The Micro-Origins of Business Cycles: Evidence from German Metropolitan Areas

2020 ◽  
pp. 1-48
Author(s):  
Federica Daniele ◽  
Heiko Stüber
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Spatial Variation ◽  
Structural Model ◽  
Metropolitan Areas ◽  
Reduced Form ◽  
Local Concentration ◽  
Form Analysis ◽  
Productivity Distribution ◽  
German Cities

How large is volatility due to large firms? We answer this question through both reduced-form analysis and a calibration exercise. First, we exploit time and spatial variation across German cities and show that i) higher concentration is associated with more persistent local business cycles, ii) local concentration Granger-causes local employment volatility. From a business cycle perspective, we find evidence in favor of granularity-driven recessions only. Next, we calibrate a structural model along the lines of Carvalho and Grassi (2019) and find that the more fat-tailed productivity distribution in bigger cities crucially depends also on the higher probability for firms to grow.

scholarly journals Modeling time-variation over the business cycle (1960–2017): an international perspective

2018 ◽  
Vol 22 (5) ◽  
Author(s):  
Enrique Martínez-García
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
International Business ◽  
Linear Models ◽  
Trade Openness ◽  
Form Solution ◽  
Reduced Form ◽  
Time Varying ◽  
Time Varying Parameter ◽  
The Business Cycle

AbstractIn this paper, I explore the changes in international business cycles with quarterly data for the eight largest advanced economies (US, UK, Germany, France, Italy, Spain, Japan, and Canada) since the 1960s. Using a time-varying parameter model with stochastic volatility for real GDP growth and inflation allows their dynamics to change over time, approximating nonlinearities in the data that otherwise would not be adequately accounted for with linear models [Granger, Clive W.J., Timo Teräsvirta, and Heather M. Anderson. 1991. “Modeling Nonlinearity over the Business Cycle.”In NBER book Business Cycles, Indicators and Forecasting (1993), edited by James H. Stock and Mark W. Watson, University of Chicago Press.; Granger, Clive W.J. 2008. “Non-Linear Models: Where Do We Go Next – Time Varying Parameter Models?”Studies in Nonlinear Dynamics and Econometrics12 (3): 1–11.]. With that empirical model, I document a period of declining macro volatility since the 1980s, followed by increasing (and diverging) inflation volatility since the mid-1990s. I also find significant shifts in inflation persistence and cyclicality, as well as in macro synchronization and even forecastability. The 2008 global recession appears to have had an impact on some of this. I ground my empirical strategy on the reduced-form solution of the workhorse New Keynesian model and, motivated by theory, explore the relationship between greater trade openness (globalization) and the reported shifts in international business cycle. I show that globalization has sizeable (yet nonlinear) effects in the data consistent with the implications of the model – yet globalization’s contribution is not a foregone conclusion, depending crucially on more than the degree of openness of the international economy.

scholarly journals The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications

2015 ◽  
Vol 105 (3) ◽  
pp. 993-1029 ◽  
Author(s):  
Olivier Coibion ◽  
Yuriy Gorodnichenko ◽  
Gee Hee Hong
Keyword(s):  
Simple Model ◽  
Business Cycles ◽  
Business Cycle ◽  
Inflation Rate ◽  
Metropolitan Areas ◽  
Policy Implications ◽  
Price Changes ◽  
Household Expenditures ◽  
Using Data ◽  
Regular Price

We study the cyclical properties of sales, regular price changes, and average prices paid by consumers (“effective” prices) using data on prices and quantities sold for numerous retailers across many US metropolitan areas. Inflation in the effective prices paid by consumers declines significantly with higher unemployment while little change occurs in the inflation rate of prices posted by retailers. This difference reflects the reallocation of household expenditures across retailers, a feature of the data which we document and quantify, rather than sales. We propose a simple model with household store-switching and assess its implications for business cycles and policymakers. (JEL D12, E31, E32, L25, L81)

EXPANSIONS AND RECESSIONS IN THE MEXICAN STATES: A CLASSICAL BUSINESS CYCLES APPROACH

2017 ◽  
Vol 3 (5) ◽  
pp. 32
Author(s):  
Pablo Mejía-Reyes
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Monthly Basis ◽  
Production Index ◽  
Clear Cut ◽  
Output Measure ◽  
Central Regions ◽  
The Business Cycle ◽  
National Business ◽  
Cycle Indicator

This paper aims to document expansions and recessions characteristics for 17 states of Mexico over the period 1993-2006 by using a classical business cycle approach. We use the manufacturing production index for each state as the business cycle indicator since it is the only output measure available on a monthly basis. According to this approach, we analyse asymmetries in mean, volatility and duration as well as synchronisation over the business cycle regimes (expansions and recessions) for each case. Our results indicate that recessions are less persistent and more volatile (in general) than expansions in most Mexican states; yet, there is no clear cut evidence on mean asymmetries. In turn, there seems to be strong links between the business cycle regimes within the Northern and Central regions of the country and between states with similar industrialisation patterns, although it is difficult to claim that a national business cycle exists.

