The Young, the Old, and the Restless: Demographics and Business Cycle Volatility

In this paper we investigate the consequences of demographic change for business cycle analysis. We find that changes in the age composition of the labor force account for a significant fraction of the variation in business cycle volatility observed in the US and other G7 economies. During the postwar period, these countries have experienced dramatic demographic change, though details regarding extent and timing differ from place to place. Using panel data methods, we exploit this variation to show that the age composition of the workforce has a large and statistically significant effect on cyclical volatility. We conclude by relating these findings to the recent decline in US business cycle volatility. Through simple quantitative accounting exercises, we find that demographic change accounts for a significant part of this moderationbusiness cycles

The young, the old, and the restless: demographics and business cycle volatility

We investigate the consequences of demographic change for business cycle analysis. We find that changes in the age composition of the labor force account for a significant fraction of the variation in business cycle volatility observed in the U.S. and other G7 economies. During the postwar period, these countries experienced dramatic demographic change, although details regarding extent and timing differ from place to place. Using panel-data methods, we exploit this variation to show that the age composition of the workforce has a large and statistically significant effect on cyclical volatility. We conclude by relating these findings to the recent decline in U.S. business cycle volatility. Using both simple accounting exercises and a quantitative general equilibrium model, we find that demographic change accounts for a significant part of this moderation.Business cycles - Econometric models ; Demography

Time consistent monetary policy with endogenous price rigidity

In this paper I characterize time consistent equilibrium in an economy with price rigidity and an optimizing monetary authority operating under discretion. Firms have the option to increase their frequency of price change, at a cost, in response to higher inflation. Previous studies, which assume a constant degree of price rigidity across inflation regimes, find two time consistent equilibria - one with low inflation, the other with high inflation. In contrast, when price rigidity is endogenous, the high inflation equilibrium ceases to exist. Hence, time consistent equilibrium is unique. This result depends on two features of the analysis: (1) a plausible quantitative specification of the fixed cost of price change, and (2) the presence of an arbitrarily small cost of inflation that is independent of price rigidity.

The fiscal role of conscription in the US World War II effort

I consider the role of conscription as a fiscal shock absorber in times of war. Conscription of military personnel allows the fiscal authority to minimize wartime government expenditure, and hence, minimize tax distortions associated with war finance. I develop a simple dynamic general equilibrium model to articulate this view, and calibrate the model to mimic the U.S. World War II experience. Analysis of the calibrated model indicates that the value of conscription as a fiscal policy tool is quantitatively large.

Growth and business cycles

We present a class of convex endogenous growth models and analyze their performance in terms of both growth and business cycle criteria. The models we study have close analogs in the real business cycle literature. We interpret the exogenous growth rate of productivity as an endogenous growth rate of human capital. This perspective allows us to compare the strengths of the two classes of models. ; To highlight the mechanism that gives endogenous growth models the ability to improve upon their exogenous growth relatives, we study models that are symmetric in terms of human and physical capital formation—our two engines of growth. More precisely, we analyze models in which the technology used to produce human capital is identical to the technologies used to produce consumption and investment goods and in which the technology shocks in the two sectors are perfectly correlated.Business cycles ; Technological innovations ; Human capital

Time consistent monetary policy with endogenous price rigidity

I characterize time consistent equilibrium in an economy with price rigidity and an optimizing> monetary authority operating under discretion. Firms have the option to increase their frequency> of price change, at a cost, in response to higher inflation. Previous studies, which assume a constant> degree of price rigidity across inflation regimes, find two time consistent equilibria ? one with low> inflation, the other with high inflation. In contrast, when price rigidity is endogenous, the high> inflation equilibrium ceases to exist. Hence, time consistent equilibrium is unique. This result> depends on two features of the analysis: (1) a plausible quantitative specification of the fixed cost> of price change, and (2) the presence of an arbitrarily small cost of inflation that is independent of> price rigidity.Monetary policy

Job polarization and jobless recoveries

Job polarization refers to the shrinking share of employment in middle-skill, routine occupations experienced over the past 35 years. Jobless recoveries refers to the slow rebound in aggregate employment following recent recessions despite recoveries in aggregate output. We show how these two phenomena are related. First, essentially all employment loss in routine occupations occurs in economic downturns. Second, jobless recoveries in the aggregate can be accounted for by jobless recoveries in the routine occupations that are disappearing

The Young, the Old, and the Restless: Demographics and Business Cycle Volatility

We investigate the consequences of demographic change for business cycle analysis. We find that changes in the age composition of the labor force account for a significant fraction of the variation in business cycle volatility observed in the U.S. and other G7 economies. During the postwar period, these countries experienced dramatic demographic change, although details regarding timing and nature differ from place to place. Using panel-data methods, we exploit this variation to show that the age composition of the workforce has a large and statistically significant effect on cyclical volatility. We conclude by relating these findings to the recent decline in U.S. business cycle volatility. Through simple quantitative accounting exercises, we find that demographic change accounts for approximately one-fifth to one-third of this moderation.

Growth and Business Cycles

Our purpose in this paper is to present a class of convex endogenous growth models, and to analyze their performance in terms of both growth and business cycle criteria. The models we study have close analogs in the real business cycle literature. In fact, we interpret the exogenous growth rate of productivity as an endogenous growth rate of human capital. This perspective allows us to compare the strengths of both classes of models. In order to highlight the mechanism that gives endogenous growth models the ability to improve upon their exogenous growth relatives, we study models that are symmetric in terms of human and physical capital formation -- our two engines of growth. More precisely, we analyze models in which the technology used to produce human capital is identical to the technologies used to produce consumption and investment goods, and in which the technology shocks in the two sectors are perfectly correlated. We find that endogenous growth models can generate levels of labor volatility close to those observed in the data, as well as positively correlated growth rates of output. We also find that these models outperform a related exogenous growth version in most dimensions.