Order Backlogs and Production Smoothing

Empirical examination of some aggregate manufacturing data suggests that order backlogs may help explain two puzzling facts: (1) the variability of production appears to be greater than that of demand, and (2) inventories appear to be drawn down when demand is low, built up when demand is high.

Bubbles, Fads, and Stock Price Volatility Tests: A Partial Evaluation

This is a summary and interpretation of some of the literature on stock price volatility that was stimulated by Leroy and Porter (1981) and Shiller (1981a). It appears that neither small sample bias, rational bubbles nor some standard models for expected returns adequately explain stock price volatility. This suggests a role for some nonstandard models for expected returns. One possibility is "fads" models in which noise trading by naive investors is important. At present, however, there is little direct evidence that such fads play a significant role in stock price determination.

The Insensitivity of Consumption to News About Income

This paper uses a variance bounds test to see whether consumption is too sensitive to news about income to be consistent with a standard permanent income model, under the maintained hypothesis that income has a unit root. It is found that, if anything, consumption is less sensitive than the model would predict. This implication is robust to the representative consumer having private information about his future income that the econometrician does not have, to wealth shocks, and to transitory consumption. This suggests the importance in future research on the model of allowing for factors that tend to make consumption smooth.

Monetary Policy and the Volatility of Real Exchange Rates in New Zealand

The relationship between interest rates and exchange rates is puzzling and poorly understood. But under some standard assumptions, interest rates can be adjusted to smooth real exchange rate movements at the possible price of increased volatility in other variables. In New Zealand, estimates made under some generous suppositions about what monetary policy is able to accomplish suggest that decreasing real exchange rate volatility by about 25% would require increasing output volatility by about 10-15%, inflation volatility by about 0-15% and interest rate volatility by about 15-40%.

Exchange Rates and Fundamentals

We show analytically that in a rational expectations present value model, an asset price manifests near random walk behavior if fundamentals are I(1) and the factor for discounting future fundamentals is near one. We argue that this result helps explain the well known puzzle that fundamental variables such as relative money supplies, outputs, inflation and interest rates provide little help in predicting changes in floating exchange rates. As well, we show that the data do exhibit a related link suggested by standard models - that the exchange rate helps predict these fundamentals. The implication is that exchange rates and fundamentals are linked in a way that is broadly consistent with asset pricing models of the exchange rate.

Evidence From Seven Countries on Whether Inventories Smooth Aggregate Output

Casual examination of annual postwar data on inventories and aggregate output for seven developed countries -- Canada, France, West Germany, Italy, Japan, United Kingdom, United States -- suggests that in these countries the primary function of aggregate inventories is not to smooth aggregate output in the face of aggregate demand shocks. Japan is a possible exception to this generalization.

Assessing simple policy rules: a view from a complete macroeconomic model (commentary)

Macroeconomics ; Econometric models