Unobserved Factor Utilization, Technology Shocks and Business Cycles

We derive a measure of technological change using firm-level panel data and controlling for imperfect competition, increasing returns and unobserved factor utilization. We show that the latter variable accounts for a relevant portion of the cyclicality of the Solow residual. Our key finding is that technological shocks result in a contraction of inputs on impact. Whilst this result is hard to reconcile with the transmission mechanism of real business cycle models, it is consistent with simple sticky-price models. Using survey information on the frequency and size of price revisions, we show that the evidence on the contractionary effects of technology shocks is indeed much stronger for firms with stickier prices.factor hoarding, technology shocks, business cycles

Energy Consumption, Survey Data and the Prediction of Industrial Production in Italy

We investigate the prediction of Italian industrial production. We first specify a model based on electricity consumption; we show that the cubic trend in such a model mostly captures the evolution over time of the electricity coefficient, which can be well approximated by a smooth transition model à la Terasvirta, with no gains in predictive power, though. We also analyze the performance of models based on data of different business surveys. According to basic statistics of forecasting accuracy, the linear energy-based model is not outperformed by any other single model, neither by a combination of forecasts. However, a more comprehensive set of evaluation criteria sheds light on the advantages of using the whole information available. Overall, the best forecasting performance is achieved by estimating a combined model which includes among regressors both energy consumption and survey data.Italy, industrial production, energy

Transition and the Fiscal Crisis in Central Europe

This paper argues that traditional explanations of the fiscal crisis in transition economies overlook the crucial interconnection between the reduction in subsidies expenditure and the decrease in profit tax revenues. It thus contends that the impact on the fiscal budget of the crisis of state-owned enterprises profitability has been largely overestimated in the literature. The net contribution to the government budget from the enterprise sector - defined as profit taxes net of cross-subsidization - has increased during the transition in Poland and Czechoslovakia, and has remained constant in Hungary. After reexamining the data, it is argued that - while it is undoubtable that the prospects for fiscal revenues are worrisome - the main determinant of the fiscal crisis is to the explosion of social security expenditures. The paper also assesses the applicability of these results to other former socialist economies.Poland, Hungary, Czechoslovakia, Eastern Europe, Socialist economies, economic transition, fiscal crisis, revenue crisis, social expenditures, pensions

Labor effort over the business cycle

Unobservable labor utilization is recognized as a crucial feature of economic fluctuations. Yet very little is known on the behavior of work effort over the business cycle. By using firm-level panel data drawn from two high-quality sources, we obtain a microeconomic estimate of variable labor effort from a dynamic cost minimization set-up. We argue that, contrary to common assumptions, the relationship between effort and hours is not monotonic. During a recovery, if a critical level of hours per capita is reached (say, because of labor market rigidities), every additional hour is worked with decreasing effort, due to physical fatigue. We provide supporting evidence by estimating the structural parameters of a Taylor approximation of the effort function. Corroborating evidence has been obtained by estimating the elasticity of effort with respect to hours at different business cycle conditions.labor effort, factor hoarding, business cycles

Interpreting the Procyclical Productivity of Manufacturing Sectors: Can We Really Rule Out External Effects:

Explaining procyclical productivity is crucial for any theory of the business cycle. Recent contributions have focused on the dynamic implications of persistent aggregate fluctuations on sectoral productivity. Given a permanent innovation in aggregate output, variations of labor (or capital) utilization may have only a transitory effect on measured productivity, whereas external effects should produce permanent effects. We find that persistent aggregate fluctuations have a permanent effect on sectoral productivity of four-digit U.S. manufacturing industries. We discuss a number of alternative explanations of this evidence. Whereas our findings are unlikely to be due to market power and increasing returns, they are consistent with simple models with external effects or temporal agglomeration.

