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Series:Discussion Paper / Institute for Empirical Macroeconomics 

Discussion Paper
Current real business cycle theories and aggregate labor market fluctuations

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
On the dynamic selection of mechanisms for provisions of public projects

This paper describes a dynamic model in which the provision mechanism for a public project is itself the object of locational choice of individuals. Individuals in an ongoing society must choose between a Majority Rule mechanism and a Voluntary Contribution mechanism. Each mechanism determines a funding decision for a local public project which is repeated over time. Generations of individuals asynchronously supercede their parents, creating an entry/exit process that allows individuals with possibly different beliefs to enter society. A self confirming equilibrium (SCE) belief process ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 100

Discussion Paper
On convergence in endogenous growth models

In this paper we analyze the rate of convergence to a balanced path in a class of endogenous growth models with physical and human capital. We show that such rate depends locally on the technological parameters of the model, but does not depend on those parameters related to preferences. This result stands in sharp contrast with that of the one-sector neoclassical growth model, where both preferences and technologies determine the speed of convergence to a steady-state growth path.
Discussion Paper / Institute for Empirical Macroeconomics , Paper 110

Discussion Paper
Ben-Porath meets skill-biased technical change: a theoretical analysis of rising inequality

In this paper we present an analytically tractable general equilibrium overlapping-generations model of human capital accumulation, and study its implications for the evolution of the U.S. wage distribution from 1970 to 2000. The key feature of the model, and the only source of heterogeneity, is that individuals differ in their ability to accumulate human capital. Therefore, wage inequality results only from differences in human capital accumulation. We examine the response of this model to skill-biased technical change (SBTC) theoretically. We show that in response to SBTC, the model ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 144

Discussion Paper
Empirical cross-section dynamics in economic growth

Discussion Paper / Institute for Empirical Macroeconomics , Paper 75

Discussion Paper
New evidence on altruism: a study of TIAA-CREF retirees

Economists make extensive use of two separate descriptions of private saving behavior: the life-cycle (or overlapping generations) model, and models with intergenerational altruism. Analysis of the two frameworks is quite different, as are many of the long-run policy implications. This paper looks at evidence, at the microeconomic level, for and against altruism as a principal determinant of private wealth holdings. The database is new: this paper uses a sample of annuitants in the TIAA-CREF retirement system. We employ a combination of qualitative and quantitative information. Results are: ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 86

Discussion Paper
Fluctuating risk in an aggregated Ss-model

Using U.S. data it is shown that as the stock market goes into a period of high volatility, nondurables consumption is unaffected but durables consumption falls substantially. It is argued that a plausible explanation for this is that consumers face irreversibilities when adjusting their durables stock. They will thus apply Ss-type rules with bandwidths with widths that vary over time as in Hassler (1996). To quantify the aggregate implications of such behavior an aggregated irreversible investment model for consumer durables is estimated on U.S. It is found that a shift to higher risk leads ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 113

Discussion Paper
Understanding why high income households save more than low income households

This paper investigates why high income households in the United States save on average more than low income households in cross-section data. The three explanations considered are (1) age differences across households, (2) temporary earnings shocks, and (3) the structure of transfer payments. We use a calibrated life-cycle model to evaluate the quantitative importance of these explanations and find that age and the structure of transfers are quantitatively important in producing the cross-section pattern of United States savings rates. Temporary shocks are of secondary importance.
Discussion Paper / Institute for Empirical Macroeconomics , Paper 106

Discussion Paper
Human capital, aggregate shocks, and panel data estimation

This paper analyses how the wage and employment decisions of females are affected by past workforce participation and hours supplied. Our estimation methods exploit the fact that, when markets are complete, the Lagrange multiplier for an agents lifetime budget constraint always enters multiplicatively with the prices of (contingent claims to) consumption and leisure. Depending on the properties of the equilibrium price process, it is thus possible to predict the behavior of a wealthy agent by observing that of a poorer person living in a more prosperous world. This provides the key to ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 47

Discussion Paper
Liquidity and real activity in a simple open economy model

We examine nominal and real exchange rates, interest rates, prices, and evolutions of real variables in a two-country, monetary general-equilibrium model that includes a financial sector and shocks to technologies and money growth rates. Qualitative properties of the model are provided and moment predictions from a calibrated version of the model are compared to moments of time series drawn from actual economies. We focus on international monetary shock transmissions, and effects of monetary innovations on nominal and real exchange rates and nominal interest rates.
Discussion Paper / Institute for Empirical Macroeconomics , Paper 57

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