Global commodity cycles and linkages: a FAVAR approach

In this article, we examine linkages across non-energy commodity price developments by means of a factor-augmented VAR model (FAVAR). From a set of non-energy commodity price series, we extract two factors, which we identify as common trends in metals and food prices. These factors are included in a FAVAR model together with selected macroeconomic variables, which have been associated with developments in commodity prices. Impulse response functions confirm that exchange rates and economic activity affect individual non-energy commodity prices, but we fail to find strong spillovers from oil to non-oil commodity prices or an impact of the interest rate. In addition, we find that individual commodity prices are affected by common trends captured by the food and metals factors.     

Unobservable persistent productivity and long term contracts

We study the problem of a firm that faces asymmetric information about the persistent productivity of its potential workers. In our framework, a worker's productivity is either assigned by nature at birth, or determined by an unobservable initial action of the worker that has persistent effects over time. We provide a characterization of the optimal dynamic compensation scheme that attracts only high productivity workers: consumption—regardless of time period—is ranked according to likelihood ratios of output histories, and the inverse of the marginal utility of consumption satisfies the martingale property derived in [Rogerson, William P., 1985. Repeated moral hazard. Econometrica 53 (1) 69–76]. However, in the case of i.i.d. output and square root utility we show that, contrary to the features of the optimal contract for a repeated moral hazard problem, the level and the variance of consumption are negatively correlated, due to the influence of early luck into future compensation. Moreover, in this example long-term inequality is lower under persistent private information.     

Primary commodity price fluctuations and developing countries: An econometric model of copper and Zambia

Most of the literature on commodity price fluctuations and their impact on development has been based on cross-country data and aggregated export earnings. The results have been inconclusive, largely because the analysis fails to recognize the importance of country and commodity differences. This paper isolates a single commodity, copper, and a single country, Zambia, which copper export earnings loom large in the economy. It then presents an econometric model of the country, consisting of a disaggregated copper export sector with links to a macro model of the whole economy. Fluctuations in export prices around a smooth trend are then simulated, and their impact on the non-export sectors observed through such a development indicators as exployment levels, GDP levels and growth rates, general price levels and final demand.     

Hysteresis,Nairu and long term unemployment in Austria

The paper analyzes hysteresis or persistence effects in Austrian unemployment using formal unit root tests and a simple macroeconometric model of wage-price formation. The empirical results point towards a considerable amount of persistence in unemployment generated by the rising share of long-term unemployed that has been associated with the increase in overall unemployment in Austria.     

Sectoral shocks and business cycles: a disaggregated analysis of output fluctuations in the UK

In this paper we first show that it is possible to modify linear real business cycle models to allow for disaggregate (industry-specific) factors in the generation of macroeconomic fluctuations. We then try to determine the relative importance of aggregate and sectoral shocks by doing principal components analysis on the residuals from a VAR of output growth rates in 19 UK industrial sectors. We find that a significant percentage of the innovations in sectoral output growths can be accounted for by a single unobserved component. However, since the model only sets an upper bound to the explanatory power of aggregate impulses, the importance of using sectoral data to extract additional information to bear on the analysis of economic fluctuations is confirmed by our findings.     

Stylized facts on nominal term structure and business cycles: an empirical VAR study

This paper examines the importance of various macroeconomic shocks in explaining the movement of the term structure of nominal bond yields in the post-war USA, as well as the channels through which such macro-shocks influence the yield curve, using a structural Vector Autoregressive (VAR) model. The results show that the monetary-policy and the aggregate-supply shocks are important determinants of the nominal term structure. Moreover, the monetary-policy innovations have a large but transitory effect on the nominal bond yields, primarily by changing the slope of the yield curve, and the aggregate-supply shocks from private sector have a more persistent effect on the level of the yield curve, but have little effect on the slope of the yield curve.     

The impact of corporate debt on long term investment and firm performance

Prior research indicates a linkage between debt, research and development (R&D) and physical investment, and that the relationship varies depending on the type of firm (science versus non–science). Leverage also plays a multidimensional role in corporate performance and growth. The relationship between financial leverage and R&D expenditure is analysed using a sample of large United States (US) manufacturing firms. Then, the impact of leverage on R&D expenditure is studied using corporate performance drivers as intermediate variables. The results indicate that there is a strong negative relationship between the degree of financial leverage and the level of R&D expenditure that firms undertake. The negative relationship is robust to changes in model specifications and sample periods. More importantly, the results show that it is higher leverage that leads to lower R&D expense rather than R&D causing variations in future leverage. In addition, the results indicate that higher leverage adversely influences future investment in R&D which may in turn lead to negative impact on long term operating performance and future growth opportunities.     

An evolutionary model of long term cyclical variations of catching up and falling behind

We generalize a single-country model of endogenous growth to the case of a multi-country world economy in which technology transfer and behavioral imitation are the possible means of interaction between countries. The model is evolutionary in the sense that the economies are disaggregated by behaviourally heterogeneous firms, market selection occurs, and the innovation process is uncertain and stochastic. We demonstrate that this structure leads to a complex process of convergence and divergence over time that can be characterized as 1/f noise. Spectral analysis of measures of convergence for six core OECD countries in the period 1870–1989 reveals a similar pattern in the empirical data.     

A long term model of oil markets,economic growth and balance of payment constraints

This paper describes LTM, a long term model of oil markets, economic growth and balance of payments constraints. In this paper the model is used to investigate the role of the demand elasticity for oil in determining OPEC's profit-maximizing production profile. Our experiments reveal that in a model with intertemporal substitution and endogenous capital formation, gross revenue curves are fairy flat. Hence their economic optimum is virtually indeterminate. This suggests considerable leeway in OPEC's determination of pricing and production policies.This work has been supported by the U.S.-Mexico Project and the Center for Economic Policy Research at Stanford University as well as by the U.S. Department of Energy. Helpful suggestions have been received from Bagicha S. Minhas. The individual authors are solely responsible for the views expressed here.