Markups and the Business Cycle
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Debt-Deflation Theory of Great Depressions by Irving Fisher
THE DEBT-DEFLATION THEORY OF GREAT DEPRESSIONS BY IRVING FISHER INTRODUCTORY IN Booms and Depressions, I have developed, theoretically and sta- tistically, what may be called a debt-deflation theory of great depres- sions. In the preface, I stated that the results "seem largely new," I spoke thus cautiously because of my unfamiliarity with the vast literature on the subject. Since the book was published its special con- clusions have been widely accepted and, so far as I know, no one has yet found them anticipated by previous writers, though several, in- cluding myself, have zealously sought to find such anticipations. Two of the best-read authorities in this field assure me that those conclu- sions are, in the words of one of them, "both new and important." Partly to specify what some of these special conclusions are which are believed to be new and partly to fit them into the conclusions of other students in this field, I am offering this paper as embodying, in brief, my present "creed" on the whole subject of so-called "cycle theory." My "creed" consists of 49 "articles" some of which are old and some new. I say "creed" because, for brevity, it is purposely ex- pressed dogmatically and without proof. But it is not a creed in the sense that my faith in it does not rest on evidence and that I am not ready to modify it on presentation of new evidence. On the contrary, it is quite tentative. It may serve as a challenge to others and as raw material to help them work out a better product. -
Inflation and the Business Cycle
Inflation and the business cycle Michael McMahon Money and Banking (5): Inflation & Bus. Cycle 1 / 68 To Cover • Discuss the costs of inflation; • Investigate the relationship between money and inflation; • Introduce the Romer framework; • Discuss hyperinflations. • Shocks and the business cycle; • Monetary policy responses to business cycles. • Explain what the monetary transmission mechanism is; • Examine the link between inflation and GDP. Money and Banking (5): Inflation & Bus. Cycle 2 / 68 The Next Few Lectures Term structure, asset prices Exchange and capital rate market conditions Import prices Bank rate Net external demand CPI inflation Bank lending Monetary rates and credit Policy Asset purchase/ Corporate DGI conditions Framework sales demand loans Macro prudential Household policy demand deposits Inflation expectations Money and Banking (5): Inflation & Bus. Cycle 3 / 68 Inflation Definition Inflation is a sustained general rise in the price level in the economy. In reality we measure it using concepts such as: • Consumer Price Indices (CPI); • Producer Price Indices (PPI); • Deflators (GDP deflator, Consumption Expenditure Deflator) Money and Banking (5): Inflation & Bus. Cycle 4 / 68 Inflation: The Costs If all prices are rising at same rate, including wages and asset prices, what is the problem? • Information: Makes it harder to detect relative price changes and so hinders efficient operation of market; • Uncertainty: High inflation countries have very volatile inflation; • High inflation undermines role of money and encourages barter; • Growth - if inflation increases by 10%, reduce long term growth by 0.2% but only for countries with inflation higher than 15% (Barro); • Shoe leather costs/menu costs; • Interaction with tax system; • Because of fixed nominal contracts arbitrarily redistributes wealth; • Nominal contracts break down and long-term contracts avoided. -
Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets
A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Zbaracki, Mark J.; Ritson, Mark; Levy, Daniel; Dutta, Shantanu; Bergen, Mark Article — Accepted Manuscript (Postprint) Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets Review of Economics and Statistics Suggested Citation: Zbaracki, Mark J.; Ritson, Mark; Levy, Daniel; Dutta, Shantanu; Bergen, Mark (2004) : Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets, Review of Economics and Statistics, ISSN 1530-9142, MIT Press, Cambridge, MA, Vol. 86, Iss. 2, pp. 514-533, http://dx.doi.org/10.1162/003465304323031085 , https://www.mitpressjournals.org/doi/abs/10.1162/003465304323031085?journalCode=rest This Version is available at: http://hdl.handle.net/10419/206841 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. -
Interactions Between Business Cycles, Financial Cycles and Monetary Policy: Stylised Facts1
