nep-mac New Economics Papers
on Macroeconomics
Issue of 2010‒09‒03
twenty-six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Business cycle convergence in EMU: A first look at the second moment By Jesús Crespo-Cuaresma; Octavio Fernández-Amador
  2. Measuring the Output Responses to Fiscal Policy By Alan J. Auerbach; Yuriy Gorodnichenko
  3. Inflation Targeting Does Not Matter: Another Look at OECD Economies’ Output Sacrifice Ratios By Brito, Ricardo D.
  4. Floating versus managed exchange rate regime in a DSGE model of India. By Batini, Nicoletta; Gabriel, Vasco; Levine, Paul
  5. Currency substitution in the economies of Central Asia: How much does it cost? By Isakova, Asel
  6. Debt, Policy Uncertainty and Expectations Stabilization By Stefano Eusepi; Bruce Preston
  7. Monetary policy in an uncertain world: Probability models and the design of robust monetary rules. By Levine, Paul
  8. Is the new keynesian IS curve structural? By Livio Stracca
  9. Payroll Taxes, Social Insurance and Business Cycles By Michael C. Burda; Mark Weder
  10. Distortionary taxation, international business cycles and real wage: explaining some puzzling facts By Francois Langot; Coralia Quintero-Rojas
  11. Inventories in ToTEM By Oleksiy Kryvtsov; Yang Zhang
  12. Macro Expectations, Aggregate Uncertainty, and Expected Term Premia By Christian D. Dick; Maik Schmeling; Andreas Schrimpf
  13. Expectations Traps and Coordination Failures: Selecting among Multiple Discretionary Equilibria By Dennis, Richard; Kirsanova, Tatiana
  14. Business cycles in the equilibrium model of labor market search and self-insurance By Makoto Nakajima
  15. Liquidity Management and Corporate Investment During a Financial Crisis By Murillo Campello; Erasmo Giambona; John R. Graham; Campbell R. Harvey
  16. Impacts of Current Global Economic Crisis on Asia's Labor Market By Huynh, Phu; Kapsos, Steven; Kim, Kee Beom; Sziraczki, Gyorgy
  17. Die Weltwirtschaftskrise als Exempel der Überinvestitionstheorie: Komplementäre Erklärungsansätze von v. Hayek/Garrison und Minsky By Sell, Friedrich L.
  18. Central Bank Transparency: Another Look By Pierre L. Siklos
  19. Does news on real Chinese GDP growth impact stock markets? By Franses, Ph.H.B.F.; Mees, H.
  20. Is Economic Recovery a Myth? Robust Estimation of Impulse Responses By Coen N. Teulings; Nick Zubanov
  21. Financial and real sector interactions:the case of Greece By Halkos, George
  22. The Value of Luminosity Data as a Proxy for Economic Statistics By Xi Chen; William D. Nordhaus
  23. Financial Policies and the Financial Crisis: How Important Was the Systemic Credit Contraction for Industrial Corporations? By Kathleen M. Kahle; René M. Stulz
  24. Characterizing economic trends by Bayesian stochastic model specification search By Stefano Grassi; Tommaso Proietti
  25. Multiproduct Firms and Price-Setting: Theory and Evidence from U.S. Producer Prices By Saroj Bhattarai; Raphael Schoenle
  26. ICT and Productivity Growth in the 1990's: Panel Data Evidence on Europe By Christian M. Dahl; Hans Christian Kongsted; Anders Sørensen

  1. By: Jesús Crespo-Cuaresma; Octavio Fernández-Amador
    Abstract: We propose the analysis of the dynamics of the standard deviation of business cycles across euro area countries in order to evaluate the patterns of cyclical convergence in the European Monetary Union for the period 1960-2008. We identify significant business cycle divergence taking place in the mid-eighties, followed by a persistent convergence period spanning most of the nineties. This convergent episode finishes roughly with the birth of the European Monetary Union. A hypothetical euro area including all the new members of the recent enlargements does not imply a sizeable decrease in the optimality of the currency union. Finally, the European synchronization differential with respect to other developed economies seems to have been diluted within a global cycle since 2004.
