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Working Paper
Diagnostic evaluation of the real business cycle model with factor hoarding
This paper proposes evaluating the assumptions of the RBC model rather than merely the ability of model-constrained data to mach moments of official data counterparts. Reduced-form relationships can be used to create model-consistent derivations of capital and labor input. Since several relationships exist for each input, comparison of their properties highlights weaknesses and strengths in the model assumptions. Applied to the RBC model with factor hoarding and depreciation through use, the approach highlights weaknesses in the standard utility function and casts doubt upon use of the model ...
Journal Article
Why is Europe forming a monetary union?
On January 1, 1999, 11 European countries will officially become a monetary union with one currency, the euro. Forming a monetary union brings benefits, such as increased trade between countries. But it carries costs as well. To join the union, each country must cede its right to set individual monetary and exchange-rate policies. Yet each country?s economic situation may differ from that of its fellow union members. How will these countries--and the union--fare when economic shocks hit, especially shocks that affect one country or region more than another? In this article, Gwen Eudey weighs ...
Working Paper
Production synergies, technology adoption, unemployment, and wages
Recent empirical work reveals considerable heterogeneity in the use of technologies within industries, suggesting technology adoption depends on factors other than industry type. We present a model in which the factors that lead to heterogeneous technology adoption play a key economic role in explaining other aspects of the U.S. economy that have been the focus of recent theoretical work, including wage and technology dispersion within and between skill groups and the U-shaped pattern of measured productivity that many other researchers have attributed to learning economies or to production ...
Working Paper
Regime-switching in expectations over the business cycle
In this paper the authors argue that a plausible reason why output and other major U.S. macroeconomic time series seem to follow a Markov switching process might be strictly related to expectations. The authors show that a time series of expectations of future output from the Survey of Professional Forecasters is the only one among the many they analyze that has switching properties compatible with those of output. Starting from this empirical evidence the authors present a business cycle model with shocks to expectations (sunspots) that produces time series with the same properties as the ...