Collusion and Antitrust Filings over the Business Cycle

We develop and test a novel prediction of the theory of collusion over the business cycle. Building on Haltiwanger and Harrington (1991), we present a model of collusive behaviour in the presence of persistent demand and an Antitrust Authority (AA) in a Cournot framework. The level of collusion is higher during a boom relative to a recession as collusion occurs more frequently when demand is increasing (entering into a collusive arrangement is more profitable and deviating from an existing cartel is less profitable). The model predicts that the number of discovered cartels and hence an- titrust filings should be procyclical because the level of collusion is procyclical. Using a unique data set of United States Antitrust filings, we present robust evidence con- sistent with the model's prediction. We find that antitrust filings are procyclical even after controlling for AA's monitoring intensity. The evidence suggests that procyclical competition policies may be a cost minimizing solution to asymmetries in collusive behaviour over the business cycle

Entrepreneurship and the Business Cycle: Stylized Facts from U.S. Venture Capital Activity

We consider US Venture Capital (VC) activity as a measure of entrepreneurship and study its relationship with the business cycle. This measure addresses some biases in alternative measures such as self-employment and business ownership that have been considered in previous literature. Despite the well-known volatility in VC activity, it remains an important source of funding for entrepreneurs engaging in innovative business creation. We document key stylized facts for VC entry (seed and start-up stage) and VC exit (late stage) at the aggregate and sectoral level. VC entry is more strongly correlated and is contemporaneous with the business cycle while VC exit lags the cycle by two quarters. There is strong evidence for a bi-directional causality between entrepreneurship and economic activity. A positive shock to VC activity has a positive effect on real GDP. Our findings can help inform policies designed to support entrepreneurship

The Collateral Channel: How Real Estate Shocks Affect Corporate Investment: Comment

Chaney, Sraer and Thesmar (2012) find that over the 1993{2007 period, a $1 increase in collateral (the value of real estate a firm actually owns) leads the representative US public corporation to raise its investment by$0.06. We first demonstrate that data Winsorization induces a strong bias in favour of finding this result. There is no relationship ($0.00 per$1) between the value of real estate a firm owns and its investment in the unaltered data. We also show that the identification approach based on local variations in real estate prices does not provide evidence on the collateral channel

Sources of Canadian Economic Growth

We apply modern growth accounting based on the semi-endogenous growth theory of Jones (2002) to determine the sources of Canadian economic growth between 1981– 2013. This framework allows us to distinguish between transition dynamics and steadystate growth, and quantify their respective contributions. We find that over 80% of the total average growth rate of output per worker of 1.24 percentage points has been due to transitional factors. Among these, the bulk of the contribution is attributed to domestic human capital growth driven by educational attainment, and global research and development (R&D) intensity. These two factors have been the primary sources of Canadian economic growth. The growth in capital-output ratio contributed a small share of 0.14 percentage points suggesting a limited role of capital accumulation. The steady-state growth over is attributed to population growth indicating modest scale effects of about 16% of the total average growth. Our results highlight that the future of Canadian productivity growth and the standard of living are closely tied to sustained growth in both domestic human capital and global R&D intensity

Investment-Specific News Shocks and U.S. Business Cycles

This paper provides robust evidence that news shocks about future investment- specific technology (IST) constitute a significant force behind U.S. business cycles. Using a recent empirical approach to identifying news shocks, we find that positive IST news shocks induce comovement, i.e., raise output, consumption, investment, and hours. These shocks account for 70% of the business cycle variation in output, hours, and consumption, and 60% of the variation in investment, and have played an important role in nine of the last ten U.S recessions. IST news shocks also dominate unanticipated IST shocks in accounting for the forecast variance of aggregate variables. The findings have two important implications for research on news driven business cycles. First, they provide strong support for shifting focus to IST news shocks when investigating the role of news (or foresight) in driving business cycles. Second, an important avenue for further research is to consider structural mechanisms that can enhance the role of IST news shocks in estimated dynamic general equilibrium models

A Tale of Two Major Postwar Business Cycle Episodes

We offer a tale of two major postwar business cycle episodes: the pre-1980s and the post-1982s prior to the Great Recession. We revisit the sources of business cycles and the reasons for the large variations in aggregate volatility from the first to the second episode. Using a medium-scale DSGE model where monetary policy potentially has cost-channel effects, we first show the Fed most likely targeted deviations of output growth from trend growth, not the output gap, for measure of economic activity. When estimating our model with a policy rule reacting to output growth with Bayesian techniques, we find the US economy was not in a state of indeterminacy in either of the two subperiods. Thus, aggregate instability before 1980 did not result from self-fulfilling changes in inflation expectations. Our evidence shows the Fed reacted more strongly to inflation after 1982. Based on sub-period estimates, we find that shocks to the marginal efficiency of investment largely drove the cyclical variance of output growth prior to 1980 (61%), while they have seen their importance falls dramatically after 1982 (19%). When looking at the sources of greater macroeconomic stability during the second episode, we find no support for the “good-luck hypothesis”. Change in nominal wage flexibility largely drove the decline in output growth volatility, while the change in monetary policy was a key factor lowering inflation variability

The Real Interest Rate Channel is Structural in Contemporary New-Keynesian Models

The monetary transmission mechanism in a New-Keynesian model with contemporary features is put to scrutiny. In contrast to Rupert and Šustek (2019), we find that the real interest rate channel is structural when the model contains empirically realistic frictions on the ow of investment. A monetary contraction (expansion) is always followed by an increase (decrease) in the real interest rate. The monetary transmission mechanism indeed operates through the real interest rate channel in this class of models

Entry, Exit and Economic Growth: US Regional Evidence

Entry rates have a negative long-run effect on US regional growth, which contradicts innovation-based growth models. This puzzle is resolved when a model-consistent specification is estimated using per capita entry growth. Evidence supports the Schumpeterian hypothesis of a positive relationship between exit and economic growth

The Stock Market and the Consumer Confidence Channel: Evidence from Canada

Two channels through which stock prices can affect consumption are wealth effects and shifts in consumer confidence. We examine the evidence for the latter channel for Canada, using consumer confidence survey data. The composition of households' financial wealth between stock and pension funds holdings as well as the unique 6- month forecast horizon in the consumer confidence survey make Canada a particularly interesting case relative to the U.S. and European countries. We find that both stock price changes and their volatility are significant predictors of consumer responses to questions that are unrelated to expectations of future personal finances, even after controlling for inflation, unemployment and interest rates. Moreover, there is a significant short-term increase in consumer pessimism after an unexpected rise in stock market volatility. Overall, the evidence for the confidence channel suggests that this channel can amplify the effects of the well-understood wealth channel. Consequently, it should be taken into account in determining quantitative impacts of the stock market on consumer behaviour

House Prices and Government Spending Shocks

We show that a broad class of DSGE models with housing and collateralized borrowing predict a fall in house prices following positive government spending shocks. By contrast, we show that house prices in the US rise persistently after identified positive government spending shocks, using a structural vector autoregression methodology and accounting for anticipated effects. We clarify that the incorrect house price response is due to a general property of DSGE models—approximately constant shadow value of housing—and that modifying preferences and production structure does not help in obtaining the correct house price response. We then show that the effect on house prices is positive only when monetary policy strongly accommodates government spending shocks. The model, however, does not deliver a persistent rise in house prices. Properly accounting for the empirical evidence on government spending shocks and house prices using a DSGE model therefore remains a significant challenge