Money and prices: U.S. Data 1869–1914 (A study with directed graphs)

This paper reconsiders empirical evidence on relationships among money, income, nominal prices, and wheat prices. Error correction and directed acyclic graphs are used to study both lagged and contemporaneous relations in late 19^th and early 20^th century U.S. data. We summarize evidence supporting the view that money was a causal actor in price movement in this period. In the long run (at a five year horizon), over twenty percent of the movement in price is explained by earlier movements in money supply; whereas, wheat price accounts for less than ten percent of this movement. There is also evidence that money supply was not exogenous, as it was determined, in contemporaneous time, by movements in the general price level and income. About forty percent of the variation in money is explained by current or lagged prices and income. There remains considerable uncertainty with respect to role of wheat prices in this period. Innovations in wheat price explain over twenty five percent of the uncertainty in real income at the five year forecast horizon – suggesting wheat price as either causal or proxying for more fundamental causal forces in the U.S. economy over our period of analysis. First version received: December 1999/Final version received: February 2001     

The effect of quantitative easing on stock prices: a structural time series approach

A structural time series model is estimated and tested to examine the effect of quantitative easing (QE) on US stock prices. The model is estimated by maximum likelihood in a Time-varying parametric (TVP) framework, using the S&P 500 index as the dependent variable and the Fed’s balance as an explanatory variable in addition to the unobserved components accounting for the behaviour of variables that do not appear explicitly in the equation. The results show that QE had a sizeable, but not exclusive, effect on stock prices and that stock prices were also affected by other missing variables and cyclical movements. Several explanations are presented for the rise of the US stock market in the post-QE period, particularly since the election of Donald Trump.     

Nominal Wage Flexibility and Economic Performance: Evidence and Implications Across Industrial Countries

By considering the theoretical connection between labour and product markets, the paper evaluates the economic relationship of these markets within the contractual wage rigidity New Keynesian explanation of business cycles. The empirical analysis focuses on the short‐run cyclical behaviour of real output, prices and wages for 19 industrial countries. Time‐series and cross‐sectional regressions are estimated. Cross‐sectional cyclical correlations in the labour and goods markets are also evaluated across countries. Consistent with the theoretical predictions, aggregate uncertainty is an important factor in increasing the flexibility of the nominal wage in response to aggregate demand shocks. Wage flexibility accelerates price inflation and moderates the response of real output growth to aggregate demand shocks. Wage flexibility does not appear to be an important factor in differentiating the real and inflationary effects of energy price shocks across countries. Finally, aggregate uncertainty increases the responsiveness of output and price to productivity shocks.     

Cyclical output,cyclical unemployment,and Okun's coefficient A structural time series approach

Okun's coefficient is estimated from U.S. quarterly data covering the period 1947:1–1992:2. The cyclical components of unemployment and output are extracted by smoothing using the Kalman filter as applied to Harvey's structural time series model. The estimated Okun's coefficient is around −0.38 irrespective of the whether the model used is static or dynamic and irrespective of the lag length in the dynamic model.     

The empirical application of a small open economy model: Greece 1954–81

A small macroeconometric model designed to analyse the major macroeconomic aggregates in the open economy of Greece is presented. The specification of the model is based on the assumptions of the ‘Monetary Approach to the Balance of Payments and Exchange Rate determination’. Also, it contains an Expectations Augmented Phillips Curve and consists of seven equations. The empirical findings suggest that for the period 1954–81, the Greek economy did not behave consisently with the particular theoretical or other persuasion model. However, the empirical model tracks reasonbly well the historical values of the endogenous variables and it captures the cyclical behaviour of the economy. The evidence suggests that monetary policy had no significant influence on output growth with its role being confined on determining the balance of payments. On the contrary, fiscal policy played a dominant role in output determination and prices variation.     

A Model of U.K. Exports of Manufactures to Industrial Countries

THIS paper describes a model of U.K. exports of manufactures to industrial countries. The model is outlined in the first section and estimated in the succeeding section. The next section compares the relative efficiencies of aggregate and micro-relations. The paper ends with a discussion of a partially reduced form of the model.

