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Working Paper
Marriage and consumption insurance: what's love got to do with it?
This paper explores marriage?s role when markets are incomplete and individuals cannot diversify their idiosyncratic labor income risk. All else being equal, an individual would rather marry a ?hedge? (a person whose income is negatively correlated with her own) because doing so raises her expected utility. However, the existence of love complicates the picture: Although marrying a hedge is important, an individual may not do so if she finds someone with whom she shares a great deal of love. Is love more important to a lasting marriage than economic compatibility? To answer this question, the ...
Working Paper
Risk sharing of disaggregate macroeconomic and idiosyncratic shocks
Comparing the degree to which idiosyncratic and disaggregate macro shocks (such as regional and industry shocks) are not shared in the economy provides greater understanding of why the economy lacks risk-sharing arrangements in specific areas and can suggest areas where the economy?s risk-sharing capability could be enhanced. The authors find that a negligible amount of risk (around 10 percent) is shared in the aggregate, about 50 percent is shared within regions and industries, while the remaining 40 percent is not shared with other households. These findings suggest that given the low level ...
Working Paper
Politics and exchange rate forecasts
Standard exchange rate models perform poorly in out-of-sample forecasting when compared to the random walk model. We posit part of the poor performance of these models may be due to omission of political factors. We test this hypothesis by including political variables that capture party-specific, election-specific and candidate-specific characteristics. Surprisingly, we find our political model outperforms the random walk in out-of-sample forecasting at one to twelve month horizons for the pound/dollar, mark/dollar, pound/mark and the trade-weighted dollar, mark, and pound exchange rates.
Working Paper
Intranational business cycles in the United States
We employ intranational data for the United States from 1978-1991 to re-explore two discrepancies between international real business cycle models and data (so called 'anomalies') that have been highlighted by Backus, Kehoe and Kydland (1993). The benefit to our approach is that the analysis of business cycles within one country is a natural experiment for understanding the 'anomalies' found in international business cycles since, as in the model, there are no tariffs or trade barriers between states in the U.S. and there is only one currency. ; Similar to the evidence for international ...
Working Paper
Some intranational evidence on output-inflation tradeoffs
In a seminal paper, Lucas (1973) provided the theoretical relationship between aggregate demand and real output based on relative price confusion at the individual market level. Ball, Mankiw, and Romer (BMR, 1988) derive the same relation using a New Keynesian framework. Even though both theories predict a positive relationship between nominal shocks and cyclical movements in real output, they are distinguished by two notable differences. First, according to New Keynesian theory, nominal shocks have a smaller effect on real output for high inflation countries since prices are adjusted more ...
Working Paper
Money is what money predicts: the M* model of the price level
Over the past twenty years, the monetary aggregates used by the Federal Reserve as indicators of economic activity and inflation have changed several times. Each of the changes in the measures of money was sparked by a breakdown in the fit of empirical money demand functions. The Federal Reserve's strategy following these breakdowns has been to redefine money by simply adding new assets to the old definitions. The criterion in each case was whether adding the new assets produced an empirically stable money demand function. Unfortunately, while a stable demand for money is a worthwhile ...
Working Paper
Measuring business cycle features
Since the extensive work by Burns and Mitchell (1947), many economists have interpreted economic fluctuations in terms of business cycle phases. Given this, we argue that in addition to usual model selection criteria currently used in the profession, the adequacy of a univariate macroeconomic time series model should be based on its ability to replicate two most important business cycle features of the U.S. data--duration and amplitude. We propose a number of checks for whether univariate statistical models generate business cycle features observed in US GDP and find that many popular ...
Working Paper
An investigation into the magnitude of foreign conflicts
Discussion Paper
Does wage inflation cause price inflation?
Is there any evidence to support the assumption that increased wages cause inflation? This study updates and expands earlier research into this question and finds little support for the view that higher wages cause higher prices. On the contrary, more evidence is found for higher prices leading to wage growth.