Wage Formation and Bargaining Power during the Great Depression*

We present an econometric analysis of wage behaviour in Norway during the interwar years. The analysis is based on a panel of manufacturing industry data using GMM estimation methods. Our empirical analysis shows that wage formation in the interwar period can be understood with the help of modern bargaining theory and well‐established wage equations. We estimate a long‐run wage curve that has all the standard features of being homogeneous in prices, proportional to productivity, and with a negative unemployment elasticity. We also present some new Monte Carlo evidence on the properties of the estimators used.     

Housing and the Great Depression

This article considers the structural stability of the relationship between the real housing price and real GDP per capita for an annual sample that includes the Great Depression. We test for structural change in parameter values using a sample of annual US data from 1890 to 1952. The article examines the long-run and short-run dynamic relationships between the real housing price and real GDP per capita to determine whether these relationships experienced structural change over the sample period. We find that temporal Granger causality exists between these two variables only for subsamples that include the Great Depression. For the other subsample periods as well as for the entire sample period, no relationship exists between these variables.     

Real-time forecasting US GDP from small-scale factor models

We show that the single-index dynamic factor model developed by Aruoba and Diebold (Am Econ Rev, 100:20–24, 2010) to construct an index of the US business cycle conditions is also very useful to forecast US GDP growth in real time. In addition, we adapt the model to include survey data and financial indicators. We find that our extension is unequivocally the preferred alternative to compute backcasts. In nowcasting and forecasting, our model is able to forecast growth as well as AD and better than several baseline alternatives. Finally, we show that our extension could also be used to infer the US business cycles very precisely.     

Expectations, the business cycle and the Mexican peso crisis

The 1994–95 ‘peso’ crisis did not displaycharacteristics which allow it to be easily captured by traditionalcrisis models. Models based on Minsky's financial fragilityhypothesis offer more persuasive accounts but have been supportedby relatively little direct empirical evidence. This paper providessuch evidence, with particular attention being paid to the roleof domestic financial liberalisation in the process. Minsky'shypotheses about the evolution of expectations over the businesscycle are tracked using business survey data. In addition, crisisindicators are constructed, reflecting the changing vulnerabilityof the economy to shocks. The findings support a Minskyian interpretationof the crisis.     

Fiscal policy uncertainty and the business cycle: Time series evidence from Italy

Economic uncertainty is an important factor behind macroeconomic fluctuations: in an uncertain environment, firms reduce hiring and investment; financial intermediaries are more reluctant to lend; households increase their propensity to save. In the present paper, we study the effects of the uncertainty which arises from fiscal policy decisions and propose a new measure of fiscal policy uncertainty (FPU). In particular, we estimate a fiscal reaction function, allowing the volatility of the shocks to be time-varying. The time series of this volatility is our proxy for FPU. Looking at Italian data over the period 1981–2014, we find that an unexpected increase in our measure of FPU has a negative impact on the economy. One implication of this result is that the same change in the government budget can have different effects depending on whether it is associated with a reduction or an increase in FPU. Therefore, the neglect of FPU may partly explain why the size (and sign) of fiscal multipliers differs so much across existing empirical studies.     

EMU and the transmission of monetary policy: evidence from business lending rates

This paper analyses the pass-through of money market rates to short-term and long-term business lending rates in the four largest euro area countries. The main findings of the paper are (1) that since the start of EMU loan rates appear to have become more responsive to money market rate changes in France, Italy and Spain, but not in Germany, and (2) that German loan rates are significantly more sluggish than loan rates in the other three large euro area countries. I also test for non-linear pass-through based on an asymmetric error-correction model but do not find much evidence of non-linearity in euro area interest rate pass-through.The views expressed in this paper do not necessarily represent the views of the Deutsche Bundesbank.     

Fiscal policy,business cycles and discretion: evidence from the Western Balkans

While previous research has examined the macroeconomic performance of the New Member States during the boom–bust cycle of the 2000s, very little has been written on the experience of the Western Balkans. In this article we investigate the responsiveness of fiscal policy to business cycles in the Western Balkans, examining whether expenditure moved counter-cyclically and whether a larger proportion of expenditure was ‘discretionary’; that is, related to the political cycle rather than economic conditions. Our results suggest that fiscal policy did not move counter-cyclically in the Western Balkans. Instead, countries overspent in the boom years and then reduced spending as a result of financing constraints during the crisis. Furthermore, the discretionary component of fiscal policy, defined here as spending unexplained by inertia and economic conditions, appears to be somewhat larger in the Western Balkans than in the European Union. This has important policy implications that affect the effectiveness of fiscal policy in dampening economic fluctuations.     

