THE MONTE CARLO CYCLE IN BUSINESS ACTIVITY

NBER business"cycle" reference dates and aggregate economic time series are examined for evidence of regular cyclic behavior. A simple contingency table test is used on the reference dates, and aggregate series are fit with a second-order autoregression. The results are negative. Apparently the business "cycle" is an optical illusion or, as Irving Fisher called it, a "Monte Carlo cycle." These are the cycles superstitious gamblers believe govern their luck.     

THE EFFECT OF BUSINESS CYCLES ON GROWTH: KEYNES VS. SCHUMPETER

In contrast to recent 'neo-Schumpeterian' models, which argue that business cycles are good for growth, we develop a 'neo-Keynesian' model, where monopolistically competitive firms set prices and produce output in advance of the realization of (stochastic) monetary velocity. In such a setting, there is an asymmetry in the effect of business cycles on income: recessions are bad, because the representative firm is demand-constrained and its unsold output is wasted, but booms are not good, because the firm is output-constrained and cannot produce any more output. A more severe business cycle thus reduces the expected income of a firm, and the expected return to investment, which reduces the growth rate of the economy. ( JEL E32, E52, O41, L13)     

A THEORY OF TURNOVER AND WAGE DYNAMICS

We develop a model of turnover and wage dynamics with insurance, match‐specific productivity, and long‐term contracting. The model predicts that wages are downward rigid within firms but can decrease when workers are fired. We apply the model to study the impact of business cycles on subsequent wages and job mobility. Workers hired during a boom have persistent higher future wages if staying with the same firm. However, these boom hires are more likely to be terminated and have shorter employment spells. (JEL C73, D23, D82, J33)     

Industrial injuries in British manufacturing industry and cyclical effects: continuities and discontinuities in industrial injury research

An article appeared in The Sociological Review for May 1990 by Steve Tombs that bore the same title as an earlier one by me (‘Industrial injuries in British manufacturing industry’ May 1986) and which took as its starting point my ‘The business cycle and industrial injuries’ which appeared in August 1989. It is argued here that Tombs's analysis does not represent the step forward that might have been hoped. It is for example extremely important in the analysis of industrial injury rates to pay careful attention to what injury rates of different degrees of severity might measure. Tombs's article is shown to be technically deficient in that he makes mistakes both of fact and interpretation in his treatment of the all reported (or minor) injury rate. Moreover, Tombs advances the claim — in the context of reference to ‘a pure “business cycle” argument à la Nicholsw’ — that ‘a generalised discussion of [business] cycles obscures important aspects of the political economy within individual cycles. In particular, the strength of the labour movement is related to the incidence of accidents at work’. For the record, it is also spelt out below that this represents an unwarranted interpretation of my own position.     

Immigrants’ Employment in Spanish Cooperatives: Outcomes in Relation to the Business Cycle

In this paper, we analyse the interaction between immigrants’ employment in cooperatives and the business cycle. The study is centred on the Spanish economy during the period 2003–2015. The main goal of this paper is to answer the following two key questions: are fluctuations in immigrants’ employment in cooperatives cyclical in relation to the business cycle? And, are immigrant employees more vulnerable to the business cycle than native employees? The cycles and their turning points are identified using the Bry and Boschan (Cyclical analysis of time series: selected procedures and computer programmes, National Bureau of Economic Research, New York, 1971) algorithm. To resolve it we employ the BUSY software, developed by the European Commission. The procedure allows us to identify the features of the cycle phases and to calculate the synchronization index. The results show that (1) employment in cooperatives is procyclical and with no differences between immigrant and native workers, (2) the economic crisis has hit immigrant workers harder than native ones, (3) the immigrants’ birthplace is significant because some cyclical behaviour can be found to vary according to the immigrants’ origins; however, in general, sensitivity to the business cycle is the common factor.     

THE BEHAVIOR OF REGULATORY ACTIVITY OVER THE BUSINESS CYCLE: AN EMPIRICAL TEST

This paper tests a prediction of the interest-group theory of regulation which suggests that regulators generally will not force any one group to bear the full adjustment costs associated with variations in the business cycle. That is, the interest-group model predicts that regulatory agencies will redistribute cyclical gains and losses by supplying more "producer protection" regulation during contractions and more "consumer protection" regulation during expansions; i.e., regulatory activity which reduces consumer welfare will tend to be countercyclical, intensifying when aggregate demand falls and abating as demand increases.
The empirical results show a countercyclical and statistically significant ceteris paribus relationship between Federal Trade Commission enforcement efforts under the Robinson-Patman Act and several alternative measures of general business conditions. Since the Robinson-Patman Act is viewed widely as anti-consumer, the findings suggest that in cyclical downturns the Commission moves to protect producers against losses by bringing more cases which limit the tendency for prices to fall. This result may be rationalized under the view that during recessions, the Federal Trade Commission is in the business of transferring wealth from consumers either to protect small business or to bolster cartels. On the other hand, during business expansions the Commission reduces its Robinson-Patman case load, and such a change in enforcement may serve to mitigate producer gains, transferring wealth to consumers at the margin. In any case the paper offers empirical support for the interest-group model by providing evidence that the business cycle plays an important part in explaining the level and pattern of regulatory activity.     

