A common procedure in productivity research is to use estimates of the stocks of physical capital as proxies for service flows. A number of authors propose cyclical adjustments for capital input which, if large enough, will eliminate findings of procyclicality in the behavior of TFP. This paper argues that for the preponderance of assets in the fixed capital stock, fluctuations in utilization have little effect on user costs. In the aggregate, adjustments to capital input data for utilization should consequently be small, much smaller, for example, than those suggested by Solow (1957), Griliches and Jorgenson (1966), Tatom (1980), Shapiro (1993), or Basu and Fernald. (2000).
{"title":"Should Capital Input Data Receive a Utilization Adjustment?","authors":"A. Field","doi":"10.2139/ssrn.1103986","DOIUrl":"https://doi.org/10.2139/ssrn.1103986","url":null,"abstract":"A common procedure in productivity research is to use estimates of the stocks of physical capital as proxies for service flows. A number of authors propose cyclical adjustments for capital input which, if large enough, will eliminate findings of procyclicality in the behavior of TFP. This paper argues that for the preponderance of assets in the fixed capital stock, fluctuations in utilization have little effect on user costs. In the aggregate, adjustments to capital input data for utilization should consequently be small, much smaller, for example, than those suggested by Solow (1957), Griliches and Jorgenson (1966), Tatom (1980), Shapiro (1993), or Basu and Fernald. (2000).","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132971443","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates the reliability of employing linearization to evaluate the dynamic adjustments to changes in productive government spending in a Ramsey growth model. If government expenditure is introduced as a flow and the dynamic adjustment is fast, linearization may yield a reasonably good approximation to the true dynamics, even for fairly large policy shocks. If government expenditure assumes the form of a stock, leading to more sluggish adjustment, linearization may yield misleading predictions. These errors occur at the beginning of the transition and weigh heavily in welfare calculations. The implications for temporary shocks and the speed of convergence are also considered.
{"title":"How Misleading is Linearization? Evaluating the Dynamics of the Neoclassical Growth Model","authors":"Manoj Atolia, S. Chatterjee, S. Turnovsky","doi":"10.2139/ssrn.1092962","DOIUrl":"https://doi.org/10.2139/ssrn.1092962","url":null,"abstract":"This paper investigates the reliability of employing linearization to evaluate the dynamic adjustments to changes in productive government spending in a Ramsey growth model. If government expenditure is introduced as a flow and the dynamic adjustment is fast, linearization may yield a reasonably good approximation to the true dynamics, even for fairly large policy shocks. If government expenditure assumes the form of a stock, leading to more sluggish adjustment, linearization may yield misleading predictions. These errors occur at the beginning of the transition and weigh heavily in welfare calculations. The implications for temporary shocks and the speed of convergence are also considered.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125201459","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
It has long been argued in the history of economic thought that over investment through highly leveraged borrowing under elastic credit supply may generate large boom-bust business cycles. This paper rationalizes this idea in a dynamic general equilibrium model with infinitely lived rational agents. It shows that dynamic interactions between strong asset-accumulation motives (based on habit formation on the borrower side) and elastic credit supply (based on collateralized lending on the lender side) generate a multiplier-accelerator mechanism that can transform a one-time technological innovation into large and long-lasting boom-bust cycles. Such cycles share many features in common to investment bubbles observed in the history (such as the IT bubble in the 1990s and the 2000s housing bubble).
{"title":"Leveraged Financing, Over Investment, and Boom-Bust Cycles","authors":"P. Pintus, Y. Wen","doi":"10.2139/ssrn.1140708","DOIUrl":"https://doi.org/10.2139/ssrn.1140708","url":null,"abstract":"It has long been argued in the history of economic thought that over investment through highly leveraged borrowing under elastic credit supply may generate large boom-bust business cycles. This paper rationalizes this idea in a dynamic general equilibrium model with infinitely lived rational agents. It shows that dynamic interactions between strong asset-accumulation motives (based on habit formation on the borrower side) and elastic credit supply (based on collateralized lending on the lender side) generate a multiplier-accelerator mechanism that can transform a one-time technological innovation into large and long-lasting boom-bust cycles. Such cycles share many features in common to investment bubbles observed in the history (such as the IT bubble in the 1990s and the 2000s housing bubble).","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"37 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115783249","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Conventional wisdom suggests that increased life expectancy had a key role in causing a rise in investment in human capital. I incorporate the retirement decision into a version of Ben-Porath's (1967) model and find that a necessary condition for this causal relationship to hold is that increased life expectancy will also increase lifetime labor supply. I then show that this condition does not hold for American men born between 1840 and 1970 and for the American population born between 1890 and 1970. The data suggest similar patterns in Western Europe. I end by discussing the implications of my findings for the debate on the fundamental causes of long-run growth.
