The great moderation: good luck, good policy, or less oil dependence?

Three explanations have been suggested for the moderation in real GDP and inflation that has occurred in industrialized countries since the 1980s: good luck, better monetary policy, and structural changes in the economy. Recent research finds that better monetary policy explains most of the moderation in inflation, and good luck and the less-intensive use of oil (a structural change) have played a major role in the moderation of GDP.Petroleum products - Prices ; Economic conditions ; Monetary policy

Debt overhang and credit risk in a business cycle model

We study the macroeconomic implications of the debt overhang distortion. In our model, the distortion arises because investment is non-contractible—when a firm borrows funds, the debt contract cannot specify or depend on the firm’s future level of investment. After the debt contract is signed, the probability that the firm will default on its debt obligation acts like a tax that discourages its new investment, because the marginal benefit of that investment will be reaped by the creditors in the event of default. We show that the distortion moves countercyclically: It increases during recessions, when the risk of default is high. Its dynamics amplify and propagate the effects of shocks to productivity, government spending, volatility and funding costs. Both the size and the persistence of these effects are quantitatively important. The model replicates important features of the joint dynamics of macro variables and credit risk variables, like default rates, recovery rates and credit spreads.Corporations - Finance ; Debt ; Business cycles ; Risk

Search frictions and the labor wedge

This paper assesses whether labor market frictions, in the form of searching and matching, can help explain movements in the labor wedge--the gap between the marginal rate of substitution (MRS) and the marginal productivity of labor in a perfectly competitive business cycle model. Results suggest that those frictions are not able to explain fluctuations in the labor wedge, per se. However, the introduction of extensive and intensive margin shows that measuring the MRS in terms of total hours artificially introduces procyclicality in the MRS. When the MRS is correctly measured in terms of hours per worker, the labor wedge obtained is less variable than the one of the perfectly competitive model. A Frisch elasticity of 2.8, as in most macro models, implies a 20 percent decline in the variability of the labor wedge. A Frisch elasticity closer to micro estimates implies an even higher reduction. Finally, we show that it is possible to measure a strongly procyclical labor wedge as in CKM (2007) even if the actual data generating process does not have any labor wedge but has search frictions that allow for movements in both labor margins.Labor market ; Business cycles

Macroeconomic models, forecasting, and policymaking

Models of the macroeconomy have gotten quite sophisticated, thanks to decades of development and advances in computing power. Such models have also become indispensable tools for monetary policymakers, useful both for forecasting and comparing different policy options. Their failure to predict the recent financial crisis does not negate their use, it only points to some areas that can be improved.Forecasting ; Macroeconomics

Search Frictions and the Labor Wedge

This paper assesses whether labor market frictions, in the form of searching and matching, can help explain movements in the labor wedge—the gap between the marginal rate of substitution (MRS) and the marginal productivity of labor in a perfectly competitive business cycle model. Results suggest that those frictions are not able to explain fluctuations in the labor wedge, per se. However, the introduction of extensive and intensive margin shows that measuring the MRS in terms of total hours artificially introduces procyclicality in the MRS. When the MRS is correctly measured in terms of hours per worker, the labor wedge obtained is less variable than the one of the perfectly competitive model. A Frisch elasticity of 2.8, as in most macro models, implies a 20 percent decline in the variability of the labor wedge. A Frisch elasticity closer to micro estimates implies an even higher reduction. Finally, we show that it is possible to measure a strongly procyclical labor wedge as in CKM (2007) even if the actual data generating process does not have any labor wedge but has search frictions that allow for movements in both labor margins.Labor Market Search; Business Cycle Accounting; Labor Wedge

Oil and the Great Moderation

We assess the extent to which the period of great U.S. macroeconomic stability since the mid-1980s can be accounted for by changes in oil shocks and the oil share in GDP. To do this we estimate a DSGE model with an oil-producing sector before and after 1984 and perform counterfactual simulations. We nest two popular explanations for the Great Moderation: (1) smaller (non-oil) real shocks; and (2) better monetary policy. We find that the reduced oil share accounted for as much as one-third of the inflation moderation and 13% of the growth moderation, while smaller oil shocks accounted for 11% of the inflation moderation and 7% of the growth moderation. This notwithstanding, better monetary policy explains the bulk of the inflation moderation, while most of the growth moderation is explained by smaller TFP shocks.Monetary policy ; Petroleum products - Prices ; Business cycles

Conducting monetary policy when interest rates are near zero

This Economic Commentary explains the concerns that are associated with the combination of deflation, low economic activity, and zero nominal interest rates and describes how monetary policy might be conducted in such a situation. We argue that avoiding expectations of deflation is key and that the monetary authority needs to demonstrate an unequivocal commitment to preventing deflation. We also argue that price-level targeting might be a good device for communicating such a commitment.Monetary policy ; Interest rates

V. W. Fazio, "Vic the fighter"

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O paradigma da cidade compacta no debate urbanístico contemporâneo

Parte das teorias contemporâneas sobre a forma da cidade foca num debate dual: de um lado, estudos analíticos e históricos demonstram a intensidade do crescimento e expansão territorial da urbanização, sua permanência e irreversibilidade, formando o paradigma da cidade dispersa; do outro, estudos que objetivam frear essa dispersão e prover respostas urbanísticas baseadas no resgate de padrões espaciais da cidade "tradicional", formam o paradigma da cidade compacta. Diferentemente da cidade dispersa, o discurso sobre a cidade compacta ainda carece de estudos que o analisem sob uma perspectiva histórica, identificando a rede de conhecimento e influências que o construiu e difundiu na Europa e nas Américas. Este artigo inicia a cobrir esta lacuna a partir de especulações sobre como compacidade e dispersão se apresentam na história recente da cidade e como se construiu o discurso contemporâneo da cidade compacta que, apesar das fortes críticas, não diminuiu seu poder de atração e convencimento.Part of the contemporary theories of urban morphology focus on a dual debate: on one side, analytical and historic studies demonstrate the intensity, permanence and irreversibility of the territorial expansion of the urbanization process, forming the disperse city paradigm; on the other side, studies that aim to refrain this dispersion, providing morphological answers based on rescuing spatial patterns of the “traditional” city, form the compact city paradigm. Unlike the disperse city, the compact city discourse has not been analyzed from a historical perspective, identifying the network of knowledge and theoretical influences that constructed it. This paper starts to cover this gap, speculating on how compactness and dispersion present themselves in the recent city history, and how the contemporary compact city discourse has been constructed, a discourse which, despite the strong critics, has not diminished its attraction and convincing power.Peer Reviewe