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2003b), “Shocks and frictions in US business cycles: a Bayesian DSGE approach”, mimeo, European Central Bank
"... In 2007 all ECB publications feature a motif taken from the €20 banknote. This paper can be downloaded without charge from ..."
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In 2007 all ECB publications feature a motif taken from the €20 banknote. This paper can be downloaded without charge from
ARE TECHNOLOGY IMPROVEMENTS CONTRACTIONARY?
, 2002
"... Yes. We construct a measure of aggregate technology change, controlling for imperfect competition, varying utilization of capital and labor, and aggregation effects. On impact, when technology improves, input use falls sharply, and output may fall slightly. With a lag of several years, inputs retur ..."
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Yes. We construct a measure of aggregate technology change, controlling for imperfect competition, varying utilization of capital and labor, and aggregation effects. On impact, when technology improves, input use falls sharply, and output may fall slightly. With a lag of several years, inputs return to normal and output rises strongly. We discuss what models could be consistent with this evidence. For example, standard onesector realbusinesscycle models are not, since they generally predict that technology improvements are expansionary, with inputs and (especially) output rising immediately. However, the evidence is consistent with simple stickyprice models, which predict the results we find: When technology improves, input use generally falls in the short run, and output itself may also fall.
Firmspecific capital and the NewKeynesian Phillips curve
 International Journal of Central Banking. forthcoming
, 2005
"... A relation between inflation and the path of average marginal cost (often measured by unit labor cost) implied by the Calvo (1983) model of staggered pricing—sometimes referred to as the “New Keynesian ” Phillips curve—has been the subject of extensive econometric estimation and testing. Standard th ..."
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A relation between inflation and the path of average marginal cost (often measured by unit labor cost) implied by the Calvo (1983) model of staggered pricing—sometimes referred to as the “New Keynesian ” Phillips curve—has been the subject of extensive econometric estimation and testing. Standard theoretical justifications of this form of aggregatesupply relation, however, either assume (1) the existence of a competitive rental market for capital services, so that the shadow cost of capital services is equated across firms and sectors at all points in time, despite the fact that prices are set at different times, or (2) that the capital stock of each firm is constant, or at any rate exogenously given, and so independent of the firm’s pricing decision. But neither assumption is realistic. The present paper examines the extent to which existing empirical specifications and interpretations of parameter estimates are compromised by reliance on either of these assumptions. The paper derives an aggregatesupply relation for a model with monopolistic competition and Calvo pricing in which capital is firm specific and endogenous, and investment is subject to convex adjustment costs. The aggregatesupply relation is shown to again take the standard New Keynesian form, but with an elasticity of inflation with respect to real marginal cost that is a different function of underlying parameters than in the simpler cases studied earlier. Thus the relations estimated in the empirical literature remain correctly specified under the assumptions proposed here, but the interpretation of the estimated elasticity is different; in particular, the implications of the estimated Phillipscurve slope for the frequency of price ∗ I would like to thank Lutz Weinke for calling my attention to a mistake in my previous analysis of this model, Larry Christiano for helpful discussions,
Title: Endogenous Monetary Policy Regime Change
, 2006
"... Perhaps the most important advance in the monetary policy literature over the past twenty years is the explicit recognition that policy behavior is purposeful and responds endogenously to the state of the economy. Substantial progress has been made by research that examines ..."
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Perhaps the most important advance in the monetary policy literature over the past twenty years is the explicit recognition that policy behavior is purposeful and responds endogenously to the state of the economy. Substantial progress has been made by research that examines
The Quantitative Importance of News Shocks in Estimated DSGE Models” mimeo
, 2009
"... We estimate a dynamic stochastic general equilibrium (DSGE) model with several frictions and both unanticipated and news shocks, using quarterly US data from 19542004 and Bayesian methods. We find that unanticipated shocks dominate news shocks in accounting for the unconditional variance of output, ..."
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We estimate a dynamic stochastic general equilibrium (DSGE) model with several frictions and both unanticipated and news shocks, using quarterly US data from 19542004 and Bayesian methods. We find that unanticipated shocks dominate news shocks in accounting for the unconditional variance of output, consumption, investment, interest rate, and the relative price of investment. The unanticipated shock to the marginal efficiency of investment is the dominant shock, accounting for over 45 % of the variance of output growth. News shocks account for less than 15 % of the variance in output growth. Within the set of news shocks, nontechnology sources of news dominate technology news, with wage markup news shocks accounting for about 60 % of the variance share of both hours and inflation. We find that in the estimated DSGE model (a) the presence of endogenous countercyclical price and wage markups due to nominal frictions substantially diminishes the importance of news shocks relative to a model without these frictions, and (b) while there is little change in the estimated contributions of technology news when we restrict wealth effects on labour supply, the
Limited Participation or Sticky Prices? New Evidence from Firm Entry and Failures
, 2008
"... First draft Traditional models of monetary transmission such as sticky prices and limited participation abstract from firm creation and destruction. Only a few papers look at the empirical effects of the monetary shock on the firm turnover measures. But what can we learn about monetary transmission ..."
