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Working Paper
The present-value model of the current account has been rejected: Round up the usual suspects
Tests of the present-value model of the current account are frequently rejected by the data. Standard explanations rely on the "usual suspects" of nonseparable preferences, shocks to fiscal policy and the world real interest rate, and imperfect international capital mobility. The authors confirm these rejections on postwar Canadian data, then investigate their source by calibrating and simulating alternative versions of a small open economy, real business cycle model. Monte Carlo experiments reveal that, although each of the suspects matters in some way, a "canonical" RBC model moves closest ...
Working Paper
Nonparametric exchange rate prediction?
Working Paper
The equity premium and time-varying risk behavior
Journal Article
The New Keynesian Phillips curve : lessons from single-equation econometric estimation
We review single-equation methods for estimating the hybrid New Keynesian Phillips curve (NKPC) and then apply those methods to U.S. quarterly data for 1955?2007. Estimating the hybrid NKPC by the generalized method of moments yields stable coefficients with a large role for expected future inflation. Measures of marginal costs better explain U.S. inflation than does a range of measures of the output gap. But estimates of the slope of the NKPC are imprecise and confidence intervals that are robust to weak identification are wide. Further research on measuring marginal costs may reconcile ...
Journal Article
Instability in U.S. inflation: 1967-2005
Maintaining stables prices and keeping inflation in check have become key policy objectives of the Federal Reserve and other central banks. Evidence indicates that inflation has become less persistent and volatile since the early 1980s. Although economists have examined the implications for inflation modeling and forecasting, little information exists about whether changes or instabilities in inflation dynamics coincide with specific economic events such as oil price shocks or recessions. ; This article studies U.S. monthly inflation, inflation growth, and price level dynamics from January ...
Working Paper
U.K. World War I and interwar data for business cycle and growth analysis
This article contributes new time series for studying the U.K. economy during World War I and the interwar period. The time series are per capita hours worked and average tax rates of capital income, labor income, and consumption. Uninterrupted time series of these variables are provided for an annual sample that runs from 1913 to 1938. We highlight the usefulness of these time series with several empirical applications. We use per capita hours worked in a growth accounting exercise to measure the contributions of capital, labor, and productivity to output growth. The average tax rates are ...
Working Paper
Interwar U.K. unemployment: the Benjamin and Kochin hypothesis or the legacy of “just” taxes?
Benjamin and Kochin (1979, Journal of Political Economy) present regression estimates to support their hypothesis that larger unemployment benefits increased U.K. unemployment post?World War I (WWI). The Benjamin-Kochin (BK) regression is easy to replicate. When the replication is widened to include income tax rates and WWI observations using Bayesian Monte Carlo methods, the evidence moves against the BK hypothesis and in favor of regressions that include the capital income tax rate. We explain these results with Daunton (2002, Just Taxes). He argues that U.K. tax rates were set during WWI ...
Working Paper
Choosing the best volatility models: the model confidence set approach
This paper applies the model confidence sets (MCS) procedure to a set of volatility models. A MSC is analogous to a confidence interval of parameter in the sense that the former contains the best forecasting model with a certain probability. The key to the MCS is that it acknowledges the limitations of the information in the data. The empirical exercise is based on fifty-five volatility models, and the MCS includes about a third of these when evaluated by mean square error, whereas the MCS contains only a VGARCH model when mean absolute deviation criterion is used. We conduct a simulation ...
Working Paper
Bulk commodities and the Liverpool and London markets of the mid-19th century
We study British prices and the degree of commodity market integration between Liverpool, the bulk commodity port of mid-19th century, and London. A new wholesale commodity price index is presented for Liverpool and this is compared with the Klovland-Sauerbeck index. Next, we examine the relationship between Liverpool and London markets in specific bulk commodities. Our data consist of price indices for identically described goods in both Liverpool and London: three commodity groups (metal products, wood products, and processed foods), and the specific commodities of wheat and flour. Tests ...
Working Paper
Business cycle implications of internal consumption habit for New Keynesian models
This paper studies the implications of internal consumption habit for propagation and monetary transmission in New Keynesian dynamic stochastic general equilibrium (NKDSGE) models. We use Bayesian methods to evaluate the role of internal consumption habit in NKDSGE model propagation and monetary transmission. Simulation experiments show that internal consumption habit often improves NKDSGE model fit to output and consumption growth spectra by dampening business cycle periodicity. Nonetheless, habit NKDSGE model fit is vulnerable to nominal rigidity, the choice of monetary policy rule, the ...