Expectations play a crucial role in modern macroeconomic models. We consider a New Keynesian framework under a behavioral model of expectation formation and under rational expectations. Contrary to ...the rational model, the behavioral model predicts that inflation volatility can be lowered if the central bank reacts to the output gap in addition to inflation. We test the opposing theoretical predictions in a learning-to-forecast experiment. In line with the behavioral model, the results support the claim that output stabilization can lead to less volatile inflation.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
The economics of degrowth Kallis, Giorgos; Kerschner, Christian; Martinez-Alier, Joan
Ecological economics,
12/2012, Volume:
84
Journal Article
Peer reviewed
Economic degrowth is ecologically desirable, and possibly inevitable; but under what conditions can it become socially sustainable? How can we have full employment and economic stability without ...growth? What will happen to public spending and to public debt? How would production be organised in a degrowing economy? And under what plausible socio-political conditions could such grand changes happen? Standard economic theories and models ignore these questions. For them economic growth is an axiomatic necessity. This article reviews recent contributions in the economics of degrowth and identifies research avenues for ecological economists.
► The case for degrowth. ► Institutional and policy options. ► The politics of degrowth.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
During World War II and the Korean War, real GDP grew by about half the increase in government purchases. With allowance for other factors holding back GDP growth during those wars, the multiplier ...linking government purchases to GDP may be in the range of 0.7 to 1.0, a range generally supported by research based on vector autoregressions that control for other determinants, but higher values are not ruled out. New Keynesian macroeconomic models yield multipliers in that range as well. Neoclassical models produce much lower multipliers, because they predict that consumption falls when government purchases rise. Models that deliver higher multipliers feature a decline in the markup ratio of price over cost when output rises, and an elastic response of employment to increased demand. These characteristics are complementary to another Keynesian feature, the linkage of consumption to current income. The GDP multiplier is higher—perhaps around 1.7—when the nominal interest rate is at its lower bound of zero.
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BFBNIB, CEKLJ, INZLJ, IZUM, KILJ, NMLJ, NUK, ODKLJ, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
Abstract
Exploiting the exogenous and regional nature of the Great East Japan Earthquake of 2011, this article provides a quantification of the role of input-output linkages as a mechanism for the ...propagation and amplification of shocks. We document that the disruption caused by the disaster propagated upstream and downstream along supply chains, affecting the direct and indirect suppliers and customers of disaster-stricken firms. Using a general equilibrium model of production networks, we then obtain an estimate for the overall macroeconomic impact of the disaster by taking these propagation effects into account. We find that the earthquake and its aftermaths resulted in a 0.47 percentage point decline in Japan’s real GDP growth in the year following the disaster.
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IZUM, KILJ, NUK, PILJ, SAZU, UL, UM, UPUK
High levels of economic policy uncertainty (EPU) in various parts of the world revamped the debate about its impact on economic activity. Employing heterogeneous panel structural vector ...autoregressions, we test for EPU spillovers on other countries’ economic activity. EPU reduces growth in real output, private consumption, and private investment, with spillovers from abroad accounting for about two‐thirds of the effect. Using local projections, we show that EPU surges in the United States, Europe, and China reduce economic activity in the rest of the world, with the effects being mostly felt in Europe and the Western Hemisphere.
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FZAB, GIS, IJS, IZUM, KILJ, NLZOH, NUK, OILJ, PILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
We investigate the hypothesis that macroeconomic fluctuations are primitively the results of many microeconomic shocks. We define fundamental volatility as the volatility that would arise from an ...economy made entirely of idiosyncratic sectoral or firm-level shocks. Fundamental volatility accounts for the swings in macroeconomic volatility in the major world economies in the past half-century. It accounts for the "great moderation" and its undoing. The initial great moderation is due to a decreasing share of manufacturing between 1975 and 1985. The recent rise of macroeconomic volatility is chiefly due to the growth of the financial sector.
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BFBNIB, CEKLJ, INZLJ, IZUM, KILJ, NMLJ, NUK, ODKLJ, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
What Happened Gertler, Mark; Gilchrist, Simon
The Journal of economic perspectives,
07/2018, Volume:
32, Issue:
3
Journal Article
Peer reviewed
Open access
At the onset of the recent global financial crisis, the workhorse macroeconomic models assumed frictionless financial markets. These frameworks were thus not able to anticipate the crisis, nor to ...analyze how the disruption of credit markets changed what initially appeared like a mild downturn into the Great Recession. Since that time, an explosion of both theoretical and empirical research has investigated how the financial crisis emerged and how it was transmitted to the real sector. The goal of this paper is to describe what we have learned from this new research and how it can be used to understand what happened during the Great Recession. In the process, we also present some new empirical work. We argue that a complete description of the Great Recession must take account of the financial distress facing both households and banks and, as the crisis unfolded, nonfinancial firms as well. Exploiting both panel data and time series methods, we analyze the contribution of the house price decline, versus the banking distress indicator, to the overall decline in employment during the Great Recession. We confirm a common finding in the literature that the household balance sheet channel is important for regional variation in employment. However, we also find that the disruption in banking was central to the overall employment contraction.
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CEKLJ, IZUM, KILJ, NUK, ODKLJ, PILJ, SAZU, UL, UM, UPUK
This paper quantifies how variation in economic activity and inflation in the United States influences the market prices of level, slope, and curvature risks in Treasury markets. We develop a novel ...arbitrage-free dynamic term structure model in which bond investment decisions are influenced by output and inflation risks that are unspanned by (imperfectly correlated with) information about the shape of the yield curve. Our model reveals that, between 1985 and 2007, these risks accounted for a large portion of the variation in forward terms premiums, and there was pronounced cyclical variation in the market prices of level and slope risks.
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BFBNIB, FZAB, GIS, IJS, INZLJ, KILJ, NLZOH, NMLJ, NUK, OILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
We propose new indices to measure macroeconomic uncertainty. The indices measure how unexpected a realization of a representative macroeconomic variable is relative to the unconditional forecast ...error distribution. We use forecast error distributions based on the nowcasts and forecasts of the Survey of Professional Forecasters. We further compare the new indices with those proposed in the literature and assess their macroeconomic impact.
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BFBNIB, CEKLJ, INZLJ, IZUM, KILJ, NMLJ, NUK, ODKLJ, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
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