Structural Changes and Economic Growth: Evidence from Japan

In this paper, we introduce an index of structural changes of the economy, and investigate the relationship between economic growth and structural changes in the Japanese economy We find that (i) there is no clear relationship between structural changes and business cycles in the short run however, (ii) the long run movements of structural changes are positively correlated with economic growth. In the short run, our result is consistent with the neoclassical view it is also consistent with the Schumpeterian view of economic growth in the long run.

Note on nominal rigidities and news-driven business cycles

A news-driven business cycle is a positive comovement of consumption, output, labor, and investment from the news about the future. We show that nominal rigidities, especially sticky prices, can cause it in an estimated medium-scale DSGE economy.nominal rigidities ; news-driven business cycles

Asset Prices, Nominal Rigidities, and Monetary Policy: Role of Price Indexation

Carlstrom and Fuerst (2007) [``Asset prices, nominal rigidities, and monetary policy,'' Review of Economic Dynamics 10, 256--275] find that monetary policy response to share prices is a source of equilibrium indeterminacy because an increase in inflation implies a high real marginal cost and low share prices in a sticky-price economy. We find that if the New Keynesian Phillips curve has a lagged inflation term caused by price indexation, this effect is weakened. Moreover, equilibrium indeterminacy caused by monetary policy response to share prices never arises if all the firms that cannot re-optimize their prices follow price indexation.asset prices; monetary policy; equilibrium determinacy; price indexation

Collateralized capital and news-driven cycles

Kobayashi, Nakajima, and Inaba (2007) show that in the neoclassical business cycle models with collateral constraints, a boom can be generated in response to an optimistic change in expectations on the future state of the economy. They call this business cycle a news-driven cycle. In their models, land is used as collateral, and borrowing for working capital is limited by the value of collateralized land. We simplify their model to the one without land. We show that in the economy where capital goods are used as collateral, the news-driven cycles can be generated.

Online Appendices to "An application of business cycle accounting with misspecified wedges"

Online appendices for the Review of Economic Dynamics article

Asset prices and monetary policy in a sticky-price economy with financial frictions

A recent study shows that equilibrium indeterminacy arises if monetary policy responds to asset prices, especially share prices, in a sticky-price economy. We show that equilibrium indeterminacy never arises if the working capital of firms is subject to their asset values by financial frictions.asset prices; financial frictions; equilibrium indeterminacy; monetary policy; sticky prices

Asset Prices and Monetary Policy in a Sticky-Price Economy with Financial Frictions

A recent study shows that equilibrium indeterminacy arises if monetary policy responds to asset prices, especially share prices, in a sticky-price economy. We show that equilibrium indeterminacy never arise if the working capital of firms is subject to their asset values by financial frictions.

Nominal Rigidities and News-Driven Business Cycles in a Medium-Scale DSGE Economy

A news-driven business cycle is a positive comovement of consumption, output, labor, and investment from the news about the future. It is well-known that the standard real business cycle model cannot generate it. In this paper, we show that nominal rigidities, especially sticky prices, can cause it in an estimated medium-scale DSGE economy. We also find that sticky wages cannot cause it in our economy.

Note on nominal rigidities and news-driven business cycles

A news-driven business cycle is a positive comovement of consumption, output, labor, and investment from the news about the future. We show that nominal rigidities, especially sticky prices, can cause it in an estimated medium-scale DSGE economy

On Equivalence Results in Business Cycle Accounting

Business cycle accounting rests on the insight that the prototype neoclassical growth model with time-varying wedges can achieve the same allocation generated by a large class of frictional models: equivalence results. Equivalence results are shown under general conditions about the process of wedges while it is often specified to be the first order vector autoregressive when one applies business cycle accounting to actual data. In this paper, we characterize the class of models covered by the prototype model under the conventional first order vector autoregressive specification of wedges and find that it is much smaller than that believed in previous literature. We also apply business cycle accounting to an artificial economy where the equivalence does not hold and provide a numerical example that business cycle accounting works well even in such an economy.