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Journal Article
Investment-specific technology growth: concepts and recent estimates
The strength of U.S. productivity growth in recent years has been attributed to technological improvements that are, in some sense, embodied in new types of capital equipment. However, traditional growth theory and growth accounting techniques?which emphasize the role of disembodied, neutral technological progress?are deficient in explaining this phenomenon. In this article, Michael R. Pakko outlines a model of investment-specific technological change that has become popular for describing the notion of capital-embodied growth and summarizes some recent estimates of the importance of this ...
Working Paper
Do high interest rates stem capital outflows?
Conventional wisdom posits that high interest rates stem capital flight and currency depreciation. Some have argued, however that the standard prescription exacerbates the problems. This paper set out a framework for evaluating the conditions under which an increase in domestic interest rates fails to reverse capital outflow. The possibility that high domestic interest rates might have unorthodox effects arises through a risk premium: If raising interest rates increases the possibility associated with default, the result can be a worsening of the country's capital account position.
Working Paper
Dynamic shoe-leather costs in a shopping-time model of money
A general-equilibrium shopping-time model of money demand is used to obtain estimates of some dynamic costs of inflation under alternative monetary policy rules. After examining the welfare implications of steady-state inflation, dynamic welfare costs are evaluated for inflation-targeting and price-level targeting regimes in a stochastic setting in which agents are uncertain about the underlying inflation trend. The regimes are distinguished by the presence or absence of a unit root in the money supply and the price level. Uncertainty about the underlying inflation rate is introduced as a ...
Working Paper
Inflation risk and optimal monetary policy
This paper shows that the optimal monetary policies recommended by New Keynesian models still imply a large amount of inflation risk. We calculate the term structure of inflation uncertainty in New Keynesian models when the monetary authority adopts the optimal policy. When the monetary policy rules are modified to include some weight on a price path, the economy achieves equilibria with substantially lower long-run inflation risk. With either sticky prices or sticky wages, a price path target reduces the variance of inflation by an order of magnitude more than it increases the variability of ...
Journal Article
Currency boards: monetary magic?
Journal Article
There are two sides to every (employment redistribution) story!
Journal Article
Capital deepening
Journal Article
The high-tech investment boom and economic growth in the 1990s: accounting for quality
The rapid pace of economic growth in the 1990s was associated with an increasingly prominent role for investment, particularly for information processing and communications technologies. Given the evident pace of technological advancement in these sectors, official economic statistics have been constructed to take careful account of improvements in the quality of these high-tech capital goods. In this article, Michael R. Pakko examines the possibility that this selective accounting for quality improvement has distorted the true importance of high-tech investment in recent economic growth ...
Journal Article
Future oil
Working Paper
The cyclical relationship between output and prices: an analysis in the frequency domain
Recent research showing negative correlations between detrended output and prices during the postwar period has brought into question the conventional wisdom that prices are procyclical. However, this finding has been shown to be sensitive to the sample period considered. This paper examines the relationship between output and prices in the frequency domain: using quarterly data on GNP and the deflator for the period 1875-1994, the covariance of output and prices is decomposed into its spectral components in order to investigate whether the differences in the price-output relationship across ...