ON ENDOGENOUS BUSINESS CYCLES UNDER INCREASING RETURNS TO VARIETY AND SECTOR‐SPECIFIC EXTERNALITY

We examine the theoretical as well as quantitative interrelations between endogenous business cycles, increasing returns to product variety and sector‐specific productive externalities within a two‐sector real business cycle model. In a calibrated version of our benchmark closed‐economy setting, the threshold level of investment externalities needed for equilibrium indeterminacy is found to be monotonically increasing in the degree of market competitiveness. We also study the model's local stability properties (i) when the parameters that govern the level of intermediate‐good producers' market power and the strength of variety effects are disentangled; and (ii) in the context of a small open economy. (JEL E30, E32, O41)     

MONEY,OUTPUT, AND INFLATION IN THE LONGER TERM: MAJOR INDUSTRIAL COUNTRIES, 1880–2001

We study how fluctuations in money growth correlate with fluctuations in real output growth and inflation. Using band‐pass filters, we extract cycles from each time series that last 2–8 (business cycles) and 8–40 (longer‐term cycles) years. We employ annual data, 1880–2001 without gaps, for 11 industrial countries. Fluctuations in money growth do not play a systematic role at business cycle frequencies. However, money growth leads or affects contemporaneously inflation, but not real output growth, in the longer run. Also, formal break tests indicate no structural changes for the longer‐term money growth and inflation relationship, despite changes in policy regimes.(JEL E3)     

INTERNATIONAL EVIDENCE ON FRIEDMAN'S THEORY OF THE BUSINESS CYCLE

Milton Friedman's theory of the business cycle implies two empirical regularities tested for here. One regularity is that business cycles are asymmetric: The size of a contraction affects the size of the following expansion, but not vice versa. The second regularity is that a supply-side ceiling to aggregate output limits the size of expansions. Friedman's correlation methods yield only very weak support for the asymmetry hypothesis when applied to real GNP data of eight OECD countries. A time series model with a ceiling component fits the data well for a majority of the countries.     

European Business Cycles: New Indices and Their Synchronicity

This article presents a new business cycle index that allows for cycle-to-cycle comparisons of the depth of recessions within a country, cross-country comparisons of business cycle correlation, and simple aggregation to arrive at a measure of a European business cycle. The data augmentation implied by Gibbs sampling generates posterior distributions for a latent coincident business cycle index. Subsample correlations between an aggregated "Europe" index and the national business cycle indices from France, Germany, and Italy are consistent with the claim that the European economies are becoming more harmonized.     

Dynamic effects of financial intermediation over the business cycle

This paper provides a empirical evidence that the financial intermediation disturbances can generate business cycles. We examine three countries whose financial sectors are fully developed but quite distinct in their institutional and regulatory circumstances; thus, we can infer whether financial intermediation disturbances differ across dissimilar financial environments. We find that the dynamic responses of output to financial intermediation shocks exhibit similar patterns in all cases studied. However, the various institutional and regulatory circumstances have generated different propagation mechanisms transmitting the financial disturbance to output in ways that lead the magnitudes of the responses to deviate across economies.     

DIMENSIONS OF MACROECONOMIC UNCERTAINTY: A COMMON FACTOR ANALYSIS

Uncertainty about the future course of the economy is a potential driver of aggregate fluctuations. To identify the distinct dimensions of uncertainty in the macroeconomy, we construct a large dataset covering all types of economic uncertainty. We then identify two fundamental factors that account for the common dynamics in this dataset. These factors are interpreted as macroeconomic uncertainty. The first factor captures business cycle uncertainty, while the second factor represents oil and commodity price uncertainty. While both types of uncertainty generate a decline in output, time‐varying oil and commodity price uncertainty is more important for fluctuations in real activity. However, nonlinearities seem to amplify the effect of business cycle uncertainty during the global financial crisis. (JEL C32, C38, E32)     

LIMITED ASSET MARKET PARTICIPATION AND THE EURO AREA CRISIS: AN EMPIRICAL DSGE MODEL

We estimate a medium‐scale dynamic stochastic general equilibrium model for the Euro area with limited asset market participation (LAMP). Our results suggest that in the recent European Monetary Union years LAMP is particularly sizable (39% during 1993–2012) and important to understand business cycle features. The Bayes factor and the forecasting performance show that the LAMP model is preferred to its representative household counterpart. In the representative agent model the risk premium shock is the main driver of output volatility in order to match consumption correlation with output. In the LAMP model this role is played by the investment‐specific shock, because non‐Ricardian households introduce a Keynesian multiplier effect and raise the correlation between consumption and investments. We also detect the contractionary role of monetary policy shocks during the post‐2007 years. In this period consumption of non‐Ricardian households fell dramatically, but this outcome might have been avoided by a more aggressive policy stance. (JEL C11, C13, C32, E21, E32, E37)     

