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Creator: Kollintzas, Tryphon, 1953- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 352 Abstract:
This paper derives a variance bounds test for a broad class of linear rational expectations models. According to this test if observed data accords with the model, then a weighted sum of autocovariances of the covariance-stationary components of the endogenous state variables should be nonnegative. The new test reinterprets its forefather—West's  variance bounds test— and extends its applicability by not requiring exogenous state variables in order to be tested. The possibility of the test's application to nonlinear models is also discussed.
Palabra clave: Inventory, Overlapping generations models, and Macroeconomics Tema: E22 - Investment; Capital; Intangible Capital; Capacity and C52 - Model Evaluation, Validation, and Selection
Creator: Eichenbaum, Martin S. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 148 Abstract:
A critical roadblock to modelling inventories of finished goods has been the claim that production and inventory decisions of a perfectly competitive firm are determined independently of each other. A basic goal of this study is to specify fundamental preferences of economic agents, technologies, constraints and market structures that are, in a rough way, capable of generating patterns of serial correlation and cross correlation between inventories and employment of factors of production that are consistent with those observed in the data. The claim is made that the time series for inventories, output and employment can be interpreted as emerging from a well specified dynamic, stochastic competitive equilibrium in which economic agents are assumed to form rational expectations about variables not included in their information sets. Inventories and employment will not be related in a direct way if and only if the price elasticity of demand for output is equal to infinity.
Palabra clave: Time series analysis and Competitive equilibrium Tema: C32 - Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models and D51 - Exchange and Production Economies
Creator: Sargent, Thomas J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 108 Palabra clave: Tobin, Demand schedule, One-sector growth model, Stochastic growth model, and Q theory Tema: E22 - Investment; Capital; Intangible Capital; Capacity and O41 - One, Two, and Multisector Growth Models
Creator: Bryant, John B. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 99 Abstract:
This paper presents a monetarist model of the business cycle with price-setting firms. The model is estimated, and the point estimates used in simulations to illustrate the properties of the model. The real goods market is found to be stable, although subject to sharp changes in output. This model is consistent with rational expectations. Nevertheless, monetary policy can have a lasting impact, and the simulations show this to be the case. Fiscal policy too is found to influence the business cycle, but its short-run effects are substantially smaller than its impact effects. The possibility of an activist government policy in this model does not imply the efficiency of an activist policy.
Palabra clave: Inventory cycle, Disequilibrium, Rational expectations, and Real goods market Tema: E30 - Prices, business fluctuations, and cycles - General and G31 - Corporate finance and governance - Capital budgeting ; Fixed investment and inventory studies
Creator: Wallace, Neil Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 024 Abstract:
In "Liquidity Preference as Behavior Towards Risk," Tobin suggests that risk aversion and expected utility maximization can provide a rigorous foundation for an equilibrium demand for money. In Tobin's model, money plays a risk reducing role in individual portfolios. This note considers whether a general equilibrium stochastic model can produce equilibrium yield distributions that allow money to play that role if money does not appear directly as an argument in the utility or production functions of the economy. The model examined, a stochastic production variant of Samuelson's model of overlapping generations, cannot produce such yield distributions.
Palabra clave: Stochastic, Monetary economy, and Risk aversion Tema: C51 - Model Construction and Estimation, G11 - Portfolio Choice; Investment Decisions, and E41 - Demand for Money
Creator: Bental, Benjamin. and Eden, Benjamin. Series: Lucas expectations anniversary conference Abstract:
We propose a model in which an unanticipated reduction in the money supply leads to a contemporaneous increase in inventories followed by periods with lower output. This persistent real effect does not require price-rigidity or real shocks and confusion. It is obtained in a model in which markets are cleared and agents are price-takers.
Palabra clave: Productivity, Money supply, Money, and Supply Tema: E22 - Macroeconomics : Consumption, saving, production, employment, and investment - Capital ; Investment ; Capacity and E51 - Monetary policy, central banking, and the supply of money and credit - Money supply ; Credit ; Money multipliers
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.
Palabra clave: Capital stocks, Equilibrium pricing, Time lag, and Lag Tema: E22 - Investment; Capital; Intangible Capital; Capacity