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Journal Article
Has inventory volatility returned? A look at the current cycle
The massive liquidation of inventories during the 2001 recession contrasts sharply with the more moderate inventory movements observed in recent decades. While the rundown might be seen as evidence that firms are not managing their inventories as effectively as some economists have claimed, a careful analysis of inventory behavior in 2001 suggests that during much of the recession, firms were successfully regulating their inventories to avoid a large buildup of excess stock.
Report
Education, political instability, and growth
Empirical evidence suggests a positive association between income levels and growth rates on the one hand, and political stability and educational attainment on the other. This paper develops a simple finite--horizon overlapping growth model that in the absence of institutions for precommitment has a political equilibrium with inefficiently low growth, low educational attainment, and high returns to schooling. In the model, the laissez-faire growth rate is inefficient due to an intergenerational externality in the decision to accumulate knowledge. We then contrast the efficient growth rate ...
Report
Skilled labor-augmenting technical progress in U.S. manufacturing
This paper examines the role of skilled labor in the growth of total factor productivity. We use panel data from manufacturing industries to assess the extent to which productivity growth in yearly cross section is tied to industry shares of skilled labor inputs. We find robust evidence that productivity growth was increasingly concentrated in high-skill industries during a unique ten-year period beginning in the early 1970s. We do not find any positive association of productivity growth with new capital investment.
Report
What inventory behavior tells us about business cycles
Manufacturers' finished goods inventories are less cyclical than shipments. This requires marginal cost to be more procyclical than is conventionally measured. In this paper, alternative marginal cost measures for six manufacturing industries are constructed. These measures, which attribute high-frequency productivity shocks to procyclical work effort, are more successful in accounting for inventory behavior. Evidence is also provided that the short-run slope of marginal cost arising from convexity of the production function is close to zero for five of the six industries. The paper concludes ...
Report
The production impact of "cash-for-clunkers": implications for stabilization policy
Stabilization policies frequently aim to boost spending as a means to increase GDP. Spending does not necessarily translate into production, however, especially when inventories are involved. We look at the ?cash-for-clunkers? program that helped finance the purchase of nearly 700,000 vehicles in 2009. An analysis of auto sales and production movements reveals that the program did prompt a large spike in sales. But the program had only a modest and fleeting impact on production, as inventories buffered the movements in sales. These findings suggest caution in judging the efficacy of such ...
Report
Finite horizons, political economy, and growth
This paper analyzes the political economy of growth when agents and the government have finite horizons and equilibrium growth is inefficient. A "representative" government (that is, one whose preferences reflect those of its constituents) endowed merely with the ability to tax and transfer can improve somewhat on the market allocation but cannot achieve first-best growth. Efficiency requires in addition the ability to bind future governments. We argue that this ability is related to political stability, and provide empirical evidence that stability and growth-related policies (namely ...
Conference Paper
Tracking the new economy: using growth theory to detect changes in trend productivity
The acceleration of productivity since 1995 has prompted a debate over whether the economy's underlying growth rate will remain high. In this paper, we draw on growth theory to identify variables other than productivity - namely consumption and labor compensation - to help estimate trend productivity growth. We treat that trend as a common factor with two "regimes" high-growth and low-growth. Our analysis picks up striking evidence of a switch in the mid-1990s to a higher long-term growth regime, as well as a switch in the early 1970s in the other direction. In addition, we find that ...
Report
What inventory behavior tells us about business cycles
We argue that the behavior of manufacturing inventories provides evidence against models of business cycle fluctuations based on productivity shocks, increasing returns to scale, or favorable externalities, whereas it is consistent with models with short-run diminishing returns. Finished goods inventories move proportionally much less than sales or production over the business cycle, which we show implies procyclical marginal cost and countercyclical price markups. Obvious measures for marginal cost do not show high marginal cost near peaks, as required to rationalize the inventory behavior, ...
Journal Article
Explaining the gap between new home sales and inventories
For much of the last four decades, the stock of unsold new homes has tracked sales very closely. Since 1995, however, inventories have fallen far behind rapidly advancing sales. What accounts for the change? Market trends have both reduced the need for inventories and slowed the response of inventories to shifts in demand. At the same time, the long current expansion has strained the resources of the building industry, creating supply shortages and raising costs.
Journal Article
Productivity swings and housing prices
The housing boom and bust of the last decade, often attributed to "bubbles" and credit market irregularities, may owe much to shifts in economic fundamentals. A resurgence in productivity that began in the mid-1990s contributed to a sense of optimism about future income that likely encouraged many consumers to pay high prices for housing. The optimism continued until 2007, when accumulating evidence of a slowdown in productivity helped dash expectations of further income growth and stifle the boom in residential real estate.>