Creator: Altug, Sumru Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 277 Abstract:
This paper presents maximum likelihood estimates of a real business cycle model very similar to one Kydland and Prescott  suggested. The results of the paper conflict with Kydland and Prescott’s. The model leaves unexplained much of the variance of two key investment series, namely, structures and equipment. Also, much of the variation in the differences of per capita hours can be generated assuming that past leisure choices do not affect current utility.
Creator: Altug, Sumru Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 286 Abstract:
This paper characterizes the behavior of investment expenditures, optimal capital stocks, and real interest rates in the time-to-build model of investment. These results are used to show that the delivery lag model of investment fails to account for time lags in investment when constructing the cost of capital variable and hence, misspecifies the effects of interest rates on investment expenditures. Second, this paper derives equilibrium pricing relationships involving the prices of existing capital and uses these relationships to obtain simple tests of the underlying investment technology. Despite the widespread use of 'q' in the empirical investment literature, it is shown that the relationship between current investment and an appropriately defined measure of Tobin's 'q' contains no such testable implications. Finally, it is shown that the practice of using stock market data to measure the price of existing capital is invalid when time lags exist in the investment process.
Keyword: Time lag, Equilibrium pricing, Capital stocks, and Lag Subject (JEL): E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Altug, Sumru and Miller, Robert A. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 341 Abstract:
This paper investigates the role of aggregate shocks on household consumption and labor supply. It posits, estimates and tests a model where the equilibrium behavior of agents sometimes leads them to locate on the boundary of their respective choices sets. The framework is rich enough to nest much previous empirical work on life cycle labor supply and consumption based asset pricing. It also yields a structural interpretation of wage regressions on unemployment. An important feature of our model is that markets are complete. Consequently, aggregate shocks only enter through two price sequences, namely real wages, and a sequence comprising weighted prices for future contingent consumption claims which are ultimately realized. We examine the properties of this latter sequence, whose elements may be represented as mappings from real wages and aggregate dividends.
Our empirical findings may be grouped into three. First, aggregate shocks play a significant role in determining the choices people make. Second, we reject for males some of the restrictions implicit in structural interpretations of wage unemployment regressions. Moreover when these restrictions are imposed, we find wages are countercyclical, but cannot reject the null hypothesis of no effect. Third, the null hypothesis that markets are complete is not invariably rejected. However, the orthogonality conditions associated with the asset pricing equation are rejected, even though our specification of preferences incorporates types of heterogeneity which violate the necessary conditions for aggregating to a representative agent formulation. Finally, we reject the cross-equation restrictions between the labor supply of spouses implied by equilibrium behavior.
Keyword: Tests of orthogonality conditions, Labor supply and consumption, Complete markets, Simple factor structure, Asset returns data, Panel data, and Nonseparability
Creator: Altug, Sumru Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 366 Keyword: Assymetric information , Lending, Borrowing constraint, Transaction cost, Private information, Market friction, and Idiosyncratic risk Subject (JEL): D82 - Asymmetric and Private Information; Mechanism Design and D52 - Incomplete Markets
Creator: Altug, Sumru Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 343 Description:
"These notes were... initially circulated as Federal Reserve Bank of Minneapolis Working Paper 343, 1987."
Keyword: Money stock, Bubble, Phillip Cagan, Price bubbles, Currency reform, Real cash balances, Hyperinflation, and Price fluctuations Subject (JEL): E51 - Money Supply; Credit; Money Multipliers and E31 - Price Level; Inflation; Deflation