Tests of Equilibrium Macroeconomics Using Contemporaneous Monetary Data

Boschen, John F.; Grossman, Herschel I.

doi:10.3386/w0558

Cited by 44 publications

(49 citation statements)

References 2 publications

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“…In this section we describe our empirical methodology, which is related to the procedure used for testing the New Classical theories of informationbased non-neutralities (developed by Lucas, 1972Lucas, , 1975 in Barro (1977Barro ( , 1978, Barro and Hercowitz (1980), Boschen and Grossman (1982), and, in particular, Mishkin (1982). Two relationships are estimated simultaneously.…”

Section: Empirical Methodologymentioning

confidence: 99%

Asymmetric Effects of Monetary Policy in the United States

Ravn¹,

Solà²

2004

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We also consider asymmetric effects that are implied by models with menu costs (see, among others, Romer, 1990, andMankiw, 1994). In static (deterministic) settings, standard menu-cost models imply that "big" monetary policy shocks are neutral because firms would find it optimal to adjust nominal prices, while "small" monetary policy shocks would have real effects because keeping nominal prices fixed is associated with only a second-order cost. In other words, the firms have to decide-before the monetary policy shock is observed-whether to index their prices (at the cost of paying the menu cost) or not. Firms will choose indexation (which implies neutrality) only if the variance of monetary policy shocks is high. We extend the analysis by assuming that the monetary policy process can change between having a "high" variance and a "low" variance. This approach allows for identifying periods of neutrality and periods of non-neutrality.Finally, we consider the case in which only small Asymmetric Effects of Monetary Policy in the United StatesMorten O. Ravn and Martin Sola T his paper tests for the presence of asymmetric effects of monetary policy on aggregate activity using U.S. postwar quarterly data. We are interested in three types of asymmetry: (i) whether negative and positive monetary policy shocks have different effects on output; (ii) whether big or small shocks have different effects; and/or (iii) whether low-variance, negative shocks have asymmetric effects on output. We discuss the three possibilities below and explain under which conditions these asymmetries might take place. 1 To date, the empirical literature has focused on a particular asymmetry that we call "the traditional Keynesian asymmetry," which states that positive monetary policy shocks have smaller real effects than negative monetary policy shocks-or, in a more extreme form, that only the latter shocks have real effects. This asymmetry can be derived under the assumption of either downward (upward) sticky (flexible) nominal wages or sticky prices together with rationing of demand. 2,3 S E P T E M B E R / O C TO B E R 2 0 0 4 4 1 1 Other types of asymmetric effects have been explored by Garcia and Schaller (1995), who examine whether monetary policy affects output differently in different phases of the business cycle, and Ravn and Sola (1997), who look at the effects of monetary policy on transitional dynamics. Hooker and Knetter (1996) analyze whether military procurement spending has asymmetric effects on employment, and they find that "big" negative shocks to procurement have proportionally larger effects on employment growth than large positive shocks or small shocks to procurement. Hooker (1996) examines whether there are asymmetries in the relationship between oil-price shocks and U.S. macroeconomic variables. He finds that the asymmetric effects in this relationship are fragile. Here we focus on the relationship between monetary policy shocks and aggregate activity. Lo and Piger (2003) examine regime switching in the response of U.S....

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Section: Empirical Methodologymentioning

confidence: 99%

Asymmetric Effects of Monetary Policy in the United States

Ravn¹,

Solà²

2004

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“…In such cases, users can form models to extract information from past revisions, etc.. Some references which contain related discussions about data revisions, extracting information from multiple vintages of data, and preliminary data error include: Boschen and Grossman (1982), Maravall and Pierce (1983), Mariano and Tanizaki (1994) and Patterson (1995).…”

Section: Nonflexible Specification Modelsmentioning

confidence: 99%

Forecasting economic time series using flexible versus fixed specification and linear versus nonlinear econometric models

Swanson

White

1997

International Journal of Forecasting

214

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“…There are several recently documented cases in point. Errors have been reported in conventional aggregates of money (David Pierce et al 1981;John Boschen and Herschel Grossman 1982) and in the unemployment rate (Chritstina Romer 1986a;Michael Love!! 1986).…”

Section: Value Dependence and The Several Dimensions Of Aggregationmentioning

confidence: 99%