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I will toot my own horn and cite - Phillips and Wrase. (2006) "Is Schumpeterian ‘Creative Destruction’ a Plausible Source of Endogenous Real Business Cycle Shocks?," Journal of Economic Dynamics and Control, vol. 30 no. 11 pp. 1885-1913. We found it difficult to match the volatility using Schumpterian mechanisms alone. The business cycle asymmetries from ...

10

The Business Dynamics Statistics (BDS) of the Census provides annual measures of business dynamics (such as job creation and destruction, establishment births and deaths, and firm startups and shutdowns) for the economy and aggregated by establishment and firm characteristics. The use of the LBD as its source data permits tracking establishments and firms ...

9

There have been examples of some papers that incorporate these ideas. They are typically housed within the endogenous growth literature. Off the top of my head, these are the papers that I think of: "Endogenous Growth And Endogenous Business Cycles" by Sergui and Lilia Maliar. I haven't read this paper in awhile, but if I remember correctly, the idea is ...

7

When is a model really weak? A model is an abstraction of reality, to explain a part of it. A model is weak when it cannot explain what it's supposed to be explaining. Just adding features to a model has no intrinsic good. It's much different from a fruit salad, where usually, an increased variety in fruits will lead to a better taste. Here, adding more ...

6

Is it right to interpret the no Ponzi game condition as a finite horizon version of the transversality condition? No. The "No-Ponzi-Game" or "solvency" condition is an external constraint imposed on the individual by the market/other participants. The individual would very much like to violate it. The Transversality condition must be satisfied in order ...

6

Explosiveness The paper contains an error, which causes the explosive dynamics in your simulation (although presumably the underlying computations in the paper were correct). The equilibrium condition derived from eigenvalue decomposition is contained in the third row of matrix $Q^{-1}$ on page 12 of the paper, with variables ordered as $(c,k,h,z)$ (I'll ...

5

Final NEWS March 20, 2015 : I have e-mailed prof. K. Salyer, one of the authors of the User Guide. In a repeated communication, he verified that both issues (see my answer below, as well as @ivansml answer), do exist: a) The correct equation for the law of motion of consumption is as @ivansml shows b) The number $0.007$ is wrongly called "variance" (p. ...

5

Here's the Efficient Market Hypothesis (EMH) explanation for why one cannot say that a correction is overdue: Suppose that it were widely known that, by looking at the above figure, one could ascertain that the market was "due for a drop" one week from now. Financial analysts and investors would look at the graph and come to this conclusion. How would ...

5

The stock of capital in the RBC model is a predetermined state variable, meaning that the capital $K_t$ available at time $t$ was determined at time $t-1$. Usually we have an accumulation relation of the form $$K_t = I_{t-1}+(1-\delta)K_{t-1}$$ When solving an RBC model starting at time $t=0$, we must exogenously assume some initial capital stock $K_0>0$ ...

4

So here is the unpleasant truth about recessions. "The economy" as a whole consists is a broad term that in all forms, will always be comprised of so many moving parts, so many transactions, that it is hard to not only describe what is happening to it, but why those things are happening. In order to answer your question on why we "can't/don't&...

4

Manias, Panics, and Crashes by Charles Kindleberger (Full book pdf) An easier reading compared to Reinhart and Rogoff. It informally explains how crises occur and presents some famous examples.

4

As a disclaimer, I think the Austrian business cycle is incorrect. I will try to explain in a sympathetic fashion. Mises.org has a great deal of resources on Austrian economics, much of it free. From a quick watch of the beginning of the video, the distinction is between a market rate of interest, and the “artificial” interest rate set by the central bank. ...

3

The Lucas model does not address at all the points that you address of people losing jobs, as it utilizes just one agent that simply has a perfectly steady (perhaps growing at a constant rate) consumption path. A model with heterogeneous agents where they have the possibility of losing their jobs and having some periods with, supposedly, very low consumption,...

3

Yes credit frictions do have an amplifying effect on supply shocks while they often attenuate demand shocks and they also give increased persistent to the effects of the supply shocks in many models. Once you have a specified DSGE model you can choose exactly where the shock originates from and the strength of the shock. See for instance Gerali et. al. ...