    Keywords: Business cycles, business cycle convergence, European Monetary Union.
    JEL: E32 E63 F02
    Date: 2010–08
  2. By: Alan J. Auerbach; Yuriy Gorodnichenko
    Abstract: A key issue in current research and policy is the size of fiscal multipliers when the economy is in recession. Using a variety of methods and data sources, we provide three insights. First, using regime-switching models, we estimate effects of tax and spending policies that can vary over the business cycle; we find large differences in the size of fiscal multipliers in recessions and expansions with fiscal policy being considerably more effective in recessions than in expansions. Second, we estimate multipliers for more disaggregate spending variables which behave differently in relation to aggregate fiscal policy shocks, with military spending having the largest multiplier. Third, we show that controlling for predictable components of fiscal shocks tends to increase the size of the multipliers.
    JEL: E32 E62
    Date: 2010–08
  3. By: Brito, Ricardo D.
    Date: 2010–10
  4. By: Batini, Nicoletta (IMF and University of Surrey); Gabriel, Vasco (University of Surrey); Levine, Paul (University of Surrey)
    Abstract: We first develop a two-bloc model of an emerging open economy interacting with the rest of the world calibrated using Indian and US data. The model features a financial accelerator and is suitable for examining the effects of financial stress on the real economy. Three variants of the model are highlighted with increasing degrees of financial frictions. The model is used to compare two monetary interest rate regimes: domestic Inflation targeting with a floating exchange rate (FLEX(D)) and a managed exchange rate (MEX). Both rules are characterized as a Taylor-type interest rate rules. MEX involves a nominal exchange rate target in the rule and a constraint on its volatility. We find that the imposition of a low exchange rate volatility is only achieved at a significant welfare loss if the policymaker is restricted to a simple domestic inflation plus exchange rate targeting rule. If on the other hand the policymaker can implement a complex optimal rule then an almost fixed exchange rate can be achieved at a relatively small welfare cost. This finding suggests that future research should examine alternative simple rules that mimic the fully optimal rule more closely.
    Keywords: DSGE model, Indian economy, Monetary interest rate rules, Floating versus managed exchange rate, Financial frictions
    JEL: E52 E37 E58
    Date: 2010–04
  5. By: Isakova, Asel (BOFIT)
    Abstract: Underdeveloped financial markets and periods of high inflation have stimulated dollarization and currency substitution in the economies of Central Asia. Some authors argue that the latter can pose serious obstacles for the effective conduct of monetary policy and can affect households’ welfare.This study uses a model with money-in-the-utility function to estimate the elasticity of substitution between domestic and foreign currencies in three economies of Central Asia - Kazakhstan, the Kyrgyz Republic and Tajikistan. Utility derived from holding money balances is represented by a CES function with money holdings denominated in two currencies. The residents are assumed to diversify their monetary holdings due to instability of the domestic currency. The steady state analysis reveals that though currency substitution decreases governments’ seigniorage revenue, holding foreign money can be welfare generating if domestic currency depreciates vis-à-vis the currencies in which households’ foreign balances holdings are denominated. De-dollarization can only be achieved through further macroeconomic stabilization that will bring price and exchange rate stability. Financial sector development will also decrease currency substitution through the provision of reliable financial instruments and the gaining of public confidence.
    Keywords: currency substitution; dollarization; monetary policy; seigniorage; welfare; transition
    JEL: E41 E58 P20
    Date: 2010–07–26
  6. By: Stefano Eusepi; Bruce Preston
    Abstract: This paper develops a model of policy regime uncertainty and its consequences for stabilizing expectations. Because of learning dynamics, uncertainty about monetary and …scal policy is shown to restrict, relative to a rational expectations analysis, the set of policies consistent with macroeconomic stability. Anchoring expectations by communicat- ing about monetary and …scal policy enlarges the set of policies consistent with stability. However, absent anchored …scal expectations, the advantages from anchoring monetary expectations are smaller the larger is the average level of indebtedness. Finally, even when expectations are stabilized in the long run, the higher are average debt levels the more persistent will be the e¤ects of disturbances out of rational expectations equilibrium.