Small business in the Russian provinces: Case study evidence from Volgograd

During the 1990s Slovenia has moved toward a more market-based economy with a greater role for the private sector in asset ownership, production and price determination. The Slovenian food industry comprises a small number of producers operating in a comparatively modest market. Primary and secondary data analysis indicates that firms are largely oriented to a domestic market that is significantly protected. This has augmented profitability in the sector, albeit with substantial variations between branches. Profit levels (measured as cash flow as a percentage of turnover) are relatively high. If Slovenia joins the EU, food manufacturers operating in an enlarged European Single Market will not be afforded the degree of protection they currently receive and this heralds a substantial challenge to enterprise managers.     

Profitability in business cycle theory and forecasting

Given the Important connections among profitability, investment, and economic activity, a profitability indicator can be used to assess where the economy is in the business cycle. Rising profitability suggests that the economy is on a secular growth path, while a peak or fall in profitability suggests that growth is slowing and the economy is headed for recession. One measure of profitability is to divide total business sector profit by total wages paid to labor. Let this variable be called the PW ratio.This paper's research shows that the PW ratio leads recessions, and that it takes two to six quarters of decline in PW before the onset of recession. PW clearly peaks in stage three of the business cycle. The evidence demonstrates that the PW ratio compares favorably with other indicators used by forecasters. The paper concludes that wages are not responsible for squeezing profits until stage seven on average, and fluctuations in profit over the cycle exceed that of wages and the gap grows in late expansion.     

Remittances over the business cycle: Theory and evidence

We examine the behaviour of remittances over the business cycle and their potential to act as a ‘stabilizer’ during periods of high business cycle volatility. Two main findings are reported. First, remittances are less volatile than other foreign currency flows and do not appear to systemically comove with business cycle fluctuations. Second, remittances are relatively stable even during episodes of sharp business cycle volatility, such as those associated with sudden stops and financial crises. We also provide an overview of the theoretical literature on the implications of different motives to remit for the cyclical behaviour of remittances.     

Inequality and the business cycle: evidence from U.S. survey data

ABSTRACT

We study the effects of macroeconomic shocks on measures of economic inequality obtained from U.S. survey data. To identify aggregate supply, aggregate demand, and monetary policy shocks, we estimate vector autoregressions and impose sign and zero restrictions on impulse response functions. We find that the effects of the macroeconomic shocks on inequality depend on the type of shock as well as on the measure of inequality considered. Contractionary monetary policy shocks increase expenditure and consumption inequality, whereas income and earnings inequality are less affected. Adverse aggregate supply and demand shocks increase income and earnings inequality, but reduce expenditure and consumption inequality. Our results suggest that different channels dominate in the transmission of the shocks. The earnings heterogeneity channel is consistent with the inequality dynamics after monetary policy shocks, but it appears to be less crucial when the economy is hit by either aggregate supply or aggregate demand shocks. Using variance decompositions, we find that although the macroeconomic shocks account for large shares of the variation in the macroeconomic variables, their contributions to the dynamics of the inequality measures are limited.     

20世纪30年代大萧条中的中国宏观经济

本文对20世纪30年代世界经济大萧条中的中国经济进行历史回顾和经济理论分析,并与西方主要金本位国家进行比较,力图还原历史的本来面目。本文的研究发现,有两个因素在大萧条时期的中国经济中起到了重要作用,一个是银本位,一个是竞争性的银行体系。银本位使中国经济萧条的进程迥然不同于西方金本位国家;不同于西方国家主要通过财政政策度过大萧条,中国由于特殊的银行体系,货币供给始终没有减少,银行危机也没有普遍发生,这是中国经济在整个大萧条中表现较好的一个重要原因。     

Downside business confidence spillovers in Europe: evidence from causality-in-risk tests

This paper employs an extreme risk spillovers test to investigate the bilateral business confidence spillovers between Greece, Italy, Spain, Portugal, France, and Germany. After controlling for domestic economic developments in each country and common international factors, downside risk spillovers are detected as a causal feedback between Spain and Portugal and unilaterally from Spain to Italy. Extremely low business sentiments in France, Germany, and Greece are mostly due to the common adverse economic environment and to each country’s own domestic economic developments.     