Interactions between business cycles, financial cycles and 1 monetary policy: stylised facts Sanvi Avouyi-Dovi and Julien Matheron2 Introduction The spectacular rise in asset prices up to 2000 in most developed countries has attracted a great deal of attention and reopened the debate over whether these prices should be targeted in monetary policy strategies. Some observers see asset price developments, in particular those of stock prices, as being inconsistent with developments in economic fundamentals, ie a speculative bubble. This interpretation carries with it a range of serious consequences arising from the bursting of this bubble: scarcity of financing opportunities, a general decline in investment, a fall in output, and finally a protracted contraction in real activity. Other observers believe that stock prices are likely to have an impact on goods and services prices and thus affect economic activity and inflation. These theories are currently at the centre of the debate on whether asset prices should be taken into account in the conduct of monetary policy, ie as a target or as an instrument.3 However, the empirical link between asset prices and economic activity on the one hand, and the relationship between economic activity and interest rates or between stock prices and interest rates on the other, are not established facts. This study therefore sets out to identify a number of stylised facts that characterise this link, using a statistical analysis of these data (economic activity indicators, stock prices and interest rates). More specifically, we study the co-movements between stock market indices, real activity and interest rates over the business cycle. -
Inside Money, Business Cycle, and Bank Capital Requirements
Inside Money, Business Cycle, and Bank Capital Requirements Jaevin Park∗y April 13, 2018 Abstract A search theoretical model is constructed to study bank capital requirements in a respect of inside money. In the model bank liabilities, backed by bank assets, are useful for exchange, while bank capital is not. When the supply of bank liabilities is not sufficiently large for the trading demand, banks do not issue bank capital in competitive equilibrium. This equilibrium allocation can be suboptimal when the bank assets are exposed to the aggregate risk. Specifically, a pecuniary externality is generated because banks do not internalize the impact of issuing inside money on the asset prices in general equilibrium. Imposing a pro-cyclical capital requirement can improve the welfare by raising the price of bank assets in both states. Key Words: constrained inefficiency, pecuniary externality, limited commitment JEL Codes: E42, E58 ∗Department of Economics, The University of Mississippi. E-mail: [email protected] yI am greatly indebted to Stephen Williamson for his continuous support and guidance. I am thankful to John Conlon for his dedicated advice on this paper. This paper has also benefited from the comments of Gaetano Antinolfi, Costas Azariadis and participants at Board of Governors of the Federal Reserve System, Korean Development Institute, The University of Mississippi, Washington University in St. Louis, and 2015 Mid-West Macro Conference at Purdue University. All errors are mine. 1 1 Introduction Why do we need to impose capital requirements to banks? If needed, should it be pro- cyclical or counter-cyclical? A conventional rationale for bank capital requirements is based on deposit insurance: Banks tend to take too much risk under this safety net, so bank capital requirements are needed to correct the moral hazard problem created by deposit insurance. -
A Classical View of the Business Cycle
NBER WORKING PAPER SERIES A CLASSICAL VIEW OF THE BUSINESS CYCLE Michael T. Belongia Peter N. Ireland Working Paper 26056 http://www.nber.org/papers/w26056 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 July 2019 We are especially grateful to David Laidler for his encouragement during the development of this paper and to John Taylor, Kenneth West, two referees, and seminar participants at the Federal Reserve Bank of Atlanta for helpful comments on previous drafts. All errors that remain are our own. Neither of us received any external support for, or has any financial interest that relates to, the research described in this paper. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2019 by Michael T. Belongia and Peter N. Ireland. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. A Classical View of the Business Cycle Michael T. Belongia and Peter N. Ireland NBER Working Paper No. 26056 July 2019 JEL No. B12,E31,E32,E41,E43,E52 ABSTRACT In the 1920s, Irving Fisher extended his previous work on the Quantity Theory to describe, through an early version of the Phillips Curve, how changes in the money stock could be associated with cyclical movements in output, employment, and inflation. -