scholarly journals News-Driven Business Cycles: Insights and Challenges

2014 ◽  
Vol 52 (4) ◽  
pp. 993-1074 ◽  
Author(s):  
Paul Beaudry ◽  
Franck Portier
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Empirical Evidence ◽  
Economic Fluctuations ◽  
Aggregate Fluctuations ◽  
Business Cycle Fluctuations ◽  
Widespread Belief ◽  
Way Of Thinking ◽  
The Many

There is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations. The news view of business cycles offers a formalization of this perspective. In this paper we discuss mechanisms by which changes in agents' information, due to the arrival of news, can cause business cycle fluctuations driven by expectational change, and we review the empirical evidence aimed at evaluating their relevance. In particular, we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations, while at the same time we emphasize the many challenges that must be addressed before a proper assessment of the role of news in business cycles can be established. (JEL D83, D84, E13, E32, O33)

scholarly journals ECONOMIES OF SCALE IN BANKING, CONFIDENCE SHOCKS, AND BUSINESS CYCLES

2013 ◽  
Vol 18 (5) ◽  
pp. 1069-1090 ◽  
Author(s):  
Scott J. Dressler ◽  
Erasmus K. Kersting
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Economies Of Scale ◽  
Financial Intermediation ◽  
Monetary Shocks ◽  
Nominal Rigidities ◽  
Equilibrium Indeterminacy ◽  
Economic Volatility ◽  
Over Time

Equilibrium indeterminacy due to economies of scale (ES) in financial intermediation is quantitatively examined in a monetary business-cycle environment. Financial intermediation provides deposits that serve as a substitute for currency to purchase consumption, and depositing decisions are susceptible to nonfundamental shocks to confidence. The analysis considers various assumptions on nominal rigidities and the timing of deposit decisions. The results suggest that indeterminacy arises for small ES, and the resulting confidence shocks qualitatively mimic monetary shocks. A calibration exercise concludes that U.S. economic volatility from this nonfundamental source has increased over time while volatility from fundamental sources has decreased.

REAL BUSINESS CYCLES AFTER THREE DECADES

2013 ◽  
Vol 19 (2) ◽  
pp. 425-445
Author(s):  
Sumru Altug ◽  
Warren Young
Keyword(s):  
Social Sciences ◽  
Business Cycles ◽  
Business Cycle ◽  
Panel Discussion ◽  
Real Business Cycle ◽  
Real Business Cycles ◽  
Macroeconomic Analysis ◽  
Time To Build ◽  
History Of ◽  
Recent Financial Crisis

The transcript of a panel discussion marking three decades of the real business cycle approach to macroeconomic analysis as manifested in Kydland and Prescott's “Time to Build” (Econometrica, 1982) and Long and Plosser's “Real Business Cycles” (Journal of Political Economy, 1983). The panel consists of Edward Prescott, Finn Kydland, Charles Plosser, John Long, Thomas Cooley, and Gary Hansen. The discussion is moderated by Sumru Altug and Warren Young. The panel touches on a wide variety of issues related to real business cycle models, including their history and methodology, starting with the work of Prescott and Kydland at Carnegie Tech and Plosser and Long at Rochester; their applications to policy; and their role in the recent financial crisis and likely future.The panel discussion was held in a session sponsored by the History of Economics Society at the Allied Social Sciences Association (ASSA) meetings in the Randle A Room of the Manchester Grand Hyatt Hotel in San Diego, California.

scholarly journals Business Cycles in Algerian Economy: A Bayesian DSGE Approach

2018 ◽  
Vol 2 (1) ◽  
pp. 72-100
Author(s):  
Abdelsalam BOUKHEROUFA
Keyword(s):  
Time Series ◽  
Business Cycles ◽  
Business Cycle ◽  
Equilibrium Model ◽  
Government Spending ◽  
Aggregate Demand ◽  
Dynamic Stochastic General Equilibrium ◽  
Business Cycle Fluctuations ◽  
Output Fluctuations ◽  
Dynamic Stochastic

The main objective of this paper is to highlight the most important shocks that drives the business cycles in the Algerian economy. Using Bayesian estimation techniques, we estimate a dynamic stochastic general equilibrium model (DSGE) using four time series of the Algerian macroeconomics. Through this estimated model, which succeeded in capturing the dynamics of the Algerian economy data, we found three main results: First, the main causes of business cycle fluctuations in the Algerian economy are aggregate demand shocks. Second, the of government spending shock play the most important role in output fluctuations. Third, empirical results show evidences of procyclical in government spending policies.

scholarly journals Business cycle synchronization of a small open EU-candidate country’s economy with the EU economy

