Business Cycles Dynamics: Models and Tools

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As was common then, weak instruments and overidentification tests were not performed in these studies, leaving open to question whether the two equations in these studies were indeed identified, even in semistructural form. Mulligan, Vias, and Glavac argue that the estimated adjustment process in the Carlino and Mills approach can be derived from alternative theoretically based assumptions on economic adjustment, making them observationally equivalent in practice.

In their implementation of the approach, they found inconsistent coefficient signs over time, verifying the critique regarding parameter instability in less structural models. Deller et al. Developable land is added as a third variable by Carruthers and Mulligan , while following Boarnet they add a spatial dimension for application to intraurban location analysis. Carruthers and Mulligan , p. Only the factors correlated with employment and population adjustment can be determined, not the structural sources of their adjustment.

In a widely cited study, Blanchard and Katz use an SVAR model containing variables for employment, wages, the unemployment rate, and wages to examine the functioning of U. The studies report U. Further they note that the simultaneous econometric equation framework cannot adequately address this issue, in which only elasticities of comovement of population and employment to each other can be estimated, being unable to estimate the magnitudes of labor demand and supply shocks.

As an alternative to the spatial econometric equation approach, Chang and Coulson utilize contemporaneous restrictions in an SVAR to examine spatial spillovers between central cities and suburban areas of selected U. He simulates the model to examine the likely variations in quality of life and productivity that underlie differences in metropolitan area population density and in other economic outcomes such as housing prices and wages.

Rappaport relies on empirical regularities in the data and those established econometrically in the parameterization and simulation of the model. A DSGE model formulated along these lines could become a serious competitor to regional SVAR models and simultaneous econometric equation models in quantitative regional policy analysis. Such a model would provide a theoretically consistent laboratory for regional policy assessment much the same way DSGE models have for testing macroeconomic theories.

A regional growth model in the spirit of the Kydland and Prescott approach is that of Caselli and Coleman They use the model to provide an alternative explanation of U.

Business cycles in Ethiopia under alternative monetary policy rules

In this paper, I argue that although regional scientists have in some instances incorporated elements of modern macroeconomic methodology into their empirical analyses, significant potential exists for its greater use. I see two broad avenues through which greater use of modern macroeconomic methodology would improve regional modeling and empirical investigation.

Second, DSGE and subsequent related models in the Kydland and Prescott tradition also could be used as substitutes for simultaneous econometric approaches in regional forecasting and policy analysis. A few specific potential examples in regional economics immediately come to mind. Considerable debate exists regarding whether demand or supply forces underlie differentials in regional growth and fluctuations. The distinction matters for policymaking in terms of whether regions should focus more on attracting firms versus households to promote growth. Structural macroeconomic equilibrium models could be used to address this issue by employing more theoretically sound and empirically based assumptions than those used to date.

These models also could be used to examine the dynamics of regional labor market adjustment to address economic development issues such as whether existing residents or migrants primarily benefit from job creation. Varied formulations and implementations of such models could establish the robust results regarding the workings of regional labor markets. CGE models also more naturally can be employed to reflect the opportunity costs of policies such as subsidies used to attract firms, which if ignored, overstate the potential efficacy of subsidies.

In addition, an empirically based dynamic CGE model could be used to establish a baseline growth path for the economy. A better understanding of the forces underlying the existing economic conditions of a region would prove invaluable in deciding whether activist economic development policies should even be pursued. This is not to suggest that the new generation of macroeconomic models should be used in place of all other approaches in all instances. As suggested by Holmes in this issue, different types of analyses all can play productive roles in the generation of knowledge.

Approaches that are technically the most virtuous may not be those making the greatest contribution to knowledge Summers, For example, numerous challenges remain in terms of empirical identification, parameterization, and verification of DSGE models Canova and Sala, ; Canova, Yet, these and other issues also could be explored within the context of regional economic applications and much would be learned about regional economies along the way.

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Please review our Terms and Conditions of Use and check box below to share full-text version of article. Abstract ABSTRACT Despite a history of regional economic models being patterned after their national counterparts, modern macroeconomic methodology has yet to be fully embraced by regional scientists. Regional Simultaneous Econometric Equation Modeling In contrast to the recent macroeconomic literature, DSGE and related models have yet to become competitors with the simultaneous econometric equation framework for regional policy analysis.

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Cambridge , U. Google Scholar. Crossref Google Scholar. Wiley Online Library Google Scholar. Citing Literature. You can start or join in a discussion here. Visit emeraldpublishing. Abstract Purpose The purpose of this paper is to compare business cycle fluctuations in Ethiopia under interest rate and money growth rules. Findings The main result suggests that: the model economy with money growth rule is substantially less powerful or more muted for the amplification and transmission of exogenous shocks originating from government spending programs, monetary policy, technological progress and exchange rate movements.

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Lawrence Christiano, Leverage Restrictions in a Business Cycle Model

Rent from Deepdyve. At the same time, the proposed algorithm takes into account the lagging effect of the mutual influence of business cycles, as well as their synchronization and harmonization. Measurement of the effect of business cycle synchronization and harmonization is presented on the basis of the construction of harmonic models. The above examples of calculations for Germany and Russia show the general and distinctive characteristics of the business cycles of these countries. The results presented in the chapter can serve as a basis for further research in both theoretical and applied aspects.


The main areas should be the development of methods for forecasting the entry of the economy into different phases of cyclicality and the expansion of groups of countries for analysis in-country and intercountry interaction of cycles. Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution 3. Help us write another book on this subject and reach those readers.

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Business Cycle Dynamics - Models and Tools | Iryna Sushko | Springer

Introduction This chapter is devoted to the substantiation of methods of statistical assessment and modeling of macroeconomic business cycles on the basis of their understanding as an integrated effect of changing business phases in different sectors, as well as the impact of synchronization and harmonization of business cycles in both the economy of one country and the intercountry levels. A literature review of the definition of a business cycle and methods for extracting cyclic components The number of scientific papers devoted to the theory and methods of quantifying business cycles is measured in hundreds.

Algorithm for the quantification of business cycles, their synchronization and harmonization, and its application Measuring business cycles is necessary and usually the starting point of their research. Measurement in this context means quantifying the following characteristics of a business cycle : The duration of the cycle and its phases The amplitude of the cycle and its phases Any asymmetric behavior of the phases Cumulative movements within phases Harding and Pagan [ 16 ] graphically showed and explained the ratio of the peak A and the trough C as an example of a stylized recession Figure 2.

Table 1. Table 2. Table 3. Table 4. Table 5. Conclusions The approach proposed and tested in this chapter has a theoretical basis and originality. Blinder and S. Fischer [2]. More Print chapter. How to cite and reference Link to this chapter Copy to clipboard. Cite this chapter Copy to clipboard Elena Zarova November 5th Available from:. Over 21, IntechOpen readers like this topic Help us write another book on this subject and reach those readers Suggest a book topic Books open for submissions.

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