Identification of Technology Shocks in Structural VARs

The usefulness of SVARs for developing empirically plausible models is actually subject to many controversies in quantitative macroeconomics. In this paper, we propose a simple alternative two step SVARs based procedure which consistently identifies and estimates the effect of permanent technology shocks on aggregate variables. Simulation experiments from a standard business cycle model show that our approach outperforms standard SVARs. The two step procedure, when applied to actual data, predicts a significant short-run decrease of hours after a technology improvement followed by a delayed and hump-shaped positive response. Additionally, the rate of inflation and the nominal interest rate displays a significant decrease after a positive technology shock.SVARs, long-run restriction, technology shocks, consumption to output ratio, hours worked

The Response of Hours to a Technology Shock: a Two-Step Structural VAR Approach

The response of hours worked to a technology shock is an important and a controversial issue in macroeconomics. Unfortunately, the estimated response is generally sensitive to the specification of hours in SVARs. This paper uses a simple two-step approach in order to consistently estimate technology shocks from a SVAR model and the response of hours that follow this shock. The first step considers a SVAR model with a set of relevant stationary variables, but excluding hours. Given a consistent estimate of technology shocks in the first step, the response of hours to this shock is estimated in a second step. When applied to US data, the two-step approach predicts a short-run decrease of hours after a technology improvement followed by a hump-shaped positive response. This result is robust to the specification of hours, different sample periods, measures of hours and output and to the variables included in the VAR in the first step.SVARs, long-run restriction, technology shocks, consumption to output ratio, hours worked

Do the Hodrick-Prescott and Baxter-King Filters Provide a Good Approximation of Business Cycles?

In this paper, the authors examine how well the Hodrick-Prescott (HP) and the band-pass filter recently proposed by Baxter and King (BK) extract the business-cycle component of macroeconomic time series. The authors assess these filters using two different definitions of the business-cycle component. First, they define that component to be fluctuations lasting no fewer than six and no more than thirty-two quarters; this is the definition of business-cycle frequencies used by Baxter and King. Second, they define the business-cycle component on the basis of a decomposition of the series into permanent and transitory components. In both cases the conclusions are the same. The filters perform adequately when the spectrum of the original series has a peak at business-cycle frequencies. When the spectrum is dominated by low frequencies, the filters provide a distorted business cycle. Since most macroeconomic series have the typical Granger shape, the HP and BK filters perform poorly in terms of identifying the business cycles of these series. Dans la présente étude, les auteurs cherchent à évaluer l'efficacité avec laquelle le filtre de Hodrick-Prescott (HP) et le filtre passe-bande récemment proposé par Baxter et King (BK) permettent d'isoler la composante cyclique des séries macroéconomiques. Ils utilisent deux définitions du cycle économique pour comparer la performance de ces filtres. Selon la première définition (celle que retiennent Baxter et King), la composante cyclique correspond à des fluctuations d'une durée minimale de six trimestres et maximale de trente-deux trimestres. L'autre définition du cycle consiste dans la décomposition de la série en deux composantes, l'une permanente et l'autre transitoire. Les auteurs parviennent aux mêmes conclusions peu importe la définition utilisée. Les filtres donnent des résultats satisfaisants lorsque le spectre de la série initiale atteint un sommet au voisinage des fréquences comprises entre six et trente-deux trimestres. Lorsque le spectre est dominé par les basses fréquences, le cycle économique obtenu donne une image faussée de la réalité. Comme la forme spectrale de la plupart des séries macroéconomiques ressemble à celle que Granger a mise en lumière, les filtres HP et BK réussissent mal à isoler la composante cyclique de ces séries.Mechanical filters; business cycles; spectrum

The Information Content of Implied Probabilities to Detect Structural Change

This paper proposes Pearson-type statistics based on implies probabilities to detect structural change. The class of generalized empirical likelihood estimators (see Smith (1997)) assigns a set of probabilities to each observation such that moment conditions are satisfied. These restricted probabilities are called implied probabilities. Implied probabilities may also be constructed for the standard GMM (see Back and Brown (1993)). The proposed test statistics for structural change are based on the information content in these implied probabilities. We consider cases of structural change with unknown breakpoint which can occur in the parameters of interest or in the overidentifying restrictions used to estimate these parameters. The test statistics considered here have good size and power properties.Generalized empirical likelihood, generalized method of moments, parameter instability, structural change

Adaptive Rate-optimal Detection of Small Autocorrelation Coefficients

A new test is proposed for the null of absence of serial correlation. The test uses a data-driven smoothing parameter. The resulting test statistic has a standard limit distribution under the null. The smoothing parameter is calibrated to achieve rate-optimality against several classes of alternatives. The test can detect alternatives with many small correlation coefficients that can go to zero with an optimal adaptive rate which is faster than the parametric rate. The adaptive rate-optimality against smooth alternatives of the new test is established as well. The test can also detect ARMA and local Pitman alternatives converging to the null with a rate close or equal to the parametric one. A simulation experiment and an application to monthly financial square returns illustrate the usefulness of the proposed approach.Absence of serial correlation; Data-driven nonparametric tests; Adaptive rate-optimality; Small alternatives; Time series

Labor Market Imperfections and the Dynamics of Postwar Business Cycles

An estimated dynamic general equilibrium model which features imperfectly competititve households, sticky nominal wages and costly labor input adjustment is shown to be consistent with several stylized aspects of U.S. postwar business cycle dynamics including the positive serial correlation of output, consumption, investment and employment growth over short horizons and the persistent, hump-shaped response of output to innovations in the temporary component.Imperfectly competitive households, Sticky nominal wages, Labor adjustment costs, Business cycles, Endogenous propagation mechanisms

Les neuf vies de la courbe de Phillips américaine : réincarnations ou résilience ?

Au cours des années quatre-vingt-dix, le comportement de l’inflation aux États-Unis a constitué une énigme pour beaucoup d’observateurs ; le taux de chômage américain s’est maintenu pendant huit ans sous le seuil de 6 % sans que cela donne lieu à une accélération notable de la croissance des prix et des salaires. À nouveau, la pertinence théorique et empirique de la courbe de Phillips a été contestée. Cet article fait état des explications avancées par les économistes pour élucider cette énigme ainsi que des débats relatifs à une remise en question de la courbe de Phillips. Ce faisant, nous présentons une revue des contributions théoriques et empiriques récentes à la littérature sur la courbe de Phillips.In the 90s, the behaviour of US inflation has been a puzzle for many analysts; for eight years, the unemployment rate remained below 6% without giving rise to a significant acceleration of prices and wages. Once again, both the theoretical and empirical relevance of the Phillips curve has been questioned. This paper reassesses explanations proposed by economists to solve this puzzle, as well as the issues pertaining to the debates about the Phillips curve. Recent theoretical and empirical contributions in the literature on the Phillips curve are also reviewed

Identification of Technology Shocks in Structural VARs

The usefulness of SVARs for developing empirically plausible models is actually subject to many controversies in quantitative macroeconomics. In this paper, we propose a simple alternative two step SVARs based procedure which consistently identifies and estimates the effect of permanent technology shocks on aggregate variables. Simulation experiments from a standard business cycle model show that our approach outperforms standard SVARs. The two step procedure, when applied to actual data, predicts a significant short-run decrease of hours after a technology improvement followed by a delayed and hump-shaped positive response. Additionally, the rate of inflation and the nominal interest rate displays a significant decrease after a positive technology shock