Two alternative methodologies are compared for identifying common trends and cycles in a set of variables. One, following Harvey, uses an unobserved components structural time series model. The other, following Vahid and Engle, is based on a multivariate BeveridgeNelson decomposition. Both approaches are applied to a four sector model of output in the UK over the period 1970Q1-1993Q2, producing...

This paper investigates the optimality of sharp incentives in contracts where output prices are set at the time of contracting but are random in nature. It shows that when prices are specified with error, schemes involving sharp incentives might result in substantial deviations from first-best output levels. The randomness of prices creates arbitrage opportunities that are exploited by agents p...

This paper estimates a new open economy macroeconomic model for South Korea to determine the output effect of currency devaluations. Three transmission mechanisms are considered: the expenditure-switching, the balance sheet, and a monetary channel associated to a nominal exchange rate target. Devaluations are defined as an increase in this target. This allows to isolate the effects of an explic...

This paper argues that inflation-targeting central banks should announce explicit loss function with numerical relative weights on output-gap stabilization and use and announce optimal time-varying instrument-rate paths and corresponding inflation and output-gap forecasts. Simple voting procedures for forming the Monetary Policy Committee’s aggregate loss function and time-varying instrument-ra...

We study how total factor productivity (TFP), energy prices, and the Great Moderation are linked. First we estimate a joint stochastic process for the energy price and TFP and establish that until the second quarter of 1982, energy prices negatively affected productivity. This spillover has since disappeared. Second, we show that within the framework of a dynamic stochastic general equilibrium ...

The effects on ex ante optima of a lag in seeing monetary realizations are studied using a matching model of money. The main new ingredient in the model is meetings in which producers have more information than consumers. A consequence is that increases in the amount of money that occur with small enough probability can have negative impact effects on output, because it is optimal to shut down ...

We build a dataset of quarterly hours worked for 14 OECD countries. We document that hours are as volatile as output, that a large fraction of labor adjustment takes place along the intensive margin, and that the volatility of hours relative to output has increased over time. We use these data to reassess the Great Recession and prior recessions. The Great Recession in many countries is a puzzl...

The stochastic frontier model used for continuous dependent variables is extended to accommodate output measured as a discrete ordinal outcome variable. Conditional on the inefficiency error, the assumptions of the ordered probit model are adopted for the log of output. Bayesian estimation utilizing a Gibbs sampler with data augmentation is applied to a convenient re-parameterisation of the mod...

Using data from 15 EU countries for 1974-2004, with various specifications and estimation methods this paper gives strong support to the idea that the aggregate inflation-output gap or inflation-unemployment rate relationship is not linear because inflation is relatively more sensitive to markets and regions that are close to a capacity constraint. Accordingly, inflation is not only related to ...

We present a simple menu cost model which explains the finding that firms are more likely to adjust prices upward than downward. Asymmetric adjustment to shocks arises naturally, even without trend inflation, from the desire of firms to keep industry prices as high as is sustainable and the non-convexity due to menu costs. It implies that aggregate demand shocks have asymmetric effects — negati...