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Creator: Kocherlakota, Narayana Rao, 1963- Series: Lucas expectations anniversary conference Abstract:
There were three important changes in the United States economy during the 1980s. First, from 1982-90, the decade featured the longest consecutive stretch of positive quarterly output growth in United States history. Second, wage inequality expanded greatly as the wages of highly skilled workers grew markedly faster than the wages of less skilled workers (Katz and Murphy (1992)). Finally, consumption inequality also expanded as the consumption of highly skilled workers grew faster than that of less skilled workers (Attanasio and Davis (1994)). This paper argues that these three aspects of the United States economic experience can be interpreted as being part of an efficient response to a macroeconomic shock given the existence of a particular technological impediment to full insurance. I examine the properties of efficient allocations of risk in an economic environment in which the outside enforcement of risksharing arrangements is infinitely costly. In these allocations, relative productivity movements have effects on both the current and future distribution of consumption across individuals. If preferences over consumption and leisure are nonhomothetic, these changes in the allocation of consumption will generate persistent cycles in aggregate output that do not occur in efficient allocations when enforcement is costless.
Palabra clave: Business cycle, Skilled workers, Risk, and Consumption Tema: E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles and E21 - Macroeconomics : Consumption, saving, production, employment, and investment - Consumption ; Saving ; Wealth
Creator: Bertola, Giuseppe. Series: Economic growth and development Abstract:
This paper proposes a model of diversifiable uncertainty, irreversible investment decisions, and endogenous growth. The detailed microeconomic structure of the model makes it possible to study the. general equilibrium effects of obstacles to labor mobility, due to institutional as well as technological features of the economy. Labor mobility costs reduce private returns to investment, and the resulting slower rate of endogenous growth unambiguously lowers a representative individual's welfare. Turnover costs can have positive effects on full employment equilibrium wages when all external effects are disregarded: this may help explain why policy and institutions often tend to decrease labor mobility in reality, rather than to enhance it. Lower flexibility, however, reduces the growth rate of wages in endogenous growth equilibrium, with negative welfare effects even for agents who own only labor.
Tema: E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital, O41 - One, Two, and Multisector Growth Models, and E25 - Aggregate Factor Income Distribution
Creator: Bullard, James. and Duffy, John, 1964- Series: Joint committee on business and financial analysis Abstract:
Trend-cycle decomposition has been problematic in equilibrium business cycle research. Many models are fundamentally based on the concept of balanced growth, and so have clear predictions concerning the nature of the multivariate trend that should exist in the data if the model is correct. But the multivariate trend that is removed from the data in this literature is not the same one that is predicted by the model. This is understandable, because unexpected changes in trends are difficult to model under a rational expectations assumption. A learning assumption is more appropriate here. We include learning in a standard equilibrium business cycle model with explicit growth. We ask how the economy might react to the important trend-changing events of the postwar era in industrialized economies, such as the productivity slowdown, increased labor force participation by women, and the "new economy" of the 1990s. This tells us what the model says about the trend that should be taken out of the data before the business cycle analysis begins. Thus we use learning to address the trend-cycle decomposition problem that plagues equilibrium business cycle research. We argue that a model-consistent approach, such as the one we suggest here, is necessary if the goal is to obtain an accurate assessment of an equilibrium business cycle model.
Palabra clave: New economy, Learning, Business cycle fluctuations, Equilibrium business cycle theory, and Productivity slowdown Tema: E30 - Prices, business fluctuations, and cycles - General and E20 - Macroeconomics : Consumption, saving, production, employment, and investment - General
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: Doan, Thomas., Litterman, Robert B., and Sims, Christopher A. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 243 Abstract:
This paper develops a forecasting procedure based on a Bayesian method for estimating vector autoregressions. The procedure is applied to ten macroeconomic variables and is shown to improve out-of-sample forecasts relative to univariate equations. Although cross-variables responses are damped by the prior, considerable interaction among the variables is shown to be captured by the estimates. We provide unconditional forecasts as of 1982:12 and 1963:3* We also describe how a model such as this can be used to make conditional projections and to analyse policy alternatives. As an example, we analyze a Congressional Budget Office forecast made in 1982:12. While no automatic causal interpretations arise from models like ours, they provide a detailed characterization of the dynamic statistical interdependence of a set of economic variables, which may help in evaluating causal hypotheses, without containing any such hypotheses themselves.
Palabra clave: Macroeconomics, Bayesian methods, and Forecasting Tema: E27 - Macroeconomics : Consumption, saving, production, employment, and investment - Forecasting and simulation and C11 - Econometric and statistical methods : General - Bayesian analysis
Creator: Schulhofer-Wohl, Sam Series: Staff Reports (Federal Reserve Bank of Minneapolis) Number: 462 Abstract:
This appendix contains seven sections. Section A reports results from running regressions of labor earnings on GDP using data from the PSID, for comparison with the results using HRS data in the body of the paper. Section B examines the relationship between family income, aggregate shocks, and risk preferences in the PSID. Section C gives technical details on the Markov Chain Monte Carlo estimation employed in table 1 of the paper and reports the complete parameter estimates for the regressions summarized in that table. Section D reports results when the relationship between earnings and aggregate shocks is estimated with individual-specific coecients rather than common coecients for each risk-tolerance group. Section E reports results comparable to table 1 of the paper and table D.1 of this appendix using only Social Security covered earnings instead of the combination of Social Security and W-2 earnings. Section F reports robustness checks for tables 2 and 3 of the paper under alternative definitions of the household and the consumption and income variables. Section G reports robustness checks for tables 2 and 3 under an alternative definition of the leisure variable.
Palabra clave: Risk preferences, Heterogeneity, Imperfect insurance, and Risk sharing Tema: E21 - Macroeconomics : Consumption, saving, production, employment, and investment - Consumption ; Saving ; Wealth and E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital
Creator: Rotemberg, Julio. Series: Lucas expectations anniversary conference Abstract:
I show that a simple sticky price model based on Rotemberg (1982) is consistent with a variety of facts concerning the correlation of prices, hours and output. In particular, I show that it is consistent with a negative correlation between the detrended levels of output and prices when the Beveridge-Nelson method is used to detrend both the price and output data. Such a correlation, i.e.,a negative correlation between the predictable movements in output and the predictable movements in prices is present (and very strong) in U.S. data. Consistent with the model, this correlation is stronger than correlations between prices and hours of work. I also study the size of the predictable price movements that are associated with predictable output movements as well as the degree to which there are predictable movements in monetary aggregates associated with predictable movements in output. These facts are used to shed light on the degree to which the Federal Reserve has pursued a policy designed to stabilize expected inflation.
Palabra clave: Monetary policy, Output, Inflation, Federal Reserve, and Prices Tema: E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital, E23 - Macroeconomics : Consumption, saving, production, employment, and investment - Production, and E50 - Monetary policy, central banking, and the supply of money and credit - General