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First draft Traditional models of monetary transmission such as sticky prices and limited participation abstract from firm creation and destruction. Only a few papers look at the empirical effects of the monetary shock on the firm turnover measures. But what can we learn about monetary transmission by including measures for firm turnover into the theoretical and empirical models? Based on a large scale vector autoregressive (VAR) model for the U.S. economy I show that a contractionary monetary policy shock increases the number of business bankruptcy filings and failures, and decreases the creation of firms and net entry. According to the limited participation model, a contractionary monetary shock leads to a drop in the number of firms. On the contrary the same shock in the sticky price model increases the number of firms. Therefore the empirical findings support more the limited participation type of the monetary transmission.
What you match does matter: the effects of data on DSGE estimation, North Caroline State University mimeo
, 2008
"... This paper explores the effects of using different combinations of observables for the estimation of Dynamic Stochastic General Equilibrium (DSGE) models. I find that the estimated structural parameters and the model’s outcomes are sensitive to the variables used for estimation. Depending on the set ..."
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This paper explores the effects of using different combinations of observables for the estimation of Dynamic Stochastic General Equilibrium (DSGE) models. I find that the estimated structural parameters and the model’s outcomes are sensitive to the variables used for estimation. Depending on the set of observables the point estimate for habit formation ranges from 0.70 to 0.97. Similarly, the interestsmoothing coefficient in the Taylor rule fluctuates between 0.06 and 0.87. In terms of the model’s predictions, if interest rates are excluded during estimation, the estimated structural coefficients are such that the model forecasts a strong deflation following an expansionary monetary expansion. More importantly, two ways to assess different observable sets are proposed. Based on these measures, I find that including the price of investment in the data set delivers the best results.
News Shocks and the Slope of the Term Structure of Interest Rates.” Unpublished manuscript
"... We provide a new structural interpretation of the relationship between the slope of the term structure of interest rates and macroeconomic fundamentals. We first adopt an agnostic identification approach that allows us to identify the shocks that explain most of the movements in the slope. We find t ..."
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We provide a new structural interpretation of the relationship between the slope of the term structure of interest rates and macroeconomic fundamentals. We first adopt an agnostic identification approach that allows us to identify the shocks that explain most of the movements in the slope. We find that two shocks are sufficient to explain virtually all movements in the slope. Impulse response functions for the first shock, which explains 7090 percent of the movements in the slope, lead us to interpret this main shock as a news shock about future productivity. We confirm this interpretation by formally identifying such a news shock as in Barsky and Sims (2009) and Sims (2009). We then assess to what extent a New Keynesian DSGE model is capable of generating the observed slope responses to a news shock. We find that augmenting DSGE models with a term structure provides valuable information to discipline the description of monetary policy and the model’s response to news shocks in general.
What Do Technology Shocks Tell Us about the New Keynesian Paradigm? ∗
, 2008
"... Researchers have used unanticipated changes to monetary policy to identify preference and technology parameters of macroeconomic models. This paper uses changes in technology to identify the same set of parameters. Estimates based on technology shocks differ substantially from those based on monet ..."
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Researchers have used unanticipated changes to monetary policy to identify preference and technology parameters of macroeconomic models. This paper uses changes in technology to identify the same set of parameters. Estimates based on technology shocks differ substantially from those based on monetary policy shocks. In the post World War II United States, a positive technology shock reduces inflation and increases hours worked, significantly and rapidly in both cases. Relative to policy shock identification, technology shock identification implies: (i) long duration durability in preferences instead of short duration habit, (ii) builtin inflation inertia disappears and price flexibility increases. In response to technological improvement, consumption durability increases hours worked because households temporarily increase labor supply to accumulate durables towards a new, higher steady state level. Limited nominal rigidities allow inflation to fall because firms are able to immediately cut prices when households ’ labor supply increases. Finally, we consider alternative data constructions and econometric specifications; we find that (i) and/or (ii) hold in nearly every case. 1
Determinants of Inflation
 in Mozambique.” IMF Working Paper. Washington, D.C.: International Monetary Fund. WP/97/145
, 1997
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