Industrial countries are defined as 1967 OECD members (excluding Iceland); ¹ 1. That is: Canada, U.S.A., Austria, Belgium-Luxembourg, Denmark, France, Germany, Greece, Ireland, Italy, Japan. Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, and the U.K. This definition thus includes some countries often classified as ‘semi-industrial’. these countries accounted for 50 per cent of world imports of manufactures and 70 per cent of total world imports and took about 56 per cent of U.K. total exports of manufactures, in 1967. Manufactured goods are defined as SITC Sections 5–8 inclusive. Quarterly data from 1956 to mid-1968 are used. All trade and price series are expressed at 1963 U.S. dollar prices, and activity indicators are also expressed in real terms. This was because it was thought that the structural parameters of the model could be better estimated using volume rather than value flows. Also the full London Business School macro-economic model measures national income as the sum of expenditures corresponding to output produced at home at 1963 prices. So, in forecasting G.D.P., estimates are needed of U.K. exports at 1963 prices. Conversion to current price forecasts, for balance of payments purposes, is made using an explanatory relationship for U.K. export prices of manufactures. Conversion into sterling terms from dollar values is straightforward, after allowing for the sterling devaluation of November, 1967.

The present model is only a partial version of a larger system explaining individual trade flows between countries; it is concerned only with indiliidual relations for British exports by markets and with total import flows for the other industrial countries.     

Bursting the dot.com "Bubble': A Case Study in Investor Behaviour

The Austrian economist Joseph Schumpeter considered innovation to be the driving force of economic growth and argued that innovations were also the main cause of cyclical fluctuations in the economy, an idea now well established in the economic literature. In this paper, the authors attempt to gain insights into the behaviour exhibited by investors before and after the market correction of the newly established Internet sector--a technology with revolutionary potential--in the Spring of 2000 by structuring their analysis around the psychological themes of heuristic-driven bias, frame dependence, and inefficient prices. Linear regression models are constructed using data collected on publicly traded Internet companies, market performance both before and after the collapse of the Internet sector stock prices in an attempt to assess whether or not market returns were correlated with certain specific measures of corporate internet performance. Finally, the authors draw inferences relating to the psychology of investor behaviour during this period based upon their empirical analysis, and conclude by summarizing the managerial implications of their findings.     

ESTIMATES OF THE AGGREGATE QUARTERLY CAPITAL STOCK FOR THE POST-WAR U.S. ECONOMY

We construct quarterly aggregate gross and net capital stock series for the post-war U.S. economy using annual capital stock, capital depreciation, and capital discard figures along with quarterly investment series. We construct nominal and real measures of all three categories in the aggregate capital stock: consumer durable goods, producer durable goods, and business structures. In constructing the nominal series we take into account the changes in capital goods' prices. The series are constructed using four different methods. Using time- and frequency-domain techniques, we compare the constructed series and characterize their short-run, business cycle, and long-run cyclical properties. We find that the constructed series exhibit very different cyclical and shock persistence dynamics. Practial implications are discussed.     

Long run and cyclical strong dependence in macroeconomic time series: Nelson and Plosser revisited

This paper deals with the presence of long range dependence at the long run and the cyclical frequencies in macroeconomic time series. We use a procedure that allows us to test unit roots with fractional orders of integration in raw time series. The tests are applied to an extended version of Nelson and Plosser’s (Nelson CR, Plosser CI (1982) J Monetary Econ 10:139–162) dataset, and the results show that, though the classic unit root hypothesis cannot be rejected in most of the series, fractional degrees of integration at both the zero and the cyclical frequencies are plausible alternatives in some cases. Additionally, the root at the zero frequency seems to be more important than the cyclical one for all series, implying that shocks affecting the long run are more persistent than those affecting the cyclical part. The results are consistent with the empirical fact observed in many macroeconomic series that the long-term evolution is non-stationary, while the cyclical component is stationary.

Countercyclical or procyclical real wages? A disaggregate explanation of aggregate asymmetry

The time-series analysis of disaggregated data for a sample of 28 private industries verifies the prevalence and sources of asymmetry in aggregate data. The evidence indicates that asymmetry in the cyclical behavior of the real wage is widespread across the U.S. economy. The reduction in the real wage during recessions appears pronouncedly larger compared to the increase in the real wage during expansions in many industries. Across industries, price inflation increases faster compared to nominal wage inflation in the face of higher demand variability. Price flexibility moderates the increase in the real wage and output growth during expansions. In contrast, prices appear more downwardly rigid compared to the nominal wage in the face of demand variability. Price rigidity exacerbates the reduction in the real wage and output contraction during recessions. The combined evidence supports the implications of the sticky-price explanation of business cycles.First version received: June 2003/Final version received: June 2004The author thanks an anonymous referee for helpful comments on an earlier draft of the paper. The views expressed in this paper are those of the author and should not be interpreted as those of the International Monetary Fund.     

