Sources of the great moderation: A time-series analysis of GDP subsectors

Recent work finds evidence that the volatility of the U.S. economy fell dramatically around the first quarter of 1984. We trace the timing of this so-called “Great Moderation” across many subsectors of the economy in order to better understand its root cause. We find that the interest rate sensitive sectors generally experience a much earlier volatility decline than other large sectors of the economy. The changes in Federal Reserve stabilization policies that occurred during the early 1980s support the view that an improved monetary policy played an important role in stabilizing real economic activity. We find only mild evidence that “good luck” was important and little evidence to support the claim that improved inventory management was important.     

The probability of a “gross” violation of an efficient markets variance inequality

This note considers the small sample bias of the empirical variances of observed and ex-post-rational prices of financial assets, and shows that this can be much more severe than has previously been thought.     

Out-of-Sample Forecasts and Nonlinear Model Selection with an Example of the Term Structure of Interest Rates

It is well known that goodness-of-fit measures lead to overfitting. We compare the small-sample properties of linear and several nonlinear models using a Monte Carlo study. A large number of linear series are generated and conventional methods of fitting nonlinear models are applied to each. The best linear and nonlinear models are compared using in-sample and out-of-sample criteria. Out-of-sample forecasts are shown to be superior for selecting the proper specification. The experiment is repeated using a nonlinear model and the in-sample lit and forecasts of the various models are compared. An example is provided using the term structure of interest rates.     

Relative uncertainty aversion and additively representable set rankings

This paper proposes a definition of relative uncertainty aversion for decision models under complete uncertainty. It is shown that, for a large class of decision rules characterized by a set of plausible axioms, the new criterion yields a complete ranking of those rules with respect to the relative degree of uncertainty aversion they represent. In addition, we address a combinatorial question that arises in this context, and we examine conditions for the additive representability of our rules.     

Nuclear Power

Nuclear power has never been free from the stifling involvement of government. Heavy regulation has reduced the ability of entrepreneurs to develop and provide new means for the generation of energy using nuclear fuel. The strict parameters dictated by government officials are based upon outdated technology, an improper regulatory philosophy, and preclude innovation in nuclear power generation. Anti-market environmentalists misunderstand the implications of a free market in nuclear power and argue against it based on problems that are actually caused by government involvement. Our position is neither for nor against nuclear power. We advocate a hands-off policy where the nuclear industry is left to its own devices, free from governmental regulations and subsidies: free to succeed or fail on its own. Thus, our position is neither right-wing conservative (removing regulations), nor left-wing liberal (removing subsidies). Very much to the contrary of both positions, we propose a free-market in nuclear power.     

Reference groups and individual deprivation

We provide an axiomatization of Yitzhaki's index of individual deprivation. Our result differs from an earlier characterization due to Ebert and Moyes in the way the reference group of an individual is represented in the model.     

Is the locus of poverty changing?

Urbanization is now a dominant demographic phenomenon in low- and middle-income countries. By the year 2000, half of the world's population will live in urban areas; of this half, two thirds will be in developing countries, predominantly in Asia. Whether there will be a corresponding shift of poverty from rural to urban areas is the central question of this analysis. Evidence from cross-sectional, time-series, and case data indicates that the percent of poverty in urban areas is dependent on income levels, income growth, and income distribution. The evidence also indicates that the number of poor in rural areas will exceed those in urban areas well into the 21st century. These poverty and urbanization trends are significant politically, and important also with respect to food policy and required investments in agriculture.