    JEL: E52 D83 D84
    Date: 2010–07
  7. By: Levine, Paul (University of Surrey)
    Abstract: The past forty years or so has seen a remarkable transformation in macro-models used by central banks, policymakers and forecasting bodies. This papers describes this transformation from reduced-form behavioural equations estimated separately, through to contemporary micro-founded dynamic stochastic general equilibrium (DSGE) models estimated by systems methods. In particular by treating DSGE models estimated by Bayesian-Maximum-Likelihood methods I argue that they can be considered as probability models in the sense described by Sims (2007) and be used for risk-assessment and policy design. This is true for any one model, but with a range of models on offer it is possible also to design interest rate rules that are simple and robust across the rival models and across the distribution of parameter estimates for each of these rivals as in Levine et al. (2008). After making models better in a number of important dimensions, a possible road ahead is to consider rival models as being distinguished by the model of expectations. This would avoid becoming `a prisoner of a single system' at least with respect to expectations formation where, as I argue, there is relatively less consensus on the appropriate modelling strategy.
    Keywords: Structured uncertainty, DSGE models, Robustness, Bayesian estimation, Interest-rate rules
    JEL: E52 E37 E58
    Date: 2010–07
  8. By: Livio Stracca (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: There is already a small literature emphasising the empirical failure of the New Keynesian IS curve, but it is not yet known if this failure reflects empirical problems associated with small samples or is rather a structural weakness of the underlying model. To address this question, in this paper I estimate the New Keynesian IS curve for output and consumption and several possible extensions on panel data from 22 OECD countries over 40 years of data. I also evaluate whether the key parameters of the IS curve change according to countries' economic and financial structure. The main finding is that output and consumption are mainly forward looking, and this is a very robust feature of the data. At the same time, I find little evidence in favour of the traditional specification where the real interest rate enters with a negative sign due to intertemporal substitution; on the contrary, it is typically either insignificant or wrongly signed. Overall, I conclude that the New Keynesian IS curve, at least in its most common formulations, is not structural and is overwhelmingly rejected by the data. JEL Classification: E21, E44, E52.
    Keywords: IS curve, New Keynesian model, panel data, Instrumental variables.
    Date: 2010–08
  9. By: Michael C. Burda (Humboldt University Berlin); Mark Weder (School of Economics, University of Adelaide)
    Abstract: Payroll taxes represent a major distortionary in uence of governments on labor markets. This paper examines the role of payroll taxation and the social safety net for cyclical uctuations in a nonmonetary economy with labor market frictions and unemployment insurance, when the latter is only imperfectly related to search effort. A balanced social insurance budget renders gross wages more rigid over the cycle and, as a result, strengthens the modelÂ’s endogenous propagation mechanism. For conventional calibrations, the model generates a negatively sloped Beveridge curve as well as substantial volatility and persistence of vacancies and unemployment.
    Keywords: business cycles, labor markets, payroll taxes, unemployment, consumption-tightness puzzle
    JEL: E24 J64 E32
    Date: 2010–08
  10. By: Francois Langot (GAINS-TEPP (Université du Maine)); Coralia Quintero-Rojas (Department of Economics and Finance, Universidad de Guanajuato)
    Abstract: In this paper, we show that fluctuations in distortive taxes can account for most puzzling features of the U.S. economy. Namely, the observed real wage rigidity, the international correlation of investment and labor inputs, and the so-called quantity puzzle (according to which cross-country correlation of outputs is higher than the one of consumptions). This is done in a two-country search and matching model with fairly standard separable preferences, extended to include a tax/benefit system.
