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Discussion Paper
Liquidity and real activity in three monetary models
Wrase, Jeffrey M.; Schlagenhauf, Don E. (1992)
This paper investigates interest rate determination and evolutions of nominal and real variables in alternative monetary, general equilibrium models. Three approaches to characterizing monetary transactions services are utilized: a cash-in-advance approach, in which agents face cash constraints on goods purchases; a transaction-cost approach, in which goods are sacrificed in transactions; and a shopping-time approach, in which leisure is sacrificed in transactions. Models which employ these approaches are used to examine liquidity effects of monetary innovations on interest rates and real ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 68

Discussion Paper
The permanent income hypothesis when the bliss point is stochastic
Nason, James M. (1991)
A version of the permanent income model is developed in which the bliss point of the agent is stochastic. The bliss point depends on realizations of the stochastic process generating labor income and a random shock. The model predicts consumption and labor income share a common trend and that a linear combination of current consumption, current labor income, and once lagged consumption is stationary. Empirically, consumption appears more serially correlated than the model is capable of supporting. Further, the volatility of consumption appears sensitive to time variation in real interest ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 46

Discussion Paper
Ex-day behavior of Japanese stock prices: new insights from new methodology
Jagannathan, Ravi; Hayashi, Fumio (1990)
We study the ex-dividend day behavior of Japanese stock prices for the period 198387. We find that, contrary to previous findings, prices of ex-day stocks drop by nearly the full amount of the dividend. However, ex-day stocks shows an abnormal return. Also, for the many ex-dividend day stocks that also go ex-rights on the same ex-day, we find that the return is on average higher than that for stocks without rights issues. We thus conclude that the ex-day behavior of Japanese stocks are qualitatively similar to that of U.S. stocks.
Discussion Paper / Institute for Empirical Macroeconomics , Paper 30

Discussion Paper
On the cyclical allocation of risk
Greenwood, Jeremy; Gomme, Paul (1992)
A real business cycle model with heterogeneous agents is parameterized, calibrated, and simulated to see if it can account for some stylized facts characterizing postwar U.S. business cycle fluctuations, such as the countercyclical movement of labors share of income, and the acyclical behavior of real wages. There are two types of agents in the model, workers and entrepreneurs, who participate on an economy-wide market for contingent claims. On this market workers purchase insurance from entrepreneurs, through optimal labor contracts, against losses in income due to business cycle ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 71

Discussion Paper
A systems approach to recursive economic forecasting and seasonal adjustment
Young, Peter C.; Armitage, Peter; Ng, Cho (1989)
The paper discusses a new, fully recursive approach to the adaptive modeling, forecasting and seasonal adjustment of nonstationary economic time-series. The procedure is based around a time variable parameter (TVP) version of the well known component or structural model. It employs a novel method of sequential spectral decomposition (SSD), based on recursive state-space smoothing, to decompose the series into a number of quasi-orthogonal components. This SSD procedure can be considered as a complete approach to the problem of model identification and estimation, or it can be used as a first ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 8

Discussion Paper
Have postwar economic fluctuations been stabilized?
Diebold, Francis X.; Rudebusch, Glenn D. (1990)
Previous investigations of whether the volatility of the U.S. economy diminished after World War II have been inconclusive because of questionable prewar macroeconomic aggregates. We examine, more broadly, the hypothesis of the stabilization of the postwar economy by focusing on the duration of business cycles, rather than their amplitude; in the process, we avoid the debate about the quality of prewar aggregates. Using distribution-free statistics, we find clear evidence of postwar duration stabilization in terms of a shift toward longer expansions and shorter contractions. Moreover, we find ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 33

Discussion Paper
Stochastic inflation and the equity premium
Labadie, Pamela (1989)
The effects of stochastic inflation on equity prices and the equity premium are studied in a pure-endowment asset-pricing model with a cash-in-advance constraint. Stochastic inflation affects the equity premium through two channels: the assessment of an inflation tax and the presence of an inflation premium. Real and monetary versions of the model are simulated and the comparative dynamic results corroborate the conclusion that inflation has quantitatively important effects. ; The other important result is that the equity premium in the real version of a modela continuous state-space ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 12

Discussion Paper
Unit roots in real GNP: do we know, and do we care?
Eichenbaum, Martin S.; Christiano, Lawrence J. (1989)
Discussion Paper / Institute for Empirical Macroeconomics , Paper 18

Discussion Paper
Current real business cycle theories and aggregate labor market fluctuations
Eichenbaum, Martin S.; Christiano, Lawrence J. (1990)
In the 1930s, Dunlop and Tarshis observed that the correlation between hours worked and the return to working is close to zero. This observation has become a litmus test by which macroeconomic models are judged. Existing real business cycle models fail this test dramatically. Based on this result, we argue that technology shocks cannot be the sole impulse driving post-war U.S. business cycles. We modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics in a way suggested by Aschauer (1985), Baro (1981, 1987), and Kormendi ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 24

Discussion Paper
Solving nonlinear stochastic optimization and equilibrium problems backwards
Sims, Christopher A. (1989)
In a stochastic equilibrium model some stochastic processes are usually exogenously given, while others are either chosen optimally by agents or emerge from market equilibrium conditions. When we simulate such a model, often we aim at studying the relations among variables in the model as we vary parameters of policy and of behavior of economic agents. We are no more certain (indeed often less certain) of what is reasonable or interesting behavior for the exogenous variables (some of which may be unobservable) than of the variables chosen by agents or fixed in markets. It turns out that if we ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 15

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