Labor market dynamics over the business cycle: evidence from Markov switching models

This paper explores the evolution of the U.S. labor market across the business cycle and specifically the relationship between the unemployment rate and the average duration of unemployment. Labor market recoveries have long been thought of as lagging recoveries in broad economic activity. In particular, the unemployment rate peaks several months after official business cycle troughs and the average duration of unemployment lags further behind. Using estimates from Markov switching models of the unemployment rate, average duration of unemployment, jobless claims, and the exhaustion rate of regular unemployment insurance, this paper dates contractionary and expansionary phases of various aspects of the labor market and their relationship to the official phases of the business cycle. Evidence from these models suggests that inflows into unemployment recover almost contemporaneously with broad economic activity, while outflows recover almost a year after the end of official recessions. The differential timing in the recoveries of unemployment inflows and outflows, which is not a characteristic of most macro models of the labor market, accounts for the observed pattern between the unemployment rate and average duration of unemployment. Finally, when comparing the phases of the labor market to periods where Congress extends unemployment insurance benefits, it appears that policymakers target periods where the job finding rate is low, rather than periods where the stock of unemployed workers is high.     

Methods for analyzing data from Delphi panels: Some evidence from a forecasting study

Delphi and other methods of using expert opinion to generate forecasts can be a useful tool for planning, impact assessment, and policy analysis. Unfortunately, little is known about the accuracy of forecasts produced using these methods, so their utility is limited at present. Based on the logic of the Delphi method, I suggest that: 1) forecast accuracy should increase across rounds of a Delphi iteration, 2) there is a positive correlation between a panelist's uncertainty about a forecast and his or her shift in forecast from round to round, 3) forecasts weighted by self-reported confidence will be more accurate than unweighted forecasts, and 4) the use of robust estimates of location as summaries of expert opinion yield better forecasts than nonrobust measures. A Delphi experiment provides little support to any of these hypotheses. This finding suggests that traditional assumptions about the proper methods for analyzing a Delphi study may be inappropriate.     

Expectations and regime robustness in price formation: evidence from vector autoregressive models and recursive methods

The forward-looking linear quadratic adjustment cost (LQAC) model has received attention when modelling prices. Empirical evidence supporting the model seems, however, ambiguous. We find that the LQAC-model is severely at odds with price data for Norwegian machinery exports also when the pure forward-looking rule is augmented by additional lags of the targeted variable. A conditional equilibrium correction (EqCM) model explains the export price behaviour more accurately. Our findings may rule out a large class of expectations based models and not just the particular LQAC-model in the formation of export prices. We also demonstrate that the EqCM-model performs well post-sample despite that monetary policy in Norway has changed from a fixed to a floating exchange rate regime following a recent introduction of inflation targeting. This regime robustness shows that the Lucas critique lacks force empirically in our case.     

Real earnings and business cycles: new evidence

In the time domain, the observed cyclical behavior of the real wage hides a range of economic influences that give rise to cycles of differing lengths and strengths. This may serve to produce a distorted picture of wage cyclicality. Here, we employ frequency domain methods that allow us to assess the relative contribution of cyclical frequency bands on real wage earnings. Earnings are decomposed into standard and overtime components. We also distinguish between consumption and production wages. Frequency domain analysis is carried out in relation to wages alone and to wages in relation to output and employment cycles. Our univariate analysis suggests that, in general, the dominant cycle followed by output, employment, real consumer and producer wages and their components is 5–7 years. Consistent with previous findings reported in the macro-level literature, our bi-variate results show that the various measures of the wage are generally not linked to the employment cycle. However, and in sharp contrast with previous macro-level studies we find strong procyclical links between the consumer wage and its overtime components and the output cycle, especially at the 5–7 years frequency.

Observed real wages are not constant over the cycle, but neither do they exhibit consistent pro- or counter-cyclical movements. This suggests that any attempt to assign systematic real wage movements a central role in an explanation of business cycles is doomed to failure. (lucas 1977)