Permanent Income and Transitory Variation in Investment and Output

Fisher, Lance A.; Huh, Hyeon-seung; Tallman, Ellis W.

doi:10.2139/ssrn.288545

Cited by 3 publications

(5 citation statements)

References 20 publications

(10 reference statements)

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“…Fisher, Huh, and Tallman (2003) point to this result as stemming from a particular interpretation of the shocks and carry on providing another interpretation. The idea now is that consumption can only be permanent if it comes from a permanent income-which leads to Friedman (1957), who ascribes permanent income to increases in total factor productivity.…”

Section: Theoriesmentioning

confidence: 80%

“…The idea now is that consumption can only be permanent if it comes from a permanent income-which leads to Friedman (1957), who ascribes permanent income to increases in total factor productivity. Thus, the bottom line of King et al (1991) and Fisher, Huh, and Tallman (2003) is the same: growth originates from (unobservable) productivity shocks. Investment and output adjust passively.…”

Section: Theoriesmentioning

confidence: 99%

“…For comparative purposes, King et al (1991) as well as Fisher, Huh, and Tallman (2003) find two cointegrating relationships (r=2), which are left unrestricted. Both studies use a model with a trend in the cointegration relationships and the significance and meaning of that trend is not discussed.…”

Section: Specification Structural Tests and Stabilitymentioning

confidence: 99%

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Growth Trends and Cycles in the American Postwar Period, with Implications for Policy

Giovannoni

2013

SSRN Journal

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Do all types of demand have the same effect on output? To answer this question, I estimate a cointegrated vector autoregressive (VAR) model of consumption, investment, and government spending on US data, 1955US data, -2007. I find that: (1) economic growth can be decomposed into a short-run (transitory) cycle gravitating around a long-run (permanent) trend made of consumption shocks and government spending; (2) the estimated fluctuations are investment dominated, they coincide remarkably with the business cycle, and they are highly correlated with capacity utilization in both labor and capital; and (3) the long-run multipliers point to a large induced-investment phenomenon and to a smaller, but still significantly positive, government spending multiplier, around 1.5. The results cover a lot of theoretical ground: Paul Samuelson's accelerator principle, John Kenneth Galbraith's stress on consumption and government spending, Jan Tinbergen's investment-driven business cycle, and Robert Eisner's inquiries on the investment function. The results are particularly useful to distinguish between economic policies for the short and long runs, albeit no attempt is made at this point to inquire into the effectiveness of specific economic policies.

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Section: Theoriesmentioning

confidence: 80%

Section: Theoriesmentioning

confidence: 99%

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Growth Trends and Cycles in the American Postwar Period, with Implications for Policy

Giovannoni

2013

SSRN Journal

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“…In the case of the US, using data until 1998, Evans (2000) finds that the net investment ratio is stationary, but the gross investment ratio is only trend stationary, reflecting trends in depreciation. Fisher et al (2003), using US data for 1948 to 2000, find stronger evidence of two cointegrating vectors, although the normalized coefficients on output depart slightly from unity. D'Adda and Scorcu (2003) examine the stationarity of the capital-output ratio over long time spans for a selection of industrialized countries.…”

Section: Relation To Existing Literaturementioning

confidence: 89%

Balanced growth and the great ratios: New evidence for the US and UK

Attfield

Temple

2010

Journal of Macroeconomics

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Standard macroeconomic models suggest that the 'great ratios' of consumption to output and investment to output should be stable functions of structural parameters. We examine whether the ratios are stationary for the US and UK, allowing for structural breaks that could reflect timevarying parameters. We find stronger evidence for stationarity than previous work. We then use the long-run restrictions associated with the stationarity of the great ratios to extract measures of trend output from the joint behaviour of consumption, investment and output. This approach is attractive because it uses information from several series without requiring restrictive assumptions.Keywords: Great ratios, structural breaks, permanent components, trend output.JEL Classifications: C32, E20, E30 * The research in this paper was funded by ESRC award number R000223760. We are grateful to David Demery, Morten Ravn, seminar participants at the University of Bristol and the Money, Macro and Finance conference at the University of Cambridge, and especially Chris Bowdler for helpful comments and advice. The usual disclaimer shields them all.† Corresponding author. Email jon.temple@bristol.ac.uk Telephone +44 117 928 8430. Fax +44 117 928 8577.

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“…But the variables identified before the asset market react with a lag to asset market news, so previous studies have usually ordered asset market wealth such as stock and housing last (see Patelis 1997; Thorbecke 1997;and Neri 2004). In addition, Cochrane (1994) and Fisher, Huh, and Tallman (2003) also show that consumption is weakly exogenous, so it should be ordered first. 1 International Review of Applied Economics 5…”

Section: Methodsmentioning

confidence: 99%

Wealth Effects and Consumption: A Panel VAR Approach

Shen

Holmes

Lim

2014

International Review of Applied Economics

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We provide new evidence on the comparison between the stock and housing wealth effects on consumption. Using a panel VAR approach applied to OECD data, we find evidence that the stock market wealth effect is generally the larger. However, with regard to the evolution of asset wealth effects over time, our findings show that the housing wealth effect has outweighed the share market wealth effect in the last decade. We further find that asset wealth has asymmetric effects on consumption, with stronger and more persistent effects from positive asset wealth shocks. Our results have important monetary policy implications for both stock and real estate markets, and offer timely insights into the desirability of current proposals to reduce house price volatility, such as through macro prudential regulations.

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Permanent Income and Transitory Variation in Investment and Output

Cited by 3 publications

References 20 publications

Growth Trends and Cycles in the American Postwar Period, with Implications for Policy

Growth Trends and Cycles in the American Postwar Period, with Implications for Policy

Balanced growth and the great ratios: New evidence for the US and UK

Wealth Effects and Consumption: A Panel VAR Approach

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