中国改革历程中的产出和价格波动:货币所扮演的角色

中国经济正在其改革历程中经历着经济增长和通货膨胀的周期性波动.关于货币在这些波动中所起的作用,经济学家有着不同的观点.该文运用基于交易方程式的结构化 VEC 模型,对这些观点进行了探讨.我们发现,在长期,货币对产出和价格的变化做出适应性调整,而并非这些变化的原因.而在短期,价格变动要归因于那些对货币和价格有持久影响而对真实产出没有持久影响的冲击.这些冲击对多数的货币波动负责,并且强烈地影响产出.     

An investment-function-based measure of capacity utilisation.: Potential output and utilised capacity in the Bank of Italy's quarterly model

Measures of potential output and the output gap are increasingly being developed and used to concisely quantify and monitor the risk of price accelerations stemming from rises in aggregate demand that are not met by a corresponding increase in supply. They often play a prominent role in the price determination mechanisms of macroeconometric models. In this paper we build a measure of potential private-sector value added for the Italian economy that is consistent with the capital accumulation process in the Banca d'Italia's Quarterly Model — and more generally with the rest of the supply-side block of that model. More specifically, we exploit the fact that the investment function can be thought of as a relationship transforming desired gross additions to capacity output into capital accumulation by means of a conversion factor (the optimal capital/output ratio). Thus, if one removes the component of investment decisions that stems from changes in the relative price of the production factors, (i.e. in the optimal capital/output ratio), then a measure of the desired gross addition to capacity may be constructed. The results draw a cyclical picture of the degree of capacity utilisation for the period 1970–1997 that is roughly in line with those produced by the Wharton and Hodrick–Prescott filter approaches, as well as with the pictures resulting from the ISAE, IMF, European Commission and OECD measures of the output gap. Our investment-function-based measure appears to be a promising indicator of the pressure exerted on prices by demand accelerations. Its empirical properties are, on the whole, acceptable and plausible.     

Business Cycle Asymmetries and Nonlinearity in UAE Macroeconomic Time Series

This study investigates the dynamic behaviour of macroeconomic time series variables of the United Arab Emirates. We first examined whether there are non‐Gaussian characteristics associated with the macroeconomic variables of the United Arab Emirates. Through application of the BDS nonlinearity test, our results indicated that there is a substantial nonlinear dependence in the data set for all the variables. We also assessed the asymmetric behaviour of these variables by exploring whether they exhibit two particular forms of asymmetry, which are deepness and steepness asymmetries. These results have shown that there is no empirical evidence of business cycle asymmetry in all the variables at any conventional level of significance in the sample period. Also, through application of further robust testing, our findings indicate the presence of pro‐cyclical asymmetry in some of the variables and at the same time indicate the presence of asymmetries in the volatility.     

Discretely proceeding from cycle to chaos on Goodwin's path

Goodwin's [Goodwin, R.M., 1951. The nonlinear accelerator and the persistence of business cycles. Econometrica 19, 1–17; Goodwin, R.M., 1955. A model of cyclical growth. In: Lundberg, E. (Ed.), The Business Cycle in the Post-war World. Macmillan, London, pp. 203–221] nonlinear multiplier–accelerator model, worked out in continuous-time, is a recognised contribution to business cycle theory. It is rarely observed that its first version was a linear model formulated in discrete-time [Goodwin, R.M., 1946. Innovations and the irregularity of economic cycles. Review of Economics and Statistics 28, 95–104]. A few decades later, he restated the fully-fledged nonlinear version of the model in discrete-time showing that such a version may account better for the complex behaviour of empirical time series [e.g., Goodwin, R.M., 1985. An irregular, asymmetric oscillator, or The discrete charm of erraticism, Mimeo, Siena (reproduced, with the title The discrete charm of erraticism, in Goodwin, R.M., 1989. Essays in Nonlinear Economic Dynamics. Peter Lang, Frankfurt am Main, pp. 139–156); Goodwin, R.M., 1988. The multiplier/accelerator discretely revisited. In: Ricci, G., Velupillai, K. (Eds.), Growth Cycles and Multisectoral Economics: The Goodwin Tradition. Springer-Verlag, Berlin, pp. 19–29]. The article reconstructs the evolution of the multiplier–accelerator model in Goodwin's thought with special emphasis on the early and late discrete version. First, the genesis of the model is considered in some depth in order to clarify its foundations based on the constraints of a monetary economy. Second, the results of Goodwin's late contributions are amended and generalised. Finally, the path followed by Goodwin is reconstructed and appraised in the light of the dialectics between continuity and discontinuity, regularity and irregularity, stability and instability that steered its direction. The main conclusion is that Goodwin's path should be further pursued as an effective alternative to the equilibrium business cycle models.     