    Keywords: Distortive taxes, real wage rigidity, international business cycles, search, matching
    JEL: E32 E62 H24 J41
    Date: 2010–08
  11. By: Oleksiy Kryvtsov; Yang Zhang
    Abstract: ToTEM – the Bank of Canada’s principal projection and policy-analysis model for the Canadian economy – is extended to include inventories. In the model, firms accumulate inventories of finished goods for their role in facilitating the demand for goods. The model is successful in matching procyclical and volatile inventory investment behaviour. The authors show that the convex cost of stock adjustment is key to the model’s ability to match the inventory data quantitatively.
    Keywords: Economic models; Business fluctuations and cycles
    JEL: E31 E32
    Date: 2010
  12. By: Christian D. Dick (Centre for European Economic Research (ZEW) Mannheim); Maik Schmeling (Department of Economics, Leibniz Universität Hannover); Andreas Schrimpf (Aarhus University and CREATES)
    Abstract: Based on individual expectations from the Survey of Professional Forecasters, we construct a realtime proxy for expected term premium changes on long-term bonds. We empirically investigate the relation of these bond term premium expectations with expectations about key macroeconomic variables as well as aggregate macroeconomic uncertainty at the level of individual forecasters. We find that expected term premia are (i) time-varying and reasonably persistent, (ii) strongly related to expectations about future output growth, and (iii) positively affected by uncertainty about future output growth and in ation rates. Expectations about real macroeconomic variables seem to matter more than expectations about nominal factors. Additional findings on term structure factors suggest that the level and slope factor capture information related to uncertainty about real and nominal macroeconomic prospects, and that curvature is related to subjective term premium expectations themselves. Finally, an aggregate measure of forecasters' term premium expectations has predictive power for bond excess returns over horizons of up to one year.
    Keywords: Bond Yields, Expectations Hypothesis, Time-varying Risk Premia, Term Premia, Aggregate Uncertainty
    JEL: E43 E44 G12
    Date: 2010–08–27
  13. By: Dennis, Richard; Kirsanova, Tatiana
    Abstract: Discretionary policymakers cannot manage private-sector expectations and cannot coordinate the actions of future policymakers. As a consequence, expectations traps and coordination failures can occur and multiple equilibria can arise. To utilize the explanatory power of models with multiple equilibria it is …first necessary to understand how an economy arrives to a particular equilibrium. In this paper, we employ notions of learnability, self-enforceability, and properness to motivate and develop a suite of equilibrium selection criteria. Central among these criteria are whether the equilibrium is learnable by private agents and jointly learnable by private agents and the policymaker. We use two New Keynesian policy models to identify the strategic interactions that give rise to multiple equilibria and to illustrate our equilibrium selection methods. Importantly, unless the Pareto-preferred equilibrium is learnable by private agents, we …find little reason to expect coordination on that equilibrium.
    Keywords: Discretionary policymaking; multiple equilibria; coordination; equilibrium selection
    JEL: E52 E61 C62 C73
    Date: 2010–08–25
  14. By: Makoto Nakajima
    Abstract: The author introduces risk-averse preferences, labor-leisure choice, capital, individual productivity shocks, and market incompleteness to the standard Mortensen-Pissarides model of search and matching and explore the model's cyclical properties. There are four main findings. First and foremost, the baseline model can generate the observed large volatility of unemployment and vacancies with a realistic replacement ratio of the unemployment insurance benefits of 64 percent. Second, labor-leisure choice plays a crucial role in generating the large volatilities; additional utility from leisure when unemployed makes the value of unemployment close to the value of employment, which is crucial in generating a strong amplification, even with the moderate replacement ratio. Besides, it contributes to the amplification through an adjustment in the intensive margin of labor supply. Third, the borrowing constraint or uninsured individual productivity shocks do not significantly affect the cyclical properties of unemployment and vacancies: Most workers are well insured only with self-insurance. Fourth, the model better replicates the business cycle properties of the U.S. economy, thanks to the co-existence of adjustments in the intensive and extensive margins of labor supply and the stronger amplification.
