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Creator: Litterman, Robert B. and Sargent, Thomas J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 125 Parola chiave: Vector autoregression, Natural rate hypothesis, and Estimation Soggetto: C53 - Forecasting Models; Simulation Methods, C51 - Model Construction and Estimation, and C43 - Index Numbers and Aggregation; Leading indicators
Creator: Christiano, Lawrence J. Series: Quarterly review (Federal Reserve Bank of Minneapolis. Research Department) Number: Vol. 13, No. 2 Abstract:
This paper evaluates Hayashi's conjecture that Japan's postwar saving experience can be accounted for by the neoclassical model of economic growth as that country's efforts to reconstruct its capital stock that was severely damaged in World War II. I call this the reconstruction hypothesis. I take a simplified version of a standard neoclassical growth model that is in widespread use in macroeconomics and simulate its response to capital destruction. The saving rate path implied by the model differs significantly from the path taken by actual Japanese postwar saving data. I discuss several model modifications which would reconcile the reconstruction hypothesis with Japan's postwar saving experience. For the reconstruction hypothesis to be credible requires independent evidence on the empirical plausibility of the model modifications. It is left to future research to determine whether that evidence exists.
Creator: Sargent, Thomas J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 022 Abstract:
A statistical definition of the natural unemployment rate hypothesis is advanced and tested. A particular illustrative structural macroeconomic model satisfying the definition is set forth and estimated. The model has "classical" policy implications, implying a number of neutrality propositions asserting the invariance of the conditional means of real variables with respect to the feedback rule for the money supply. The aim is to test how emphatically the data reject a model incorporating rather severe "classical" hypotheses.
Parola chiave: Rational expectations theory, Montarist model, Natural unemployment rate, Post-1945, and Postwar United States Soggetto: E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity and E17 - General Aggregative Models: Forecasting and Simulation: Models and Applications
Creator: Diba, Behzad and Oh, Seonghwan Series: Business analysis committee meeting Abstract:
This paper reports some empirical evidence on the relation between the expected real interest rate and monetary aggregates in postwar U.S. data. We find some evidence against the hypothesis, implied by the Real Business Cycle model of Litterman and Weiss (1985), that the expected real interest rate follows a univariate autoregressive process, not Granger-caused by monetary aggregates. Our findings, however, are consistent with a more general bivariate model--suggested by what Barro (1987, Chapter 5) refers to as "the basic market-clearing model"--in which the real rate depends on its own lagged values and on lagged output. Taking this bivariate model as our null hypothesis, we find no evidence that money-stock changes have a significant liquidity effect on the expected real interest rate.
Soggetto: E51 - Monetary policy, central banking, and the supply of money and credit - Money supply ; Credit ; Money multipliers, E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles, and E43 - Money and interest rates - Determination of interest rates ; Term structure of interest rates
Creator: Backus, David, Gregory, Alan, and Zin, Stanley E. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 429 Abstract:
We compare the statistical properties of prices of U.S. treasury bills to those generated by a theoretical dynamic exchange economy with complete markets. We show that the model can account for neither the sign nor the magnitude of average risk premiums in forward prices and holding-period returns. The economy is also incapable of generating enough variation in risk premiums to account for rejections of the expectations hypothesis with treasury bill data. These conclusions add to the growing list of empirical deficiencies of the representative agent model of asset pricing.
Parola chiave: Expectations hypothesis, Forward prices, Holding-period returns, and Autoregressive heteroskedasticity Soggetto: G12 - Asset Pricing; Trading Volume; Bond Interest Rates and C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Creator: Schulhofer-Wohl, Sam and Yang, Yang Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 461 Abstract:
This paper proposes a new way of modeling age, period, and cohort effects that improves substantively and methodologically on the conventional linear model. The linear model suffers from a well-known identification problem: If we assume an outcome of interest depends on the sum of an age effect, a period effect, and a cohort effect, then it is impossible to distinguish these three separate effects because, for any individual, birth year = current year – age. Less well appreciated is that the model also suffers from a conceptual problem: It assumes that the influence of age is the same in all time periods, the influence of present conditions is the same for people of all ages, and cohorts do not change over time. We argue that in many applications, these assumptions fail. We propose a more general model in which age profiles can change over time and period effects can have different influences on people of different ages. Our model defines cohort effects as an accumulation of age-by-period interactions. Although a long-standing literature on theories of social change conceptualizes cohort effects in exactly this way, we are the first to show how to statistically model this more complex form of cohort effects. We show that the additive model is a special case of our model and that, except in special cases, the parameters of the more general model are identified. We apply our model to analyze changes in age-specific mortality rates in Sweden over the past 150 years. Our model fits the data dramatically better than the additive model. The estimates show that the rate of increase of mortality with age among adults became more steep from 1881 to 1941, but since then the rate of increase has been roughly constant. The estimates also allow us to test whether early-life conditions have lasting impacts on mortality, as under the cohort morbidity phenotype hypothesis. The results give limited support to this hypothesis: The impact of early-life conditions lasts for several years but is unlikely to reach all the way to old age.
Parola chiave: Cohort morbidity phenotype hypothesis, Mortality, Sweden, Age-period-cohort identification problem, and Cohort effects Soggetto: J11 - Demographic Trends, Macroeconomic Effects, and Forecasts, N33 - Economic History: Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy: Europe: Pre-1913, I15 - Health and Economic Development, and C23 - Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
Creator: Greenwood, Jeremy, 1953- and Jovanovic, Boyan, 1951- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 446 Abstract:
A paradigm is presented where both the extent of financial intermediation and the rate of economic growth are endogenously determined. Financial intermediation promotes growth because it allows a higher rate of return to be earned on capital, and growth in turn provides the means to implement costly financial structures. Thus, financial intermediation and economic growth are inextricably linked in accord with the Goldsmith-McKinnon-Shaw view on economic development. The model also generates a development cycle reminiscent of the Kuznets hypothesis. In particular, in the transition from a primitive slow-growing economy to a developed fast-growing one, a nation passes through a stage where the distribution of wealth across the rich and poor widens.
Parola chiave: Kuznets curve, Rate of return, Income gap, Income distribution, Growth rate, and Financial intermediation Soggetto: G00 - Financial Economics: General and O11 - Macroeconomic Analyses of Economic Development
Creator: Eggertsson, Gauti B., Mehrotra, Neil R., and Robbins, Jacob A. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 742 Abstract:
This paper formalizes and quantifies the secular stagnation hypothesis, defined as a persistently low or negative natural rate of interest leading to a chronically binding zero lower bound (ZLB). Output-inflation dynamics and policy prescriptions are fundamentally different from those in the standard New Keynesian framework. Using a 56-period quantitative life cycle model, a standard calibration to US data delivers a natural rate ranging from -1.5% to -2%, implying an elevated risk of ZLB episodes for the foreseeable future. We decompose the contribution of demographic and technological factors to the decline in interest rates since 1970 and quantify changes required to restore higher rates.
Parola chiave: Monetary policy, Secular stagnation, and Zero lower bound Soggetto: E52 - Monetary Policy, E31 - Price Level; Inflation; Deflation, and E32 - Business Fluctuations; Cycles