Happiness, Contentment and Other Emotions for Central Banks
NBER WORKING PAPER SERIES HAPPINESS, CONTENTMENT AND OTHER EMOTIONS FOR CENTRAL BANKS Rafael Di Tella Robert MacCulloch Working Paper 13622 http://www.nber.org/papers/w13622 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 November 2007 This paper was prepared for the Federal Reserve Bank of Boston, “Implications of Behavioral Economics for Economic Policy” conference, September 27-28th, 2007. For very helpful comments and discussions, we thank our commentators, Greg Mankiw and Alan Krueger, as well as conference participants, Huw Pill, John Helliwell, Sebastian Galiani, Rawi Abdelal, and Julio Rotemberg. We thank Jorge Albanesi for excellent research assistance. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. © 2007 by Rafael Di Tella and Robert MacCulloch. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Happiness, Contentment and Other Emotions for Central Banks Rafael Di Tella and Robert MacCulloch NBER Working Paper No. 13622 November 2007 JEL No. E0,E58,H0 ABSTRACT We show that data on satisfaction with life from over 600,000 Europeans are negatively correlated with the unemployment rate and the inflation rate. Our preferred interpretation is that this shows that emotions are affected by macroeconomic fluctuations. Contentment is, at a minimum, one of the important emotions that central banks should focus on. More ambitiously, contentment might be considered one of the components of utility. The results may help central banks understand the tradeoffs that the public is willing to accept in terms of unemployment for inflation, at least in terms of keeping the average level of one particular emotion (contentment) constant. -
Nine Lives of Neoliberalism
A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Plehwe, Dieter (Ed.); Slobodian, Quinn (Ed.); Mirowski, Philip (Ed.) Book — Published Version Nine Lives of Neoliberalism Provided in Cooperation with: WZB Berlin Social Science Center Suggested Citation: Plehwe, Dieter (Ed.); Slobodian, Quinn (Ed.); Mirowski, Philip (Ed.) (2020) : Nine Lives of Neoliberalism, ISBN 978-1-78873-255-0, Verso, London, New York, NY, https://www.versobooks.com/books/3075-nine-lives-of-neoliberalism This Version is available at: http://hdl.handle.net/10419/215796 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative -
Monetary Policy in the New Neoclassical Synthesis: a Primer
View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Research Papers in Economics Monetary Policy in the New Neoclassical Synthesis: A Primer Marvin Goodfriend reat progress was made in the theory of monetary policy in the last quarter century. Theory advanced on both the classical and the Keynesian sides. New classical economists emphasized the G 1 importance of intertemporal optimization and rational expectations. Real business cycle (RBC) theorists explored the role of productivity shocks in models where monetary policy has relatively little effect on employment and output.2 Keynesian economists emphasized the role of monopolistic competition, markups, and costly price adjustment in models where mon- etary policy is central to macroeconomic fluctuations.3 The new neoclas- sical synthesis (NNS) incorporates elements from both the classical and the Keynesian perspectives into a single framework.4 This “primer” provides an in- troduction to the benchmark NNS macromodel and its recommendations for monetary policy. The author is Senior Vice President and Policy Advisor. This article origi- nally appeared in International Finance (Summer 2002, 165–191) and is reprinted in its entirety with the kind permission of Blackwell Publishing [http://www.blackwell- synergy.com/rd.asp?code=infi&goto=journal]. The article was prepared for a conference, “Stabi- lizing the Economy: What Roles for Fiscal and Monetary Policy?” at the Council on Foreign Relations in New York, July 2002. The author thanks Al Broaddus, Huberto Ennis, Mark Gertler, Robert Hetzel, Andreas Hornstein, Bennett McCallum, Adam Posen, and Paul Romer for valuable comments. Thanks are also due to students at the GSB University of Chicago, the GSB Stanford University, and the University of Virginia who saw earlier versions of this work and helped to improve the exposition. -
Which Industries Are Sensitive to Business Cycles?