    Keywords: Employment (Economic theory) ; Business cycles
    Date: 2010
  15. By: Murillo Campello; Erasmo Giambona; John R. Graham; Campbell R. Harvey
    Abstract: This paper uses a unique dataset to study how firms managed liquidity during the financial crisis. Our analysis provides new insights on the interactions between internal liquidity, external funds, and real corporate decisions, such as investment and employment. We first describe how companies used credit lines during the crisis (access, size of facilities, and drawdown activity), the conditions under which these facilities were granted (fees, markups, maturity, and collateral), and whether managers had difficulties in renewing or initiating lines. We also describe the dynamics of credit line violations and the outcome of subsequent renegotiations. We show how companies substitute between credit lines and internal liquidity (cash and profits) when facing a severe credit shortage. Looking at real-side decisions, we find that credit lines are associated with greater spending when companies are not cash-strapped. Firms with limited access to credit lines, on the other hand, appear to choose between saving and investing during the crisis. Our evidence indicates that credit lines eased the impact of the financial crisis on corporate spending.
    JEL: E32 G31 G32
    Date: 2010–08
  16. By: Huynh, Phu (Asian Development Bank Institute); Kapsos, Steven (Asian Development Bank Institute); Kim, Kee Beom (Asian Development Bank Institute); Sziraczki, Gyorgy (Asian Development Bank Institute)
    Abstract: The paper investigates the labor market and social impacts of the global financial and economic crisis in Asia and the Pacific as well as national policy responses to the crisis. It draws on recent macroeconomic, trade, production, investment, and remittances data to assess the employment and social consequences of the crisis, including falling demand for labor, rising vulnerable and informal employment, and falling incomes and their related pressures on the working poor. The paper provides some projections of the impact on unemployment, vulnerable employment, working poverty, and labor productivity in the region in 2009. It demonstrates that labor market recovery is likely to lag behind output growth, based on the experience of Asian labor markets following the 1997 Asian financial crisis. The paper underscores some policy options that are likely to have positive outcomes toward generating employment and boosting aggregate demand, improving social protection and welfare on the basis of decent work principles, and promoting a sound and sustainable economic and labor market recovery.
    Keywords: asian labor market; labor policies; global financial crisis
    JEL: E24 I30 J08 J20
    Date: 2010–08–23
  17. By: Sell, Friedrich L.
    Abstract: In diesem Beitrag werden die Grundzüge der Überinvestitionstheorien von Hyman Minsky auf der einen und die von v. Hayek/Garrison auf der anderen Seite zunächst in den 'Sprachen' der Originalbeiträge herausgearbeitet. Anschließend wird ihr möglicher Erklärungsbeitrag für die aktuelle Finanzmarkt- und Weltwirtschaftskrise geprüft. So lässt sich das gleichzeitige Auftreten von Überkapazitäten - in Verbindung mit einer von den Präferenzen der Konsumenten deutlich abweichenden Kapitalstruktur - und einer Verschuldungskrise von Unternehmen und Banken befriedigend erklären. Während man nämlich mit v. Hayek/Garrison die Verwendungsseite des Kapitalstocks im Verlauf des Zyklus und die Fehlallokation von Kapitalgütern schon zu Beginn des Aufschwungs beleuchten kann, verhilft Minsky zu einem detaillierten Blick auf die Herkunftsseite des Kapitalstocks: Der Aufschwung, der sowohl technologisch wie monetär fundiert sein kann, legt durch riskante Fremdfinanzierung die Saat für die vergiftete Ernte in der Krise. -- In this paper, we first develop, making use of the original tools used in the seminal papers of Hyman Minsky on the one hand and of Friedrich A. v. Hayek/Roger Garrison on the other hand, the foundations of their overinvestment theories. Thereafter, we will investigate their possible contributions to the explanation of the actual financial market and worldwide economic crisis. We will demonstrate that a complementary use of both approaches enables us to understand the simultaneous existence of idle capacities - in combination with an allocation of capital goods which falls apart from consumer preferences - and of a severe debt crisis affecting both firms/households and commercial banks. While it is possible - with the help of v. Hayek/Garrison - to detect the usage side of the capital stock, its change during the cycle and the misallocation of capital goods which tends to happen already at the beginning of an economic upswing, it is Minsky who helps us to get a precise view on the financing side of the capital stock during the cycle: The upswing, which may be motivated by either new technological developments or by monetary expansion and more so the following boom goes along with too risky financing patterns which are then key factors for the explanation of the downswing and the following bust.
