Productivity swings and housing prices

The housing boom and bust of the last decade, often attributed to "bubbles" and credit market irregularities, may owe much to shifts in economic fundamentals. A resurgence in productivity that began in the mid-1990s contributed to a sense of optimism about future income that likely encouraged many consumers to pay high prices for housing. The optimism continued until 2007, when accumulating evidence of a slowdown in productivity helped dash expectations of further income growth and stifle the boom in residential real estate.>Consumer behavior ; Housing - Prices ; Productivity

Explaining the gap between new home sales and inventories

For much of the last four decades, the stock of unsold new homes has tracked sales very closely. Since 1995, however, inventories have fallen far behind rapidly advancing sales. What accounts for the change? Market trends have both reduced the need for inventories and slowed the response of inventories to shifts in demand. At the same time, the long current expansion has strained the resources of the building industry, creating supply shortages and raising costs.Housing - Finance ; Inventories ; Business cycles

What Inventory Behavior Tells Us About Business Cycles

Manufacturers' finished goods inventories move less than shipments over the business cycle. We argue that this requires marginal cost to be more procyclical than is conventionally measured. We construct, for six manufacturing industries, alternative measures of marginal cost that attribute high-frequency productivity shocks to procyclical work effort, and find that they are much more successful in accounting for inventory behavior. The difference is attributable to cyclicality in the shadow price of labor, not to diminishing returns in fact, parametric evidence suggests that the short-run slope of marginal cost is close to zero for five of the six industries. Moreover, while our measures of marginal cost are procyclical relative to output price, they are too persistent for intertemporal substitution to be important. We conclude that countercyclical markups are chiefly responsible for the sluggish response of inventory stocks over the cycle.

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, particularly in the durable goods sector, and a shift in production and employment from goods to services. We also provide some evidence for a specific mechanism, namely shorter lead times for materials orders. The tentative conclusion we draw is that, although better supply chain management involves potentially large efficiency gains with first-order effects on welfare, it does not imply (nor is there much evidence for) a reduction in uncertainty faced by individuals.

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.Inventories ; Recessions

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.Industrial productivity - Measurement ; Economic policy ; Econometric models

Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels

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 are declines in firm-level volatility and aggregate volatility -- most dramatically in the durable goods sector -- but the absence of a 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 important, a shift in production and employment from goods to services. We provide evidence that better inventory control made a substantial contribution to declines in firm-level and aggregate volatility. Consistent with this view, if we look past the turbulent 1970s and early 1980s much of the moderation reflects a decline in high frequency (short-term) fluctuations. While these developments represent efficiency gains, they do not imply (nor is there evidence for) a reduction in economic uncertainty faced by individuals and households.

Introduction

This volume of the Economic Policy Review, "Special issue on the economic effects of September 11," explores some of the key economic consequences of the attacks of September 11. The six articles that make up the volume address several important questions: how great were the losses in New York City on September 11 and in the difficult months thereafter? How much will the nation spend to prevent future attacks? Did the destruction of information and infrastructure impair the functioning of the payments and securities settlement systems, and what steps minimize further damage? Will these events hurt New York's future vitality and cause businesses and workers to retreat from the city? ; The six articles fall into three broad groups: 1) detailed accountings of economic costs--those incurred as a direct consequence of the September 11 attacks and those arising from efforts to prevent future attacks, 2) studies of the attacks' disruptive effects on the payments and securities settlement systems, and 3) analyses of New York City's prospects after September 11.Disaster relief ; Terrorism ; War - Economic aspects ; Economic conditions - New York (N.Y.) ; Federal Reserve District, 2nd