{"title":"Longevity and Lifetime Labor Supply: Evidence and Implications","authors":"Moshe Hazan","doi":"10.2139/ssrn.941936","DOIUrl":"https://doi.org/10.2139/ssrn.941936","url":null,"abstract":"Conventional wisdom suggests that increased life expectancy had a key role in causing a rise in investment in human capital. I incorporate the retirement decision into a version of Ben-Porath's (1967) model and find that a necessary condition for this causal relationship to hold is that increased life expectancy will also increase lifetime labor supply. I then show that this condition does not hold for American men born between 1840 and 1970 and for the American population born between 1890 and 1970. The data suggest similar patterns in Western Europe. I end by discussing the implications of my findings for the debate on the fundamental causes of long-run growth.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-05-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121185513","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes the theoretical and empirical findings for representative and heterogeneous agents for a host of economic issues including market completeness, consumption growth variability, income risk, equilibrium interest rate, and welfare gains from eliminating a Real Business Cycle (RBC). We introduce three types of heterogeneity: state, preferences, and beliefs and show that in some cases the heterogeneous agent framework can be viewed as complementary to the representative agent, whereas in other cases it can be seen as a substitute.
{"title":"Representative and Heterogeneous Agents: Theory and Evidence","authors":"Yosef Bonaparte","doi":"10.2139/ssrn.905902","DOIUrl":"https://doi.org/10.2139/ssrn.905902","url":null,"abstract":"This paper analyzes the theoretical and empirical findings for representative and heterogeneous agents for a host of economic issues including market completeness, consumption growth variability, income risk, equilibrium interest rate, and welfare gains from eliminating a Real Business Cycle (RBC). We introduce three types of heterogeneity: state, preferences, and beliefs and show that in some cases the heterogeneous agent framework can be viewed as complementary to the representative agent, whereas in other cases it can be seen as a substitute.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-05-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116640996","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study high-frequency exchange rate movements over the sample 1993-2007. We document that the (Swiss) franc, euro, Japanese yen and the pound tend to appreciate against the U.S. dollar when (a) SP (b) U.S. bond prices increase; and (c) when currency markets become more volatile. In these situations, the franc appreciates also against the other currencies, while the pound depreciates. The safe haven properties correspond to the carry trader's losses. They materialize over different time granularities (from a few hours to several days), during both "ordinary days" and crisis episodes and show some non-linear features.
{"title":"Safe Haven Currencies","authors":"A. Ranaldo, P. Söderlind","doi":"10.2139/ssrn.999382","DOIUrl":"https://doi.org/10.2139/ssrn.999382","url":null,"abstract":"We study high-frequency exchange rate movements over the sample 1993-2007. We document that the (Swiss) franc, euro, Japanese yen and the pound tend to appreciate against the U.S. dollar when (a) SP (b) U.S. bond prices increase; and (c) when currency markets become more volatile. In these situations, the franc appreciates also against the other currencies, while the pound depreciates. The safe haven properties correspond to the carry trader's losses. They materialize over different time granularities (from a few hours to several days), during both \"ordinary days\" and crisis episodes and show some non-linear features.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"11 8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128646079","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper explores the transmission of credit conditions into the real economy. Specifically, I examine the forecasting power of the term structure of credit spreads for future GDP growth. I find that the whole term structure of credit spreads has predictive power, while the term structure of Treasury yields has none. Using a parsimonious macro-finance term structure model that captures the joint dynamics of GDP, inflation, Treasury yields and credit spreads, I decompose the spreads and identify the drivers of this transmission effect. I show that there is a pure credit component orthogonal to macroeconomic information that accounts for a large part of the forecasting power of credit spreads. The macro factors themselves also contribute to the predictive power, especially for long maturity spreads. Additional factors affecting Treasury yields and credit spreads are irrelevant for predicting future economic activity. The credit factor is highly correlated with the index of tighter loan standards, thus lending support to the existence of a transmission channel from borrowing conditions to the economy. Using data from 2006-2008, I capture the ongoing crisis, during which credit conditions have heavily tightened and I show that the model provides reasonably accurate out-of-sample predictions for this period. As of year-end 2008, the model predicts a contraction of -2% in real GDP growth for 2009, which is lower than comparable survey forecasts.
