive correlation between productivity and hours growth rates in the durable goods producing sector the latter spurs a negative correlation in the nondurable goods producing sector such evidence provides a novel interpretation of the aggregate near zero correlation between the two variables

understanding real business cycles he 1 960s were a time of great optimism for macroeconomists many economists viewed the business cycle as dead the keynesian model was the reigning paradigm and it provided all the necessary instructions for manipulating the levers of monetary and fiscal policy to control aggregate demand inflation occurred if aggregate demand was stimulated excessively and unemployment arose if demand was insufficient the only dilemma faced by policymakers was determining the most desirable location along this inflation unemployment tradeoff or phillips curve the remaining intellectual challenge was to establish coherent microeconomic foundations for the aggregate behavioral relations posited by the keynesian framework but this was broadly regarded as a detail that should not deter policymakers in their efforts to stabilize the economy the return of the business cycle in the 1970s after almost a decade of economic expansion and the accompanying high rates of inflation came as a rude awakening for many economists it became increasingly apparent that the basic keynesian framework was not the appropriate vehicle for understanding what happens during a business cycle nor did it seem capable of providing the empirically correct answers to questions involving changes in the economic environment or changes in monetary or fiscal policy the view that keynesian economics was an empirical success even if it lacked sound theoretical foundations could no longer be taken seriously the essential flaw in the keynesian interpretation of macroeconomic phenomenon was the absence of a consistent foundation based on the choice theoretic framework of microeconomics two important papers one by milton friedman 1968 and the other by robert lucas 1976 forcefully demonstrated examples of

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

world country and sector factors in international business cycles do sector specific factors common to all countries play an important role in explaining business cycle co movement we address this question by analyzing international co movements of value added va growth in a multi sector dynamic factor model the model contains a world factor country specific factors sector specific factors and idiosyncratic components we estimate the model using bayesian methods for 30 disaggregated sectors in the g7 economies for the 1974 2004 period our findings show that although there is a substantial role for sector specific factors fluctuations are dominated by country factors the world factor appears to play a minimal role because when using aggregate data the world factor captures both the factor common to all countries and industries and the factor common to the same industry across countries we then examine how these factors evolved as globalization deepened over the past two decades our results suggest that business cycles at a disaggregate level have not become more synchronized internationally this is mainly driven by a substantial fall in the volatility of world shocks during the globalization period rather than a lower sensitivity of sectoral growth to world factors our results also reveal that world factors appear to be more important for industries with a higher level of international vertical integration