Pricing behavior and the comovement of productivity and labor: evidence from firm-level data

Recent contributions have suggested that technology shocks have a negative short-run effect on labor input, contrary to the predictions of standard flexible-price models of the business cycle. Some authors have interpreted this finding as evidence in favor of stickyprice models, while others have either augmented flexible-price models in a number of ways or disputed the empirical finding itself. In this paper we estimate a number of alternative measures of TFP growth for a representative sample of Italian manufacturing firms and find a negative impact of productivity shocks on labor input. Furthermore, by relying on the firmlevel reported frequency of price reviews, we find that the contractionary effect is strong for firms with stickier prices, but it is weaker or not significant for firms with more flexible prices, consistently with the prediction of sticky-price models.Productivity shocks, Labor input, price stickiness

Economic transformation and the fiscal crisis : a critical look at the Central European experience of the 1990s

The authors argue that traditional explanations of the fiscal crisis in reforming ex-socialist economies overlook crucial connections between key components of the deficit - particularly between reductions in spending and declines in revenues. Almost all studies of the fiscal aspects of the transition stress the impact on the fiscal budget of the performance crisis in state-owned enterprises. The authors contend that this aspect of the fiscal crisis has been overstated. The enterprise sector's net contribution to the government budget - that is, net income from profit taxes after subtracting subsidies - has increased during the transition in Czechoslovakia and Poland and has not changed substantially in Hungary. After reexamining the data, the authors argue that although the fiscal crisis is certainly structural, the main blame should be attributed to the explosion in spending (especially social spending) rather than to the crisis in revenues. Many of the social costs of adjustment were previously hidden within the state-owned enterprises system. These social costs include unemployment benefits and the cost of supporting - through pensions or social assistance - the people displaced from the work force by the transformation. It is important to continue reforming the tax system and tax administration - to deal with the widespread hiding of profits and cheating on taxes - but all three countries already have relatively high levels of taxation. Society in the three countries may not be willing to provide the resources required to support or extend current spending levels.National Governance,Environmental Economics&Policies,Banks&Banking Reform,Public Sector Economics&Finance,Economic Theory&Research

Structural adjustment, ownership transformation, and size in Polish industry

The authors argue that significant adjustment took place in Polish industry after Poland's 1990 reforms. They analyze data on two- and three-digit manufacturing industries, disaggregated by firm ownership and size. By applying a statistical model to labor productivity growth, they try to disentangle structural determinants of the recovery from cyclical determinants. They contend that structural determinants outweigh cyclical ones. They find that the productive response of state enterprises was markedly different from that of private firms--private firms outperformed state enterprises (just as anecdotal evidence suggested). Size also matters, at least among private firms. Generally, there seem to be increasing returns to scale for private firms, except for very large enterprises (many of which were previously state-owned and may need further restructuring). The fact that size does not appear to matter among public enterprises suggests that several of them have not yet adopted optimal technologies and production processes.Banks&Banking Reform,Municipal Financial Management,Labor Policies,Environmental Economics&Policies,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Municipal Financial Management,Economic Theory&Research,Health Monitoring&Evaluation

The Italian Business Cycle; Coincident and Leading Indicators and Some Stylized Facts

This paper analyses the business cycle properties of 183 time series relevant to the Italian economy, including real, monetary and international variables. We propose new monthly coincident and leading composite indicators for the Italian business cycle; the leading indicator anticipates the turning points of the coincident indicator on average by six months. On the methodological side, the study provides a scheme for constructing cyclical indicators on a sound statistical basis through iterative steps, combining the use of traditional NBER methods with that of more recent techniques of cyclical analysis. A number of stylized facts of the Italian business cycle emerge. Among them, money and financial variables are found to lead the cycle, chronologically, by an average of between one year and sixteen months. There is also strong evidence of synchronization of international cycles, with the US and UK cycles leading the Italian cycle by two to three quarters. The main linking channel seems to be trade, with Italian exports to EU countries leading the cycle by six months on average.business cycles, cyclical indicators, leading indicators, Italian stylized fact