    Keywords: Minsky,Weltwirtschaftskrise,Österreichische Schule,Minsky,Austrian School of Economics,World Economic Crisis
    JEL: E31 E32 E31 E43 B22 B53 D53
    Date: 2010
  18. By: Pierre L. Siklos
    Abstract: This paper extends the Dincer and Eichengreen (2007) index of central bank transparency. Improvements in transparency are notable in Central and Eastern Europe, while the index has shown much smaller rises in most other parts of the world. The pattern observed by Dincer and Eichengreen, consistent with a permanent increase in central bank transparency, is also evident in the updated results. The dramatic enhancements in central bank transparency reported earlier appear to be a feature of the late 1990s and early 2000s. Whether the subsequent data reflects limits to central banks transparency or, to some extent, transparency ‘fatigue’, is unclear.
    JEL: E0 F0
    Date: 2010–08
  19. By: Franses, Ph.H.B.F.; Mees, H.
    Abstract: Real GDP growth in China follows a random walk. Also, it has often been suggested that China “cooks its booksâ€, that is to say that governmental officials in China manipulate economic statistics such as GDP growth rate to present the outside world a rosy picture (Foreign Policy, September 3, 2009). If such unreliability is known to stock traders, news on GDP should not impact stock market fluctuations or their volatility. We test this hypothesis for 12 series with daily stock market returns for the years 2006 to and including 2009.
    Keywords: Gross Domestic Product;China
    Date: 2010–07–28
  20. By: Coen N. Teulings (CPB, The Hague, and University of Amsterdam); Nick Zubanov (CPB, The Hague)
    Abstract: There is a lively debate on the persistence of the current banking crisis' impact on GDP. Impulse Response Functions (IRF) estimated by Cerra and Saxena (2008) suggest that the effects of earlier crises were long-lasting. We show that standard estimates of IRFs are highly sensitive to misspecification of the underlying data generation process. Direct estimation of IRFs by a methodology similar to Jorda's (2005) local projection method is robust to misspecifications of the data generation process but yields biased estimates when country fixed effects are added. We propose a simple method to deal with this bias, which we apply to panel data from 99 countries for the period 1974-2001. Our estimates suggest that an average banking crisis leads to an output loss of around 10 percent with little sign of recovery. GDP losses from banking crises are more severe for African countries and economies in transition.
    Keywords: banking crisis; impulse response; panel data
    JEL: E27 C53
    Date: 2010–04–13
  21. By: Halkos, George
    Abstract: In this study we try to detect the relationship between financial and real sector employing in the estimation procedure the recent time-series techniques of co-integration, vector error-correction modelling and Granger multivariate causality. We contribute to the existing literature by using for the first time a number of financial and economic variables for the case of Greece for the time period 1960-2005. Our empirical results reveal that the linkage between financial and real development is relatively weak in Greece and real sector plays the major role in the evolution of the financial system. The latter seems to promote growth only by increasing its competitiveness.
    Keywords: Financial sector; real sector; Greek banks
    JEL: E50 G0
    Date: 2010
  22. By: Xi Chen; William D. Nordhaus
    Abstract: One of the pervasive issues in social and environmental research has been to improve the quality of socioeconomic data in developing countries. Because of the shortcoming of standard data sources, the present study examines luminosity (measures of nighttime lights) as a proxy for standard measures of output. The paper compares output and luminosity at the country levels and at the 1° x 1° grid-cell levels for the period 1992-2008. The results are that luminosity has very little value added for countries with high-quality statistical systems. However, it may be useful for countries with the lowest statistical grades, particularly for war-torn countries with no recent population or economic censuses. The results also indicate that luminosity has more value added for economic density estimates than for time-series growth rates.