{"title":"Credit Spreads and Real Activity","authors":"Philippe Mueller","doi":"10.2139/ssrn.1105728","DOIUrl":"https://doi.org/10.2139/ssrn.1105728","url":null,"abstract":"This paper explores the transmission of credit conditions into the real economy. Specifically, I examine the forecasting power of the term structure of credit spreads for future GDP growth. I find that the whole term structure of credit spreads has predictive power, while the term structure of Treasury yields has none. Using a parsimonious macro-finance term structure model that captures the joint dynamics of GDP, inflation, Treasury yields and credit spreads, I decompose the spreads and identify the drivers of this transmission effect. I show that there is a pure credit component orthogonal to macroeconomic information that accounts for a large part of the forecasting power of credit spreads. The macro factors themselves also contribute to the predictive power, especially for long maturity spreads. Additional factors affecting Treasury yields and credit spreads are irrelevant for predicting future economic activity. The credit factor is highly correlated with the index of tighter loan standards, thus lending support to the existence of a transmission channel from borrowing conditions to the economy. Using data from 2006-2008, I capture the ongoing crisis, during which credit conditions have heavily tightened and I show that the model provides reasonably accurate out-of-sample predictions for this period. As of year-end 2008, the model predicts a contraction of -2% in real GDP growth for 2009, which is lower than comparable survey forecasts.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127362132","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A large body of evidence links financial development to economic growth, yet the channels through which inflation affects this relationship and its stability have been less thoroughly explored. We take an econometric and graphical approach to examining these channels, and find that higher levels of financial development, combined with low-inflation, are related to higher rates of economic growth, especially in lower income countries, but that financial development loses much of its explanatory power in the presence of high-inflation. In particular, small increases in the price level seem able to wipe out relatively large growth effects of financial deepening when the annual rate of inflation lies between 4% and 19%, whereas the operation of the finance-growth link is less affected by inflation rates above this range. Growth is generally much lower, however, in such high-inflation settings where financial development is typically repressed.
{"title":"Inflation, Financial Development, and Growth: A Trilateral Analysis","authors":"P. Rousseau, H. Yilmazkuday","doi":"10.2139/ssrn.1000324","DOIUrl":"https://doi.org/10.2139/ssrn.1000324","url":null,"abstract":"A large body of evidence links financial development to economic growth, yet the channels through which inflation affects this relationship and its stability have been less thoroughly explored. We take an econometric and graphical approach to examining these channels, and find that higher levels of financial development, combined with low-inflation, are related to higher rates of economic growth, especially in lower income countries, but that financial development loses much of its explanatory power in the presence of high-inflation. In particular, small increases in the price level seem able to wipe out relatively large growth effects of financial deepening when the annual rate of inflation lies between 4% and 19%, whereas the operation of the finance-growth link is less affected by inflation rates above this range. Growth is generally much lower, however, in such high-inflation settings where financial development is typically repressed.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"176 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124332934","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I obtain a slow response of prices and money, and a decrease in the quantity of money after interest rate shocks. Market segmentation causes the slow response. Endogenous segmentation causes the decrease in the quantity of money. I study two shocks: a permanent and a temporary increase in the nominal interest rate. Market segmentation is endogenous because agents decide when to trade bonds for money. I compare the transition with fixed and endogenous segmentation. The transition with endogenous segmentation reproduces the following two empirical facts: money decreases after shocks and the real quantity of money decreases with the interest rate.
{"title":"Prices and Money After Interest Rate Shocks With Endogenous Market Segmentation","authors":"Andre C. Silva","doi":"10.2139/ssrn.883688","DOIUrl":"https://doi.org/10.2139/ssrn.883688","url":null,"abstract":"I obtain a slow response of prices and money, and a decrease in the quantity of money after interest rate shocks. Market segmentation causes the slow response. Endogenous segmentation causes the decrease in the quantity of money. I study two shocks: a permanent and a temporary increase in the nominal interest rate. Market segmentation is endogenous because agents decide when to trade bonds for money. I compare the transition with fixed and endogenous segmentation. The transition with endogenous segmentation reproduces the following two empirical facts: money decreases after shocks and the real quantity of money decreases with the interest rate.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121702001","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Some observers believe the business cycle influences religiosity. This possibility is explored in this paper by empirically examining the relationship between macroeconomic conditions and religious participation by U.S. Protestants. The findings of this paper suggest that there is a strong countercyclical component to religious participation in evangelical Protestant denominations while for mainline Protestants there is on balance a procyclical component to religious participation.
{"title":"Praying for a Recession: The Business Cycle and Protestant Religiosity in the United States","authors":"David Beckworth","doi":"10.2139/ssrn.1103142","DOIUrl":"https://doi.org/10.2139/ssrn.1103142","url":null,"abstract":"Some observers believe the business cycle influences religiosity. This possibility is explored in this paper by empirically examining the relationship between macroeconomic conditions and religious participation by U.S. Protestants. The findings of this paper suggest that there is a strong countercyclical component to religious participation in evangelical Protestant denominations while for mainline Protestants there is on balance a procyclical component to religious participation.","PeriodicalId":170505,"journal":{"name":"Macroeconomics eJournal","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-01-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124643390","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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