THE EFFECT OF CONCEALED WEAPONS LAWS: AN EXTREME BOUND ANALYSIS

Lott and Mustard [1997] provide evidence that enactment of concealed handgun ("right-to-carry") laws deters violent crime and induces substitution into property crime. A critique by Black and Nagin [1998] questions the particular model specification used in the empirical analysis. In this paper, we estimate the "model uncertainty" surrounding the model specified by Lott and Mustard using an extreme bound analysis (Leamer [1983]). We find that the deterrence results are robust enough to make them difficult to dismiss as unfounded, particularly those findings about the change in violent crime trends. The substitution effects are not robust with respect to different model specifications. (JEL K42)     

Managing electronic documents and work flows: Enterprise content management at work in nonprofit organizations

Web management and knowledge management systems have made significant technological advances, culminating in large information management systems such as enterprise content management (ECM). ECM is a Web‐based publishing system that manages large numbers of electronic documents and other Web assets intended for publication to Web portals and other complex Web sites. Work in nonprofit organizations can benefit from adopting new communication technologies that promote collaboration and enterprisewide knowledge management. The unique characteristics of ECM are enumerated and analyzed from a knowledge management perspective. We identify three stages of document life cycles in ECM implementations—content, reification, and commodification/process—as the content management model. We present the model as a mechanism for decision makers and scholars to use in evaluating the organizational impacts of systems such as ECM. We also argue that decision makers in nonprofit organizations should take care to avoid overly commodifying business processes in the final stage, where participation may be more beneficial than efficiency.     

Migration between the United States and Canada: a study of labour market adjustment

"... The main purpose of this study is to examine population flows between Canada and the United States [from mid-1947 to mid-1972] in order to investigate the degree to which labour market adjustment is aided by such movements. [The author considers] several functional forms of the migration relationship in an attempt to empirically determine how the decision to migrate is formed. [He also compares the] results with those obtained by Courchene...for Canadian interprovincial migration in an effort to compare the effects of international and internal migration on labour market adjustment." It is found that "migration between the United States and Canada over the post-war period is an economic variable. In fact, [a] simple model employing differences in income levels and unemployment rates has been able to explain nearly ninety-five per cent of the variation in the migration rate." The author also notes that "although migration between Canada and the United States does occur in such a way as to aid labour market adjustment, it is not as efficient as internal migration." (summary in FRE, SPA)     

Entrepreneurial gain,cultural similarity and transnational entrepreneurship

The aim of this article is to analyse the factors affecting the motivations of immigrant entrepreneurs to generate an entrepreneurial gain (positive impact on home and host countries). We consider that positive reasons for emigrating can increase transnational entrepreneurship and mutual benefits for both societies. To test this hypothesis we present a model using Structural Equation Modelling (SEM). This model explains the relations between motivations, cultural similarities, institutions and transnational linkage potentials. We designed an ad hoc search of Argentinean entrepreneurs established in Spain, both as EU citizens and without legal EU status, using online social networks. We applied an online questionnaire to 214 such entrepreneurs. We conclude that institutional rules (formal and informal) greatly influence the location decisions of firms and immigrant entrepreneurs’ motivations for starting transnational business because they provide the frame for the development of profitable opportunities.     

NEW FACTS ABOUT FIRM RISK ACROSS COUNTRIES AND OVER THE BUSINESS CYCLE

The characteristics of firm‐level risk over the cycle and across countries are studied in this paper. Low idiosyncratic firm‐level risk is found to be a feature of highly developed, stable economies, whereas the countercyclicality of firm‐level risk is associated with flexible as well as stable economies. These facts are uncovered with the help of a theoretical model where small, risk‐averse firms display procyclical risk, whereas larger, risk‐neutral firms have countercyclical risk patterns that depend on the rigidity of the business environment. The predictions of the model are then confirmed by the data using a large international firm‐level database (ORBIS) together with the World Bank Doing Business Database, during the “Great Recession” across 55 countries. The findings are critical for the growing literature of uncertainty driven business cycles, and show that firm‐level uncertainty cannot be treated as an exogenous parameter. (JEL D21, D22, E32, F44, L11, L25)     

FURTHER EVIDENCE ON THE RELATIONSHIP BETWEEN FEDERAL GOVERNMENT DEBT AND INFLATION

Does an increase in the federal debt cause inflation? Dwyer [1982] using a par value measure of debt, finds no support for such a causal link. Cox [1985] using a market value measure, finds evidence that increases in debt produce higher inflation rates. We reconcile these results by demonstrating that failure to capture the interest rate effects inherent in the market value measure accounts for the finding that debt "causes" inflation. Incorporating interest rates into our test equations using the market value series leads us to conclude that, like the par value series results, increases in federal debt do not cause higher rates of inflation.