    JEL: E01 O47 Q4
    Date: 2010–08
  23. By: Kathleen M. Kahle; René M. Stulz
    Abstract: Although firm financial policies were affected by a credit contraction during the recent financial crisis, the impact of increased uncertainty and decreased growth opportunities was stronger than that of the credit contraction per se. From the start of the financial crisis (third quarter of 2007) to its peak (first quarter of 2009), both large and investment-grade non-financial firms show no evidence of suffering from an exceptional systemic credit contraction. Instead of decreasing their cash holdings as would be expected with a temporarily impaired credit supply, these firms increase their cash holdings sharply (by 17.8% in the case of investment-grade firms) after the fall of Lehman. Though small and unrated firms have exceptionally low net debt issuance at the peak of the crisis, their net debt issuance in the first year of the crisis is no different from the last year of the credit boom. In contrast, however, the net equity issuance of small and unrated firms is low throughout 2008, whereas an impaired credit supply by itself would have encouraged firms to increase their equity issuance. On average, the cumulative financing impact of the decrease in net equity issuance from the start to the peak of the crisis is approximately twice the cumulative impact of the decrease in net debt issuance. The decrease in net equity issuance and the increase in cash holdings are also economically important for firms with no debt.
    JEL: E22 E32 E51 G32 G35 N1
    Date: 2010–08
  24. By: Stefano Grassi; Tommaso Proietti
    Abstract: We apply a recently proposed Bayesian model selection technique, known as stochastic model specification search, for characterising the nature of the trend in macroeconomic time series. We illustrate that the methodology can be quite successfully applied to discriminate between stochastic and deterministic trends. In particular, we formulate autoregressive models with stochastic trends components and decide on whether a specific feature of the series, i.e. the underlying level and/or the rate of drift, are fixed or evolutive.
    Keywords: Bayesian model selection; stationarity; unit roots; stochastic trends; variable selection.
    JEL: E32 C52 C22
    Date: 2010–08–25
  25. By: Saroj Bhattarai (Pennsylvania State University); Raphael Schoenle (Brandeis University)
    Abstract: In this paper, we establish three new facts about price-setting by multi-product firms and contribute a model that can match our findings. On the empirical side, using micro-data on U.S. producer prices, we first show that firms selling more goods adjust their prices more frequently but on average by smaller amounts. Moreover, the higher the number of goods, the lower is the fraction of positive price changes and the more dispersed the distribution of price changes. Second, we document substantial synchro- nization of price changes within firms across products and show that synchronization plays a dominant role in explaining pricing dynamics. Third, we find that within-firm synchronization of price changes increases as the number of goods increases. On the theoretical side, we present a state-dependent pricing model where multi-product firms face both aggregate and idiosyncratic shocks. When we allow for firm-specific menu costs and trend in ation, the model matches the empiricalfindings.
    Keywords: Multi-product firms; Number of Goods; State-dependent pricing; U.S. Producer prices
    JEL: E30 E31 L11
    Date: 2010–07
  26. By: Christian M. Dahl (University of Southern Denmark, CEBR and CREATES); Hans Christian Kongsted (University of Copenhagen, CAM and CEBR); Anders Sørensen (Copenhagen Business School and CEBR)
    Abstract: What has been the quantitative effect on productivity growth of information and communication technology (ICT) in Europe after 1995? Based on a multi-country sectoral panel data set, we provide econometric evidence of positive and signi?cant productivity effects of ICT in Europe, mainly due to advances in total factor productivity. The impact of ICT in Europe has happened against a negative macro economic shock not related to ICT. This is in contrast to the established evidence for the US. Our main results challenge the consensus in the growth-accounting literature that there has been no acceleration of productivity growth in Europe, mainly due to a dismal performance of ICT-using sectors.
    Keywords: Labor productivity, total factor productivity, information and communications technology, panel data methods.
    JEL: E32 C23 O47
    Date: 2010–08–25

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