Search Results
Working Paper
Home production meets time-to-build
An innovation in this paper is to introduce a time-to-build technology for the production of market capital into a model with home production. The paper?s main finding is that the two anomalies that have plagued all household production models?the positive correlation between business and household investment, and household investment leading business investment over the business cycle?are resolved when time-to-build is added.
Discussion Paper
On the cyclical allocation of risk
A real business cycle model with heterogeneous agents is parameterized, calibrated, and simulated to see if it can account for some stylized facts characterizing postwar U.S. business cycle fluctuations, such as the countercyclical movement of labors share of income, and the acyclical behavior of real wages. There are two types of agents in the model, workers and entrepreneurs, who participate on an economy-wide market for contingent claims. On this market workers purchase insurance from entrepreneurs, through optimal labor contracts, against losses in income due to business cycle ...
Working Paper
The business cycle and the life cycle
The paper documents how cyclical fluctuations in market work vary over the life cycle and then assesses the predictions of a life-cycle version of the growth model for those observations. The analysis yields a simple but striking finding. The main discrepancy between the model and that data lies in the inability of the model to account for fluctuations in hours for individuals in the first half of their life cycle. The predictions for those in the latter half of the life cycle are quite close to the data.
Journal Article
Why policymakers might care about stock market bubbles
This Commentary makes a case for Fed action in the event of a stock market bubble. Because stock market prices serve as a signal to business managers to invest, bubbles can mislead managers into investing when it is not profitable. The overinvestment, which becomes apparent after the bubble bursts, can lead to a period of low investment, which can cause a recession. Policymakers may wish to step in to end a bubble before stock prices get too far out of line relative to their fundamentals.
Journal Article
Return to Capital in a Real Business Cycle Model
Can the neoclassical growth model generate fluctuations in the return to capital similar to those observed in the United States? Equating stock market returns with the return to capital, the bulk of the literature concludes that it cannot. This article makes two contributions. First is an equivalence for the neoclassical growth model between a stock market return and a return based on income and capital stock data. While the stock market return is extremely volatile, the income-based return is not. Second is the finding that the neoclassical growth model with shocks to labor productivity ...
Journal Article
Central bank credibility
Major League Baseball Commissioner Bud Selig announced he would crack down on steroid use in baseball, hoping to stop players from doping. He was forced to discipline stars like Rafael Palmeiro, possibly hurting the game immediately, in order to develop a reputation for being tough on steroids. The Federal Reserve System has worked hard over the past few decades not only to lower inflation and keep it low, but also to convince the public that it is dedicated to delivering low inflation over the long haul. This Commentary explains why credibility is so important to monetary policymakers.
Journal Article
Iowa electronic markets
In 1998, University of Iowa faculty members created their own futures markets. These experimental markets, designed to provide insights into the behavior of traders and naturally occurring markets, are still going strong. Their clever design gives them another practical use: They can be used to predict future events such as election outcomes and Federal Open Market Committee voting.
Journal Article
Unemployment and economic welfare
Statistics that measure labor market activity are often interpreted as measures of economic performance and social well being. This article demonstrates that such interpretations are not justified in the absence of information concerning the economic circumstances that determine individual labor market choices.
Discussion Paper
Evaluating the macroeconomic effects of a temporary investment tax credit
As part of a fiscal stimulus package, some members of Congress have recently proposed a temporary investment subsidy. This paper uses the neoclassical growth model to evaluate the likely macroeconomic effects of such a subsidy. The model predicts a 0.8 percentage point increase in output growth for the quarter in which the policy is implemented. In subsequent quarters, the output growth effects are negligible. As the subsidy ends, output growth falls by 1 percentage point before returning to its trend growth rate. While a permanent subsidy will lead to more capital deepening in the long ...
Journal Article
Accounting for the jobless recoveries
Much has been made of the so-called jobless recovery of the past two business cycles?that is, their atypically weak employment growth early in the expansion phase. This Commentary examines the factors that account for this behavior, focusing on two key measures: the probabilities of job finding and job separation.