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Jel Classification:E23 

Journal Article
Tracking U.S. GDP in Real Time
Measuring the current state of the U.S. economy in real time is an important but challenging task for monetary policymakers. The most comprehensive measure of the state of the economy?real gross domestic product?is available at a relatively low frequency (quarterly) and with a significant delay (one month). To obtain more timely assessments of the state of the economy, the Federal Reserve Bank of Kansas City has developed a GDP tracking model that combines new econometric methods with two conventional approaches to estimating GDP. {{p}} Taeyoung Doh and Jaeheung Bae review the Kansas City Fed model?s underlying details and illustrate its performance by comparing the model?s tracking estimates to those from other real-time tracking models. Their results suggest the Kansas City Fed model provides a useful tool for policymakers by combining estimates and forecasts from factor and accounting-based models.
AUTHORS: Doh, Taeyoung; Bae, Jaeheung
DATE: 2019-07

Journal Article
The Drag of Energy and Manufacturing on Productivity Growth
Willem Van Zandweghe finds a decline in manufacturing and mining activity has slowed overall productivity growth.
AUTHORS: Van Zandweghe, Willem
DATE: 2016-04

Report
Productivity in the slow lane?: the role of information and communications technology
As the current recovery matures in the United States, evidence is mounting that total factor productivity (TFP), the typical measure of technological change, has moved back into the slow lane. This study uses industry data to explore the extent to which the acceleration in TFP in the late 1990s and early 2000s and the subsequent deceleration are attributable to unmeasured investment by firms to take full advantage of the new capabilities made possible by information and communications technology (ICT).
AUTHORS: Pearson, Alison; Wang, J. Christina
DATE: 2014-12-22

Report
Why has the cyclicality of productivity changed?: what does it mean?
Historically, U.S. labor productivity (output per hour) and total factor productivity (TFP) rose in booms and fell in recessions. Different models of business cycles explain this procyclicality differently. Traditional Keynesian models relied on "factor hoarding," that is, variations in how intensively labor and capital were utilized over the business cycle. Real business cycle (RBC) models instead posit that procyclical technology shocks drive the business cycle. Since the mid-1980s, however, the procyclicality of productivity has waned. TFP has been roughly acyclical with respect to inputs, whereas labor productivity has become significantly countercyclical. The slow pace of productivity growth after 2010, when the post-Great- Recession recovery gained a firm footing, is broadly consistent with these patterns. In this paper, the authors seek to understand empirically the forces behind the changing cyclicality of productivity.
AUTHORS: Fernald, John G.; Wang, J. Christina
DATE: 2015-10-01

Working Paper
Industrialization and the demand for mineral commodities
This paper uses a new data set extending back to 1840 to investigate how industrialization affects the derived demand for mineral commodities. I establish that there is substantial heterogeneity in the long-run effect of manufacturing output on demand across five commodities after controlling for sectoral change, substitution and technological development. My results imply substantial differences across commodities with regard to future demand from industrializing countries and with regard to the effect of demand shocks on prices. Models should include non-Gormand preferences to account for this heterogeneity.
AUTHORS: Stuermer, Martin
DATE: 2014-12-29

Working Paper
The Aggregate Implications of Size Dependent Distortions
This paper examines the aggregate implications of size-dependent distortions. These regulations misallocate labor across firms and hence reduce aggregate productivity. It then considers a case-study of labor laws in France where firms that have 50 employees or more face substantially more regulation than firms that have less than 50. The size distribution of firms is visibly distorted by these regulations: there are many firms with exactly 49 employees. A quantitative model is developed with a payroll tax of 0.15% that only applies to firm above 50 employees. Removing the regulation improves labor allocation across firms, leading in steady state to an increase in output per worker slightly less than 0.3%.
AUTHORS: Roys, Nicolas
DATE: 2016-10-05

Journal Article
The Aggregate Implications of Size-Dependent Distortions
This article examines the aggregate implications of size-dependent distortions. These regulations misallocate labor across firms and hence reduce aggregate productivity. The author then considers a case study of labor laws in France, where firms with 50 employees or more face substantially more regulation than firms with fewer than 50. The size distribution of firms is visibly distorted by these regulations: There are many firms with exactly 49 employees. A quantitative model is developed with a payroll tax of 0.15 percent that applies only to firms with more than 50 employees. Removing the regulation while holding total employment constant leads to an increase in output of around 0.3 percent.
AUTHORS: Roys, Nicolas
DATE: 2018

Working Paper
Long and Plosser Meet Bewley and Lucas
We develop a N-sector business cycle network model a la Long and Plosser (1983), featuring heterogenous money demand a la Bewley (1980) and Lucas (1980). Despite incomplete markets and a well-defined distribution of real money balances across heterogeneous households, the enriched N-sector network model remains analytically tractable with closed-form solutions up to the aggregate level. Relying on the tractability, we establish several important results: (i) The economy's input-output network linkages become endogenously time-varying over the business cycle?thanks to the influence of the endogenous distribution of money demand on cross-sector allocations of commodities. (ii) Despite flexible prices, money is neither neutral nor superneutral and transitory monetary injections can generate highly persistent effects on sectoral output, thanks to the time-varying distribution of money demand and its effect on input-output coefficients. (iii) Although money injection is distributed equally across households by design, the real effects are asymmetric across production sectors, e.g., the impact of money is strongest on downstream sectors that purchase intermediate goods from the rest of the economy, but weakest on upstream sectors that supply intermediate goods to the other sectors, in sharp contrast to the case of sectoral technology shocks and government spending shocks. Our model also shows that movements in the distribution of money demand could be an important source of the measured labor wedge documented by the business cycle accounting literature.
AUTHORS: Dong, Feng; Wen, Yi
DATE: 2018-04-01

Working Paper
The great housing boom of China
China?s housing prices have been growing nearly twice as fast as national income over the past decade, despite a high vacancy rate and a high rate of return to capital. This paper interprets China?s housing boom as a rational bubble emerging naturally from its economic transition. The bubble arises because high capital returns driven by resource reallocation are not sustainable in the long run. Rational expectations of a strong future demand for alternative stores of value can thus induce currently productive agents to speculate in the housing market. Our model can quantitatively account for China?s paradoxical housing boom.
AUTHORS: Chen, Kaiji; Wen, Yi
DATE: 2014-08-22

Working Paper
Earnings Inequality and the Minimum Wage: Evidence from Brazil
We show that an increase in the minimum wage can have large effects throughout the earnings distribution, using a combination of theory and evidence. To this end, we develop an equilibrium search model featuring empirically relevant worker and firm heterogeneity. The minimum wage induces firms to adjust their equilibrium wage and vacancy policies, leading to spillovers on higher wages. We use the estimated model to evaluate the effects of a 119 percent increase in the real minimum wage in Brazil from 1996 to 2012. The policy change explains a large decline in earnings inequality, with spillovers reaching up to the 80th percentile of the earnings distribution. At the same time, employment and output fall only modestly as workers relocate to more productive firms. Using administrative linked employer-employee data and two household surveys, we find reduced-form evidence in support of the model predictions.
AUTHORS: Engbom, Niklas; Moser, Christian
DATE: 2018-03-12

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