Search Results
Conference Paper
Macroeconomic implications of changes in micro volatility
We review evidence on the Great Moderation in conjunction with evidence about volatility trends at the micro level. We combine the two types of evidence to develop a tentative story for important components of the aggregate volatility decline and its consequences. The key ingredients of the story are declines in firm-level volatility and aggregate volatility ? most dramatically in the durable goods sector ? but the absence of a decline in the volatility of household consumption and individual earnings. Our explanation for volatility reduction stresses improved supply chain management, ...
Conference Paper
Tracking the new economy: using growth theory to detect changes in trend productivity
The acceleration of productivity since 1995 has prompted a debate over whether the economy's underlying growth rate will remain high. In this paper, we draw on growth theory to identify variables other than productivity - namely consumption and labor compensation - to help estimate trend productivity growth. We treat that trend as a common factor with two "regimes" high-growth and low-growth. Our analysis picks up striking evidence of a switch in the mid-1990s to a higher long-term growth regime, as well as a switch in the early 1970s in the other direction. In addition, we find that ...
Journal Article
Tracking productivity in real time
Because volatile short-term movements in productivity growth obscure the underlying trend, shifts in this trend may go unrecognized for years - a lag that can lead to policy mistakes and hence economic instability. This study develops a model for tracking productivity that brings in additional variables to help reveal the trend. The model's success is evident in its ability to detect changes in trend productivity within a year or two of their occurrence. Currently, the model indicates that the underlying trend remains strong despite recent weak productivity data.
Report
Durable goods inventories and the Great Moderation
This paper revisits the hypothesis that changes in inventory management were an important contributor to volatility reductions during the Great Moderation. It documents how changes in inventory behavior contributed to the stabilization of the U.S. economy within the durable goods sector, in particular, and develops a model of inventory behavior that is consistent with the key facts about volatility decline in that sector. The model is calibrated to evidence from survey data showing that lead times for materials orders in manufacturing shrank after the early 1980s. Simulations of the model ...
Report
Skilled labor -- augmenting technical progress in U.S. manufacturing
This paper examines the role of skilled labor in the growth of total factor productivity. We use panel data from manufacturing industries within the United States to assess the extent to which productivity growth in yearly cross-sections of U.S. manufacturing industries is tied to industry shares of skilled labor inputs. We find evidence of an explosion in skilled-labor augmenting technological progress during the period from approximately 1972 to 1981, which precedes a period of suddenly increasing wage inequality and rapid growth in the relative wages of educated and experienced workers. We ...
Report
Interpreting the Great Moderation: changes in the volatility of economic activity at the macro and micro Levels
We review evidence on the Great Moderation together with evidence about volatility trends at the micro level to develop a potential explanation for the decline in aggregate volatility since the 1980s and its consequences. The key elements are declines in firm-level volatility and aggregate volatility - most dramatically in the durable goods sector - but with no decline in household consumption volatility and individual earnings uncertainty. Our explanation for the aggregate volatility decline stresses improved supply-chain management, particularly in the durable goods sector, and, less ...
Report
What inventory behavior tells us about business cycles
We argue that the behavior of manufacturing inventories provides evidence against models of business cycle fluctuations based on productivity shocks, increasing returns to scale, or favorable externalities, whereas it is consistent with models with short-run diminishing returns. Finished goods inventories move proportionally much less than sales or production over the business cycle, which we show implies procyclical marginal cost and countercyclical price markups. Obvious measures for marginal cost do not show high marginal cost near peaks, as required to rationalize the inventory behavior, ...
Report
What inventory behavior tells us about business cycles
Manufacturers' finished goods inventories are less cyclical than shipments. This requires marginal cost to be more procyclical than is conventionally measured. In this paper, alternative marginal cost measures for six manufacturing industries are constructed. These measures, which attribute high-frequency productivity shocks to procyclical work effort, are more successful in accounting for inventory behavior. Evidence is also provided that the short-run slope of marginal cost arising from convexity of the production function is close to zero for five of the six industries. The paper concludes ...
Report
Tracking the new economy: using growth theory to detect changes in trend productivity
The acceleration of productivity since 1995 has prompted a debate over whether the economy's underlying growth rate will remain high. In this paper, we propose a methodology for estimating trend growth that draws on growth theory to identify variables other than productivity namely consumption and labor compensation to help estimate trend productivity growth. We treat that trend as a common factor with two "regimes," high-growth and low-growth. Our analysis picks up striking evidence of a switch in the mid-1990s to a higher long-term growth regime, as well as a switch in the early 1970s in ...
Journal Article
Has inventory volatility returned? A look at the current cycle
The massive liquidation of inventories during the 2001 recession contrasts sharply with the more moderate inventory movements observed in recent decades. While the rundown might be seen as evidence that firms are not managing their inventories as effectively as some economists have claimed, a careful analysis of inventory behavior in 2001 suggests that during much of the recession, firms were successfully regulating their inventories to avoid a large buildup of excess stock.