Characterizing the 2014–16 Slowdown in Investment
Investment growth slowed from 2014 to 2016, a period when the overall economy was expanding. Using a statistical model, the author found a clear evidence that investment growth fluctuates between high and low growth regimes that usually correspond to expansions and recessions. However, during 2014?16, the investment sector experienced an isolated recession within an overall expansion, which is unusual by historical standards.
Unhealthy situation : nursing shortage threatens health care
Perturbation methods for Markov-switching DSGE models
Markov-switching DSGE (MSDSGE) modeling has become a growing body of literature on economic and policy issues related to structural shifts. This paper develops a general perturbation methodology for constructing high-order approximations to the solutions of MSDSGE models. Our new method, called "the partition perturbation method," partitions the Markov-switching parameter space to keep a maximum number of time-varying parameters from perturbation. For this method to work in practice, we show how to reduce the potentially intractable problem of solving MSDSGE models to the manageable problem ...
The asymmetric effects of uncertainty on employment.
Uncertainty and fiscal cliffs
Motivated by the US Fiscal Cliff in 2012, this paper considers the short- and longer- term impact of uncertainty generated by fiscal policy. Empirical evidence shows increases in economic policy uncertainty lower investment and employment. Investment that is longer-lived and subject to a longer planning horizon responds to policy uncertainty with a lag, while capital that depreciates more quickly and can be installed with few costs falls immediately. A DSGE model incorporating uncertainty over future tax regimes produces responses to fiscal uncertainty that match key features of the data. The ...
Jargon alert : Rational expectations
Optimal monetary policy regime switches
Given regime switches in the economy?s growth rate, optimal monetary policy rules may respond by switching policy parameters. These optimized parameters differ across regimes and from the optimal choice under fixed regimes, particularly in the inflation target and interest rate inertia. Optimal switching rules produce welfare gains relative to constant rules, with switches in the implicit real interest rate used for policy and the degree of interest rate inertia producing the largest gains. However, gains from switching rules decrease if the monetary authority trades-off the probability of ...
The Changing Input-Output Network Structure of the U.S. Economy
U.S. industries have become less connected over the last 10 years, and service industries have become more central.
Uncertainty and Fiscal Cliffs
Large pending fiscal policy changes, such as in the United States in 2012 or in Japan with consumption taxes, often generate considerable uncertainty. ?Fiscal cliff? episodes have several features: an announced possible future change, a skewed set of possible out-comes, the possibility that implementation may not actually occur, and a known resolution date. This paper develops a model capturing these features and studies their impact. Fiscal cliff uncertainty shocks have immediate impact, with a magnitude that depends on the probability of implementation, which generates economic volatility. ...