Cyclical Sensitivity Which industries are sensitive to business cycles? An analysis of the 1994–2005 projections can be used to identify industries that are projected to move differently with business cycles in the future than in the past, and to identify the industries and occupations that are most prone to business cycle swings Jay Berman and ndustries react in different ways to the busi- termine the structural change or changes caus- Janet Pfleeger ness cycle fluctations of the U.S. economy. ing the break from the past or review its pro- ISome industries are very vulnerable to eco- jections model and make appropriate modifi- nomic swings, while others are relatively im- cations to ensure consistency between the his- mune to them. For those industries that are char- torical and projected periods. acterized as cyclical, the degree and timing of • to identify the industries and occupations that these fluctuations vary widely—the industries are most susceptible to business cycle swings that experience only modest gains during expan- for use in preparing career guidance informa- sionary periods may also suffer only mildly dur- tion.2 ing contractions, and those that recover fastest In identifying which industries fluctuate with from recessions may also feel the impact of a GDP (business cycle movements over time) and downturn earlier and more strongly than other which do not, two factors were analyzed for the industries. 1994–2005 projection rounds: the correlation This article examines those industries in between industry employment and GDP, and the which demand and employment are most sensi- correlation between industry final demand and tive to business cycle movements over time. -
References Amato, Jeffrey V., and Hyun Song Shin, 2003
- 25 - References Amato, Jeffrey V., and Hyun Song Shin, 2003, “Public and private information in monetary policy models” BIS Working Papers, forthcoming (Basel: Bank of International Settlements). Ball, Laurence, 2000, “Near-Rationality and Inflation in Two Monetary Regimes,” NBER Working Paper 7988 (Cambridge, Mass.: National Bureau of Economic Research). ———, 1995, “Disinflation and Imperfect Credibility,” Journal of Monetary Economics, Vol. 35, pp. 5–24. Barro, Robert, and David Gordon, 1983, “Rules, Discretion, and Reputation in a Model of Monetary Policy,” Journal of Monetary Economics, Vol. 12, pp. 101–21. Bayoumi, Tamim, and Silvia Sgherri, 2003, “Deconstructing the Art of Central Banking,” forthcoming IMF Working Paper (Washington: International Monetary Fund). Blanchard, Olivier, and John Simon, 2001, “The Long and Large Decline in U.S. Output Volatility,” Brookings Papers on Economic Activity I, pp. 135–64. (Washington: Brookings Institution). Boivin, Jean, and Marc Giannoni, 2002, “Assessing Changes in the Monetary Transmission Mechanism: A VAR Approach”, Federal Reserve Bank of New York Economic Policy Review, Vol 8, pp. 97-111. Buiter, W., and Jewitt, I., 1989, “Staggered Wage Setting and Relative Wage Rigidities: Variations on a Theme of Taylor,” Reprinted in: Macroeconomic Theory and Stabilization Policy, edited by W. Buiter (University of Michigan Press, Ann Arbor), pp. 183–99. Calvo, Guillermo A., 1983, “Staggered Prices in a Utility Maximizing Framework,” Journal of Monetary Economics, Vol. 12, pp. 383–88. Christiano, Lawrence J., and Cristopher Gust, 2000, “The Expectations Trap Hypothesis,” Federal Reserve Bank of Chicago Economic Perspectives, Vol. 24, pp. 21–39. Clarida, Richard, Jordi Galí, and Mark Gertler, 1998, “Monetary Policy Rules In Practice: Some International Evidence,” European Economic Review, pp. -
Glenn Stevens: Inflation, Deflation and All That
Glenn Stevens: Inflation, deflation and all that Speech by Mr Glenn Stevens, Deputy Governor of the Reserve Bank of Australia, to Australian Business Economists 2002 Forecasting Conference Dinner, Sydney, 4 December 2002. * * * Introduction In the formative years of the current generation of economists, inflation was considered to be one of the most pressing macroeconomic problems. That's not surprising, since most of the net rise in prices that has occurred in human history took place between the late 1940s and about 1990, as a plot of any price index in any industrial country would show. In Australia's case, it was observable during the 1950s that, in periods of business cycle downturn, prices stopped rising but didn't actually fall. This was in contrast to the pre-World War II experience, where price levels did fall during recessions. By the second half of the 1960s, it was even clearer that the price level had acquired a persistent upward trend, and around that time it became normal to look at the price level in its first difference form (i.e. the inflation rate) rather than its level.1 As all of us here remember only too well, inflation reached nearly 20 per cent during the mid 1970s. Thereafter polices aimed at reducing it, with mixed success at first, but more lasting success in the aftermath of the early-1990s downturn. A number of other countries had more clearly broken the back of serious inflation in the early 1980s; we took a little longer. But in general it could be said that the period of really serious inflation in the western world lasted from the late 1960s until the early 1990s.