Where's the productivity growth (from the information technology revolution)?
Information technology has advanced rapidly in the last two or three decades, and an equivalent rapid gain in economy-wide productivity has been anticipated. Productivity statistics, however, do not support this expectation. Although productivity growth has risen since the slowdown witnessed in the 1970s, it can hardly be described as phenomenal. Donald S. Allen discusses some of the current explanations for this apparent disparity and suggests that, as the workforce catches up to the technology level and exploits its full potential, productivity growth will increase.
Why does inventory investment fluctuate so much during contractions?
Inventory investment appears to have a significant impact on the movement of aggregate output during business cycle contractions. Recent empirical evidence has raised doubts about the often used assumption of a buffer-stock/production-smoothing motivation for inventory. Work by Blinder and Maccini suggests that the use of an (S,s), or intermittent adjustment decision rule, better explains the stylized facts of the dynamics of inventory investment. This has led to the focus on the (S,s) as an alternative to production-smoothing. I assume that some agents use the (S,s) adjustment rule while ...
Improving production management
Trade, growth and capital: a case study of Jamaica
This is the first of two articles on the dynamics of the Jamaican economy over the last two and a half decades. It compares the overall macroeconomy of Jamaica in the areas of output, fiscal and monetary policy, capital formation and trade to that of Singapore and South Korea. The conclusion from the aggregate data is that government spending in the second half of the 1970?s and the first half of the 1980?s may have had a significant role in the inflationary episodes and reduced capital formation during this period. The second article will delve deeper into the details of the fiscal and ...
Income inequality and minimum consumption: implications for growth
We propose a model that recognizes hierarchical goods and income inequality among households. The model demonstrates that growth is impacted not by inequality per se, but "absolute" income distribution or the level of poverty underlying the income distribution. Specifically, when a large fraction of the population is below the threshold income necessary for subsistence, aggregate consumption is depressed. In low-income countries, high inequality of income retards consumption growth, whereas in high-income countries inequality may be neutral for growth. Cross-country regressions indicate a ...
Forecasting with an adaptive control algorithm
We construct a parsimonious model of the U.S. macro economy using a state space representation and recursive estimation. At the core of the estimation procedure is a prediction/correction algorithm based on a recursive least squares estimation with exponential forgetting. The algorithm is a Kalman filter-type update method which minimizes the sum of discounted squared errors. This method reduces the contribution of past errors in the estimate of the current period coefficients and thereby adapts to potential time variation of parameters. The root mean square errors of out-of-sample forecast ...
The efficiency of residential mortgage guarantee insurance markets
Mortgage Guarantee Insurance (MGI) provides protection to lenders against default by borrowers who have less than 20 percent equity interest in the mortgaged property. The existence of this form of insurance helps to stimulate home ownership by allowing consumers with less than twenty percent down payment access to credit markets. Initially an invention of lenders, MGI became dominated by government agencies after the Great Depression but recently private insurers have increased their market share to more than 75 percent. The domination of the industry by the private sector appears not to ...
Old wine at new prices
Financial intermediation and economic growth in southern Africa
The role of the financial sector in stimulating economic growth has been debated in the economic profession for decades. The prevailing view is that financial intermediaries reduce the transactions costs of channeling funds from savers to entrepreneurs by reducing information asymmetries between lenders and borrowers, there by stimulating investment and growth. Inflation, on the other hand, increases uncertainty and has a negative impact on investment and reduces growth. This paper tests these two hypotheses empirically using a pooled time series for a cross-section of countries in the ...
Saving up: gross and personal