中国改革历程中的产出和价格波动：货币所扮演的角色

中国经济正在其改革历程中经历着经济增长和通货膨胀的周期性波动。关于货币在这些波动中所起的作用，经济学家有着不同的观点。本文运用基于交易方程式的结构化VEC模型，对这些观点进行了探讨。我们发现，在长期，货币对产出和价格的变化做出适应性调整，而并非这些变化的原因。而在短期，价格变动要93因于那些对货币和价格有持久影响而对真实产出没有持久影响的冲击。这些冲击对多数的货币波动负责，并且强烈地影响产出。     

An empirical examination of long-run purchasing power parity as theory of international commodity arbitrage

An empirical analysis of long-run purchasing power parity (PPP) as a theory of international commodity arbitrage between UK and US prices and the sterling/US dollar exchange rate for the period 1975–1980 is presented. Econometric techniques concerning the cointegration of economic time series are applied to a sample of 35 manufactured commodities which in 1977 constituted approximately a quarter of the net output of all manufacturing industry in Great Britain. Our results are extremely unfavourable to the PPP hypothesis as a stable long-run proportionality between exchange rates and disaggregated prices.     

Evaluating the risk premium in the U.S.A. natural gas market: evidence from low-price regime

In recent years, the U.S.A. natural gas market has seen enormous changes. The expectations of abundant supply of shale gas and the slow U.S.A. economic recovery have pushed gas prices below US$ 4 MMBtu. Although shale gas is a new promising source of unconventional energy, investors face uncertain investment plans. In this study, we investigate the risk premium by comparing behaviour before and after the change point in agents risk perception. Unlike traditional empirical research on risk premium, we use the parametric, two-factor model of Schwartz and Smith (2000) to evaluate the implied risk premium term structure from futures prices traded on the New York Mercantile Exchange (NYMEX). We compare our findings with other empirical results and find that the change point lies at the beginning of the low-price regime. When we compare periods before and after the change point, we observe that the risk premium changed, not only in sign, but also in magnitude.     

Tooke's approach to explaining prices

This paper examines the method of analysis and theoretical approach Thomas Tooke (1774–1858) employed in his empirical study of English prices. It is shown that Tooke adopted the “long period method” formulated by Adam Smith to analyse a capitalist society. It is shown that like most nineteenth-century classical economists, Tooke adopted a modified version of Adam Smith's “adding-up” approach to normal prices and distribution which incoporated Ricardo's theory of rent. The paper shows that based on this approach, Tooke explained short-run fluctuations in prices be reference to factors that disrupted the adjustment of supply to the “effectual” demand for commodities.     

Growth accounting for the euro area

This article is concerned with the estimation of euro area potential output growth and its decomposition according to the sources of growth. The growth accounting exercise is based on a multivariate structural time series model which combines the decomposition of total output according to the production function approach with price and wage equations that embody Phillips-type relationships linking inflation and nominal wage dynamics to the output gap and cyclical unemployment, respectively. Assuming a Cobb?CDouglas technology with constant returns to scale, potential output results from the combination of the trend levels of total factor productivity (TFP) and factor inputs, capital and labour (hours worked), which is decomposed into labour intensity (average hours worked), the employment rate, the participation rate and population of working age. The nominal variables (prices and wages) play an essential role in defining the trend levels of the components of potential output, as the latter should pose no inflationary pressures on prices and wages. The structural model is further extended to allow for the estimation of potential output growth and the decomposition according to the sources of growth at different horizons (long run, medium run and short run); in particular, we propose and evaluate a model-based approach to the extraction of the low-pass component of potential output growth at different cut-off frequencies. The approach has two important advantages: the signal extraction filters have an automatic adaptation property at the boundaries of the sample period, so that the real-time estimates do not suffer from what is often referred to as the ??end-of-sample bias??. Secondly, it is possible to assess the uncertainty of potential output growth estimates with different degrees of smoothness.