Creator: Chari, V. V., Kehoe, Patrick J., and McGrattan, Ellen R. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 204 Abstract:
We ask what fraction of the variation in incomes across countries can be accounted for by investment distortions. In our neoclassical growth model the relative price of investment to consumption is a good measure of the distortions. Using data on relative prices we estimate a stochastic process for distortions and compare the resulting variance of incomes in the model to that in the data. We find that the variation of incomes in the model is roughly 4/5 of the variability of incomes in the data. Our model does well in accounting for 6 key regularities on income and investment in the data.
The paper itself is followed by three appendices: Appendix 1 describing the log-likelihood function, Appendix 2 describing the construction of labor share of income associated with the production of consumption and investment goods, and the Data Appendix.
Subject (JEL): O57 - Comparative Studies of Countries, O11 - Macroeconomic Analyses of Economic Development, O10 - Economic Development: General, and H20 - Taxation, Subsidies, and Revenue: General
Creator: Atkeson, Andrew and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 331 Abstract:
Are deflation and depression empirically linked? No, concludes a broad historical study of inflation and real output growth rates. Deflation and depression do seem to have been linked during the 1930s. But in the rest of the data for 17 countries and more than 100 years, there is virtually no evidence of such a link.
Subject (JEL): N10 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: General, International, or Comparative, E31 - Price Level; Inflation; Deflation, and E32 - Business Fluctuations; Cycles