Creator: Azariadis, Costas, Bullard, James, and Ohanian, Lee E. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 255 Abstract:
Autoregressions of quarterly or annual aggregate time series provide evidence of trend-reverting output growth and of short-term dynamic adjustment that appears to be governed by complex eigenvalues. This finding is at odds with the predictions of reasonably parameterized, convex one-sector growth models, most of which have positive real characteristic roots. We study a class of one-sector economies, overlapping generations with finite life spans of L greater than or equal to 3, in which aggregate saving depends nontrivially on the distribution of wealth among cohorts. If consumption goods are weak gross substitutes near the steady state price vector, we prove that the unique equilibrium of a life cycle exchange economy converges to the unique steady state via damped oscillations. We also conjecture that this form of trend reversion extends to production economies with a relatively flat factor-price frontier, and we test this conjecture in several plausible parameterizations of 55-period life cycle economies.
Keyword: Eigenvalues, Life cycle, Cyclical fluctuations, and Economies Subject (JEL): E30 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
Creator: Martin, Vance, 1955- and Pagan, Adrian R. Series: Simulation-based inference in econometrics Abstract:
Procedures for computing the parameters of a broad class of multifactor continuous time models of the term structure based on indirect estimation methods are proposed. The approach consists of simulating the unknown factors from a set of stochastic differential equations which are used to compute synthetic bond yields. The bond yields are calibrated with actual bond yields via an auxiliary model. The approach circumvents many of the difficulties associated with direct estimation of this class of models using maximum likelihood. In particular, the paper addresses the identification issues arising from singularities in the yields and spreads which tend not to be recognised in existing estimation procedures and thereby overcome potential misspecification problems inherrent in direct methods. Indirect estimates of single and multifactor models are computed and compared with the estimates based on existing estimation procedures.
Keyword: Continous time models, Indirect estimation, Multifactor models, Term structure, Testing factor models, Stochastic differential equations, and Singularities Subject (JEL): C30 - Multiple or simultaneous equation models - General, C51 - Econometric modeling - Model construction and estimation, and G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates
Creator: Galor, Oded, 1953- and Weil, David N. Series: Productivity and the industrial revolution Abstract:
This paper develops a unified model of growth, population, and technological progress that is consistent with long-term historical evidence. The economy endogenously evolves through three phases. In the Malthusian regime, population growth is positively related to the level of income per capita. Technological progress is slow and is matched by proportional increases in population, so that output per capita is stable around a constant level. In the post-Malthusian regime, the growth rates of technology and total output increase. Population growth absorbs much of the growth of output, but income per capita does rise slowly. The economy endogenously undergoes a demographic transition in which the traditionally positive relationship between income per capita and population growth is reversed. In the Modern Growth regime, population growth is moderate or even negative, and income per capita rises rapidly. Two forces drive the transitions between regimes: First, technological progress is driven both by increases in the size of the population and by increases in the average level of education. Second, technological progress creates a state of disequilibrium, which raises the return to human capital and induces parents to substitute child quality for quantity.
Keyword: Technological change, Malthusian, Growth, Development, Demographics, Demographic transition, Fertility, and Population Subject (JEL): O11 - Economic development - Macroeconomic analyses of economic development, J13 - Demographic economics - Fertility ; Family planning ; Child care ; Children ; Youth, O40 - Economic growth and aggregate productivity - General, and O33 - Technological change ; Research and development - Technological change : Choices and consequences ; Diffusion processes
Creator: Edge, Rochelle Mary, 1971- and Rudd, Jeremy Bay, 1970- Series: Joint commitee on business and financial analysis Abstract:
We add a nominal tax system to a sticky-price monetary business cycle model. When nominal interest income is taxed, the coefficient on inflation in a Taylor-type monetary policy rule must be significantly larger than one in order for the model economy to have a determinate rational expectations equilibrium. When depreciation is treated as a charge against taxable income, an even larger weight on inflation is required in the Taylor rule in order to obtain a determinate and stable equilibrium. These results have obvious implications for assessing the historical conduct of monetary policy.
Keyword: Monetary policy, Business cycle, Cycle, Interest, Inflation, Policy, Prices, Monetary, Rational expectation, and Tax Subject (JEL): E43 - Money and interest rates - Determination of interest rates ; Term structure of interest rates, E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, E12 - General aggregative models - Keynes ; Keynesian ; Post-Keynesian, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
Creator: Crone, Theodore M. and Mills, Leonard O. (Leonard Orion), 1960- Series: System committee on agriculture and rural development Abstract:
Cointegration tests are used to examine the basic long-term relation between population and the housing stock. There is some weak evidence of a long-run relation between the constant-cost value of the housing stock and population-driven demand. Much stronger evidence exists for a long-term relation between owner-occupied housing units and the adult population. We generally cannot reject that the number of housing units intended for owner-occupancy has adjusted in proportion to the population 25 years of age and older. Using these results and current population projections, we produce trend forecasts through the year 2010 for the owner-occupied housing stock and single-family housing starts in the U.S.
Keyword: Population, Demographics, and Housing Subject (JEL): J11 - Demographic Trends, Macroeconomic Effects, and Forecasts ; General Migration and R31: Housing Supply and Markets
Creator: Todd, Richard M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 207 Keyword: Time-invariant system, Time-varying system, and Convergence theorem Subject (JEL): C10 - Econometric and Statistical Methods and Methodology: General
Creator: Kehoe, Timothy Jerome, 1953-, Kiyotaki, Nobuhiro, and Wright, Randall D. Series: Monetary theory and financial intermediation Abstract:
We extend the analysis of Kiyotaki and Wright, who study an economy in which the different commodities that serve as media of exchange are determined endogenously. Kiyotaki and Wright consider only symmetric, steady-state, pure-strategy equilibria, and find that for some parameter values no such equilibria exist. We consider mixed-strategy equilibria and dynamic equilibria. We prove that a steady-state equilibrium exists for all parameter values and that the number of steady-state equilibria is generically finite. We also show, however, that there may be a continuum of dynamic equilibria. Further, some dynamic equilibria display cycles.
Subject (JEL): D51 - Exchange and Production Economies and E40 - Money and Interest Rates: General
Creator: Sargent, Thomas J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 066 Keyword: Business cycles, Difference equations, and Random variables Subject (JEL): E37 - Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications