Search Results
Working Paper
Oil and the macroeconomy revisited
The relationship between oil price shocks and U.S. macroeconomic fluctuations advocated by Hamilton (1983) broke down in the 1980s amidst a new regime of highly volatile oil price movements. Several authors have argued that asymmetric and nonlinear transformations of oil prices restore that relationship and thus that the economy responds asymmetrically and nonlinearly to oil price shocks. In this paper, I show that this is only part of the story: the two leading such transformations do not in fact Granger cause output or unemployment in the post-1980 period without further refinements, and ...
Working Paper
Maturity structure of term premia with time-varying expected returns
This paper analyzes the maturity structure of term premia using McCulloch's U.S. Treasury yield curve data from 1953-91, allowing expected returns to vary across time. One-, three-, six-, and twelve-month holding period returns on maturities up to five years are projected on three ex ante variables to compute time-varying expected returns, and simulations are employed to evaluate econometrically nonstandard constraints. The likelihood of expected returns monotonically increasing in maturity (as implied by the liquidity preference hypothesis) is found to vary systematically across values of ...
Working Paper
Misspecification versus bubbles in hyperinflation data: Monte Carlo and interwar European evidence
This paper analyzes tests of the Cagan hyperinflation-money demand model that have several advantages relative to those in the literature. They do not confound specification error with rational bubbles, are implementable with a linear procedure, and are frequently able to detect periodically collapsing bubbles that have challenged existing tests. After a Monte Carlo analysis, the tests are applied to data from hyperinflations in Austria, Germany, Hungary, and Poland. Strong evidence of model misspecification is found for Austria, while the model with a rational, explosive component well ...
Journal Article
How do changes in military spending affect the economy? Evidence from state-level data
One reason that business cycle turning points are hard to understand and predict may be that economists typically employ linear models, while a growing body of research suggests that many economic variables interact in a nonlinear fashion. This study measures the contribution of changes in military spending to business cycles. It uses data at the state level, which offer the advantages of a great diversity and volume of data relative to the aggregate, and a framework capable of capturing nonlinear and asymmetric relationships.> The results suggest that military spending is a significant ...
Working Paper
Are oil shocks inflationary? Asymmetric and nonlinear specifications versus changes in regime
This paper estimates the effects of oil price changes on U.S. inflation in a Phillips curve framework, allowing for some of the asymmetries, nonlinearities, and structural breaks that have been found in the literature on the real effects of oil price shocks. It finds that since around 1980, oil price changes seem to affect inflation only through their direct share in a price index, with little or no pass-through into core measures, while before 1980, oil shocks contributed substantially to core inflation. This structural-break characterization appears robust to a variety of respecifications ...