3

These guys (paper) claim the distribution is still power-law, but steeper in recessions and flatter in booms. [Content added after suggestion] While it is well known that the distribution of firm sizes (in the US at least) looks like a power law distribution, these guys look at whether it changes in shape over the business cycle. They show that (...

3

I too also think the austrian theory of the business cycle is incorrect but will offer a sympathetic answer. It really about understanding how the theory related to the structure of production and how lower interest rates incentives activities that are further behind in this structure and extends the time for this process to occur. Its interpreted as a ...

2

My reading is yes, it is procyclical in levels and margins. This paper uses industry and firm data to look at price cost mark-ups and firm profit margins in U.K. manufacturing and services. In particular it examines how they behave over the business cycle. It has two main findings. First, the estimated average mark-ups and the profit margin ...

2

This Time Is Different by Reinhart and Rogoff Detailed, structured, and comprehensive. A brief paper by the same authors on the same topic: This Time is Different: A Panoramic View of Eight Centuries of Financial Crises. The paper's abstract: This paper offers a "panoramic" analysis of the history of financial crises dating from England's fourteenth-...

2

The first scholar to model the intuition behind the political business cycle is William Nordhaus in a REStud article (1975). Nordhaus (1975) is thus widely believed to be the seminal article in the literature: https://www.jstor.org/stable/2296528?seq=1#page_scan_tab_contents

2

Quick Wikipedia found : https://en.wikipedia.org/wiki/Business_cycle Look at the section of Politically based business cycle The political business cycle theory is strongly linked to the name of Michał Kalecki who discussed "the reluctance of the 'captains of industry' to accept government intervention in the matter of employment." https://en....

2

The EMH applies to assets, not just stocks, and its implications are more relevant for investors who own part of the market - not the entire thing. This is important, because it's the difference between looking at a closed system versus an open one, and between populations versus samples. People make money all the time by cycling between stocks, bonds, ...

2

It creates losses. First, many businesses don’t own their own building/land/equipment. It’s very common to lease these things. Moreover, many business take out insurance that again has to be paid on monthly basis. In Europe in many countries you need to pay workers certain portion of wages even when you can’t call worker to work or even if they stay home ...

1

Cyclical unemployment $U^C$ is by definition difference between actual observed rate of employment $U$ and the natural rate of employment $U^N$ so we have: $U^C_t \equiv U_t-U_t^N$, see for example this paper. Hence cyclical unemployment can be negative if actual observed rate of unemployment is lower than natural rate, because it is defined as a difference ...

1

If you want some simple model of stock prices consistent with efficient market hypothesis it would be random walk: $$p_{t+1}= a+ p_t +\epsilon_t$$ You don’t even need to model cycles there explicitly just due to random chance it will exhibit some ‘cyclical-like’ behavior. Although, I know it’s not actual cyclical behavior because it can diverge it’s ...

1

Most of the arguments I see saying that the recession is coming simply says that it's been long enough that we haven't had a recession, the last recession was more than ten years ago, the average business cycle boom is no more than 8 years, etc. With this kind of argument, the only thing you can do to "stop" the recession from happening is stopping the time....

1

I think this question is too open-ended and unqualified. One can point to two economists in particular who highlight the importance of debt in the cycle - Hyman Minsky and Steve Keen. Both of these economists are not considered to be “mainstream” (although Minsky has been more heavily cited since the Financial Crisis). If we look at the data, we see that ...

1

A relevant paper could be: Veldkamp, Laura & Wolfers, Justin, 2007. "Aggregate shocks or aggregate information? Costly information and business cycle comovement," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 37-55, September. NBER Working Paper version: https://www.nber.org/papers/w12557 Published version: https://www....

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In most countries, interest rates are actively managed by the government or central bank in pursuit of various policy objectives (some closely linked to investment, some, like stable foreign exchange markets, not). Investment in turn is determined by a wide range of factors other than interest rates. Basically I don't think that your assumption of a close ...

1

The function $\tau$ is the 'line of best fit', the growth trend. The 'residual' $y-\tau$ is the output gap. So, $\tau$ detrends $y$ over time, to give the detrended business cycle $y-\tau$. $\quad y-\tau$ fluctuates around 0—it is positive when the output gap is positive and the economy is in a boom, and negative when the economy is in recession. The ...

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