2018 ◽  
Vol 65 (5) ◽  
pp. 609-631 ◽  
Author(s):  
Vladimir Filipovski ◽  
Predrag Trpeski ◽  
Jane Bogoev
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Candidate Country ◽  
Economic Policies ◽  
Large Magnitude ◽  
Euro Zone ◽  
The Republic ◽  
High Degree ◽  
The Impact ◽  
The Eu

The objectives of this paper are to empirically identify business cycles in a small open EU-candidate country such as the Republic of Macedonia and to assess the degree of synchronization of the country?s business cycle with the cycle of the EU economy. Towards the first objective, we apply linear and non-linear methods for delineating the production gap cycle in the Macedonian economy. As for the second objective, we apply autoregressive methods to assess the size and speed of cyclical adjustment of the Macedonian economy to output shocks to the Euro-zone economy. The results of our analysis suggest a high degree of synchronization of the Macedonian business cycles with the cycles of the EU economy. Also, the shocks in economic activity in the Euro-zone economy are transmitted almost instantaneously, and with a large magnitude, to the Macedonian economy. Finally, the impact of the Euro-zone output contraction is less pronounced than the impact of the Euro-zone output expansion, suggesting an impact of the country?s autonomous countercyclical economic policies.

Essays on empirical models of retirement

2018 ◽  
Author(s):  
◽  
Wei Kong
Keyword(s):  
Public School ◽  
Peer Effects ◽  
Financial Incentives ◽  
Structural Model ◽  
Programming Model ◽  
Reduced Form ◽  
Option Value ◽  
Public School Teachers ◽  
School Teachers ◽  
Value Model

[ACCESS RESTRICTED TO THE UNIVERSITY OF MISSOURI AT AUTHOR'S REQUEST.] In this study, I examine effects of financial incentives and non-financial incentives on public school teachers' retirement in Missouri. For financial incentives, existing studies commonly model the retirement in two types, static reduced-form and structural-form. There are two main types of the reduced-form models, linear probability model (e.g., Costrell and McGee, 2010; Brown, 2013), probit or logit model (e.g., Furgeson et al., 2006; Asch et al., 2005; Coile and Gruber, 2007). A prominent structural form model is the Stock and Wise (1990) option value model. In addition, some researchers (Brown and Laschever, 2012; Gustman and Steinmeier, 2000; Dwyer and Mitchell, 1999) suggest that non-financial incentives, such as colleagues, health status, and family, are also important factors to explain retirement decisions. Among these non-financial incentives, peer effects are the focus of my study. The first chapter analyzes peer effects on public school teachers' retirement timing decisions. I use an administrative dataset of the full population of late career Missouri public school teachers during academic years 1994-2007 to construct a model incorporating both financial incentives and non-financial incentives when teachers make retirement decisions. My study mainly differs from previous literature in the controls of financial incentives and the use of data. For controls of financial incentives, instead of using pension wealth and peak value, I propose the simulated "financial benefit of postponing retirement" based on Stock-Wise (hereafter, SW) option value model as a new financial incentive proxy. Besides, I use a much richer dataset so that more detailed information about teachers are available and the schools are more diverse in poverty and urbanicity. Empirically, when the retirement rate of peers in previous year increases 1%, the probability of retirement increases approximately 0.128 percentage points. In addition, I find evidence of heterogeneous peer effects. For example, teachers with different education levels respond to peers retirement differently. Because the reduced-form parameters generally depend on the pension rules, the reduced-form models are unreliable to predict the effects of changes in the pension rules. In contrast, the structural model parameters are independent of pension rules, which makes them useful for policy analysis. The second chapter uses an economic structural model to fit late career Missouri public school teachers' data and study the effects of changing pension rules on the timing of retirement. Ni and Podgursky (2016) show that the SW option value model produces good fit for the Missouri public school teachers during 2002-2008. There are three limitations in their study and other applications of the SW model. First, the SW option value model has only been applied to retirement data when the pension rules are fixed. Second, there is a selection bias in the sample of senior teachers: among the retirement-eligible teachers only the "stayers" are in the sample, while the "early leavers" are absent. This bias has not been adjusted in the previous studies. Third, the SW model is estimated based on the likelihood of panel data of individuals (teachers or salesmen). The cost of computing the likelihood increases in the number of teachers and the length of the sample period. For a larger state, such as Texas, and/or a longer sample period, the computation cost may be prohibitively high. The second chapter solves these problems. First, I model expectations of pension rule changes. Second, I adjust the sample selection bias by using distribution of initial preference errors. Third, I group individual teachers into a fixed number of (age, experience) cells to reduce the time of evaluating the likelihood. I estimate the model under different expectation assumptions and compare their performance by simulation. The estimated SW model exhibits good in-sample and out-of-sample fits. Counterfactual analysis shows that pension enhancements reduce the retirement age by around 0.4 years for the 1994 cohort teachers and by more than one year for teachers in the steady state. Finally, I compare SW option value model with an alternative widely applied structural model of retirement, dynamic programming model. Compared to dynamic programming model, the SW model tends to predict early retirement.

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