Creator: Chari, V. V., Kehoe, Patrick J., and McGrattan, Ellen R. Series: Joint committee on business and financial analysis Abstract:
This paper proposes a simple method for guiding researchers in developing quantitative models of economic fluctuations. We show that a large class of models, including models with various frictions, are equivalent to a prototype growth model with time varying wedges that, at least on face value, look like time-varying productivity, labor taxes, and capital income taxes. We label the time varying wedges as efficiency wedges, labor wedges, and investment wedges. We use data to measure these wedges and then feed them back into the prototype growth model. We then assess the fraction of fluctuations accounted for by these wedges during the great depressions of the 1930s in the United States, Germany, and Canada. We find that the efficiency and labor wedges in combination account for essentially all of the declines and subsequent recoveries. Investment wedge plays at best a minor role.
Keyword: Business cycle, Cycle, Economic fluctuations, Fluctuation, and Growth Subject (JEL): O41 - One, Two, and Multisector Growth Models, O47 - Economic growth and aggregate productivity - Measurement of economic growth ; Aggregate productivity ; Cross-country output convergence, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
Creator: Croushore, Dean Darrell, 1956- and Evans, Charles, 1958- Series: Joint committee on business and financial analysis Abstract:
Monetary policy research using time series methods has been criticized for using more information than the Federal Reserve had available in setting policy. To quantify the role of this criticism, we propose a method to estimate a VAR with real-time data while accounting for the latent nature of many economic variables, such as output. Our estimated monetary policy shocks are closely correlated with a typically estimated measure. The impulse response functions are broadly similar across the methods. Our evidence suggests that the use of revised data in VAR analyses of monetary policy shocks may not be a serious limitation.
Keyword: Monetary policy, Identification, VARs, Data revisions, Real-time data, and Shocks Subject (JEL): C82 - Data collection and data estimation methodology ; Computer programs - Methodology for collecting, estimating, and organizing macroeconomic data, C32 - Multiple or simultaneous equation models - Time-series models ; Dynamic quantile regressions, and E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy