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Author:Trehan, Bharat 

Conference Paper
New evidence on cyclical and structural sources of unemployment
AUTHORS: Loungani, Prakash; Trehan, Bharat; Kannan, Prakash; Chen, Jinzhu
DATE: 2012-03

Working Paper
Common shocks and currency crises
This paper attempts to determine the extent to which common external shocks explain simultaneous currency crises. We define crises on a country by country basis using a new criterion that takes into account variations in the volatility of exchange rates over time and across countries. Using a Poisson regression model, we find that over the post-Bretton woods period, a small number of common external shocks can explain between sixty to eighty percent of the variation in the total number of crises over time, depending upon the set of countries one looks at. Our findings provide one explanation of why currency crises sometimes bunch together and sometimes do not.
AUTHORS: Trehan, Bharat; Moreno, Ramon
DATE: 2000

Working Paper
Accounting for the secular “decline” of U.S. manufacturing
The share of employment in manufacturing as well as the relative price of manufactures has declined sharply over the postwar period, while the share of manufacturing output relative to GDP has remained roughly constant. Household preferences turn out to play a key role in reconciling this behavior with a closed-economy, two-sector model with differential rates of productivity growth. We show that the data imply that households are not willing to substitute between the two goods at all and also that this inference is independent of whatever the income elasticity of demand for services might be. Because we are unable to account for the entire decline in employment over this period, we expand the model to allow for manufactured exports. While this does not change our estimate of the elasticity of substitution, it does improve the model?s ability to explain the decline in relative employment in the 1990s. However, larger errors in the 1970s remain unexplained.
AUTHORS: Trehan, Bharat; Marquis, Milton H.
DATE: 2005

Working Paper
The role of capital service-life in a model with heterogenous labor and vintage capital
We examine how the economy responds to both disembodied and embodied technology shocks in a model with vintage capital. We focus on what happens when there is a change in the number of vintages of capital that are in use at any one time and on what happens when there is a change in the persistence of the shocks hitting the economy. The data suggest that these kinds of changes took place in the U.S. economy in the 1990s, when the pace of embodied technical progress appears to have accelerated. We find that embodied technology shocks lead to greater variability (of output, investment and labor allocations) than disembodied shocks of the same size. On the other hand, a decrease in the number of vintages in use at any time (such as is likely to occur when the pace of technical progress accelerates) tends to reduce the volatility of output and also to differentiate the initial response of the economy to the two shocks.
AUTHORS: Trehan, Bharat; Marquis, Milton H.; Tantivong, Wuttipan
DATE: 2009

Working Paper
Time varying equilibrium real rates and monetary policy analysis
Although it is generally recognized that the equilibrium real interest rate (ERR) varies over time, most recent work on policy analysis has been carried out under the assumption that this rate is constant. We show how this assumption can affect inferences about the conduct of policy in two different areas. First, if the ERR moves in the same direction as the trend growth rate (as is suggested by theory), the probability that an unperceived change in trend growth will lead to a substantial change in inflation is noticeably lower than is suggested by recent analyses (of inflation in the 1970s, for example) that assume a constant ERR. Second, if the monetary authority targets a time varying ERR but the econometrician assumes otherwise, estimated policy rules will tend to exaggerate the degree of interest rate smoothing as well as the weight that the monetary authority places upon inflation.
AUTHORS: Trehan, Bharat; Wu, Tao
DATE: 2004

Working Paper
Some implications of using prices to measure productivity in a two-sector growth model
We construct a 2 sector growth model with sector specific technology shocks where one sector produces intermediate goods while the other produces final goods. Theoretical restrictions from this model are used to compute the time series for sector-specific TFPs based solely on factor prices and the relative price of intermediate goods to final goods over the 1959-2000 period. An aggregate TFP measure based on these series appears quite similar to the multifactor productivity measure constructed by the BLS. We find statistical evidence of structural breaks in the growth rate of our productivity measures in 1973 and 1995. The first of these breaks appears to be due to an economy-wide productivity slowdown, while the second is attributed to a sharp pickup in the growth rate of productivity in the intermediate goods sector. Using only these TFP measures, the model's predictions of output growth rates in the two sectors over the intervals defined by the estimated break dates compare favorably with the actual data on consumer nondurables and services (final goods) and consumer and producer durables (intermediate goods).
AUTHORS: Trehan, Bharat; Marquis, Milton H.
DATE: 2003

Working Paper
New evidence on cyclical and structural sources of unemployment
We provide cross-country evidence on the relative importance of cyclical and structural factors in explaining unemployment, including the sharp rise in U.S. long-term unemployment during the Great Recession of 2007-09. About 75% of the forecast error variance of unemployment is accounted for by cyclical factors?real GDP changes (?Okun?s Law?), monetary and fiscal policies, and the uncertainty effects emphasized by Bloom (2009). Structural factors, which we measure using the dispersion of industry-level stock returns, account for the remaining 25 percent. For U.S. long-term unemployment the split between cyclical and structural factors is closer to 60-40, including during the Great Recession.
AUTHORS: Trehan, Bharat; Chen, Zinzhu; Loungani, Prakash; Kannan, Prakash
DATE: 2011

Working Paper
Forward-looking behavior and optimal discretionary monetary policy
This paper derives a closed-form solution for the optimal discretionary monetary policy in a small macroeconomic model that allows for varying degrees of forward-looking behavior. We show that a more forward-looking aggregate demand equation serves to attenuate the response to inflation and the output gap in the optimal interest rate rule. In contrast, a more forward-looking real interest rate equation serves to magnify the response to both variables. A more forward-looking Phillips curve serves to attenuate the response to inflation but magnifies the response to the output gap. ; Original title: Forward-looking behavior and the optimality of the Taylor rule.
AUTHORS: Lansing, Kevin J.; Trehan, Bharat
DATE: 2003

Working Paper
The wage premium puzzle and the quality of human capital
The wage premium for high-skilled workers in the United States, measured as the ratio of the 90th-to-10th percentiles from the wage distribution, increased by 20 percent from the 1970s to the late 1980s. A large literature has emerged to explain this phenomenon. A leading explanation is that skill-biased technological change (SBTC) increased the demand for skilled labor relative to unskilled labor. In a calibrated vintage capital model with heterogenous labor, this paper examines whether SBTC is likely to have been a major factor in driving up the wage premium. Our results suggest that the contribution of SBTC is very small, accounting for about 1/20th of the observed increase. By contrast, a gradual and very modest shift in the distribution of human capital across workers can easily account for the large observed increase in wage inequality.
AUTHORS: Trehan, Bharat; Marquis, Milton H.; Tantivong, Wuttipan
DATE: 2011

Working Paper
Location and the growth of nations
Does a country's (long-term) growth depend upon what happens in countries that are nearby? Such linkages could occur for a variety of reasons, including demand and technology spillovers. We present a series of tests to determine the existence of such relationships and the forms that they might take. We find that a country's growth rate is closely related to that of nearby countries, and show that this correlation reflects more that the existence of common shocks. Trade alone does not appear responsible for these linkages either. In addition, we find that being near a large market contributes to growth.
AUTHORS: Trehan, Bharat; Moreno, Ramon
DATE: 1997

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Monetary policy - United States 21 items

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