Creator: McGrattan, Ellen R. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 545 Abstract:
Because ﬁrms invest heavily in R&D, software, brands, and other intangible assets—at a rate close to that of tangible assets—changes in measured GDP, which does not include all intangible investments, understate the actual changes in total output. If changes in the labor input are more precisely measured, then it is possible to observe little change in measured total factor productivity (TFP) coincidentally with large changes in hours and investment. This mismeasurement leaves business cycle modelers with large and unexplained labor wedges accounting for most of the ﬂuctuations in aggregate data. To address this issue, I incorporate intangible investments into a multi-sector general equilibrium model and parameterize income and cost shares using data from an updated U.S. input and output table, with intangible investments reassigned from intermediate to ﬁnal uses. I employ maximum likelihood methods and quarterly observations on sectoral gross outputs for the United States over the period 1985–2014 to estimate processes for latent sectoral TFPs—that have common and sector-speciﬁc components. Aggregate hours are not used to estimate TFPs, but the model predicts changes in hours that compare well with the actual hours series and account for roughly two-thirds of its standard deviation. I ﬁnd that sector-speciﬁc shocks and industry linkages play an important role in accounting for ﬂuctuations and comovements in aggregate and industry-level U.S. data, and I ﬁnd that the model’s common component of TFP is not correlated at business cycle frequencies with the standard measures of aggregate TFP used in the macroeconomic literature.
Stichwort: Intangible investments, Input-output linkages, Total factor productivity, and Business cycles Fach: E32 - Business Fluctuations; Cycles, D57 - General Equilibrium and Disequilibrium: Input-Output Tables and Analysis, and O41 - One, Two, and Multisector Growth Models
Creator: Kehoe, Timothy Jerome, 1953-, Ruhl, Kim J., and Steinberg, Joseph B. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 489 Abstract:
Since the early 1990s, as the United States borrowed heavily from the rest of the world, employment in the U.S. goods-producing sector has fallen. We construct a dynamic general equilibrium model with several mechanisms that could generate declining goods-sector employment: foreign borrowing, nonhomothetic preferences, and differential productivity growth across sectors. We find that only 15.1 percent of the decline in goods-sector employment from 1992 to 2012 stems from U.S. trade deficits; most of the decline is due to differential productivity growth. As the United States repays its debt, its trade balance will reverse, but goods-sector employment will continue to fall.
Stichwort: Structural change, Real exchange rate, and Global imbalances Fach: F34 - International Lending and Debt Problems, E13 - General Aggregative Models: Neoclassical, and O41 - One, Two, and Multisector Growth Models
Creator: Herrendorf, Berthold, Schmitz, James Andrew, and Teixeira, Arilton Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 425 Abstract:
We study the effects of large transportation costs on economic development. We argue that the Midwest and the Northeast of the U.S. is a natural case because starting from 1840 decent data is available showing that the two regions shared key characteristics with today’s developing countries and that transportation costs were large and then came way down. To disentangle the effects of the large reduction in transportation costs from those of other changes that happened during 1840–1860, we build a model that speaks to the distribution of people across regions and across the sectors of production. We find that the large reduction in transportation costs was a quantitatively important force behind the settlement of the Midwest and the regional specialization that concentrated agriculture in the Midwest and industry in the Northeast. Moreover, we find that it led to the convergence of the regional per capita incomes measured in current regional prices and that it increased real GDP per capita. However, the increase in real GDP per capita is considerably smaller than that resulting from the productivity growth in the nontransportation sectors.
Stichwort: Settlement, Transportation costs, Regional income covergence, and Structural transformation Fach: O11 - Macroeconomic Analyses of Economic Development, O18 - Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure, and O41 - One, Two, and Multisector Growth Models
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.
Stichwort: Business cycle, Cycle, Economic fluctuations, Fluctuation, and Growth Fach: 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: Krusell, Per and Ríos-Rull, José-Víctor Series: Conference on economics and politics Abstract:
Some economic policies and regulations seem to have only one purpose: to prevent technological development and economic growth from occurring. In this paper, we attempt to rationalize such policies as outcomes of voting equilibria. In our environment, some agents will be worse off if the economy grows, since their skills are complementary to resources that can be allocated to growth-stimulating activities. In the absence of arrangements where votes are traded, we show that for some initial skill distributions, the economy may stagnate due to growth-preventing policies. Different initial skill distributions, however, lead to voting outcomes and policies in support of technological development, and to persistent economic growth. In making our argument formally, we use a dynamic model with induced heterogeneity in agents' skills. In their voting decisions, agents compare how they will be affected under each policy alternative, and then vote for the policy that maximizes their welfare.
Fach: O41 - One, Two, and Multisector Growth Models and O31 - Innovation and Invention: Processes and Incentives
Creator: Coleman, Wilbur John Series: Nonlinear rational expectations modeling group Abstract:
A cash-in-advance constraint on consumption is incorporated into a standard model of consumption and capital accumulation. Monetary policy consists of lump-sum cash transfers. Methods are developed for establishing the existence and uniqueness of an equilibrium. and for explicitly constructing this equilibrium. The model economy's dependence on monetary policy is explored.
Also published in the International Finance Discussion Paper series, number 323.
Stichwort: Planned Growth economy, Monetary Growth economy, and Equilibrium Fach: O42 - Economic growth and aggregate productivity - Monetary growth models, E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, O41 - One, Two, and Multisector Growth Models, and E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy
Creator: Rivera-Batiz, Luis and Romer, Paul Michael, 1955- Series: Modeling North American economic integration Abstract:
In a world with two similar, developed economies, economic integration can cause a permanent increase in the worldwide rate of growth. Starting from a position of isolations, closer integration can be achieved by increasing trade in goods or by increasing flows of ideas. We consider two models with different specifications of the research and development sector that is the source of growth. Either form of integration can increase the long-run rate of growth if it encourages the worldwide exploitation of increasing returns to scale in the research and development sector.
Fach: F15 - Economic Integration, F43 - Economic Growth of Open Economies, and O41 - One, Two, and Multisector Growth Models