A Long View of the UK Business Cycle

2002 ◽  
Vol 182 ◽  
pp. 72-89 ◽  
Author(s):  
Jagjit S. Chadha ◽  
Charles Nolan
Keyword(s):  
Business Cycle ◽  
Interest Rates ◽  
Dominant Role ◽  
Real Wages ◽  
Long Run ◽  
Nominal Interest Rates ◽  
Short Run ◽  
The Business Cycle ◽  
The Uk ◽  
External Sector

We outline a number of ‘stylised’ facts on the UK business cycle obtained from analysis of the long-run UK annual dataset. The findings are to some extent standard. Consumption and investment are pro-cyclical, with productivity playing a dominant role in explaining business cycle fluctuations at all horizons. Money neutrality obtains over the long run but there is clear evidence of non-neutrality over the short run, particularly at the business cycle frequencies. Business cycle relationships with the external sector via the real exchange rate and current account are notable. Postwar, the price level is counter-cyclical and real wages are pro-cyclical, as are nominal interest rates. Modern general equilibrium macroeconomic models capture many of these patterns.

scholarly journals Cyclical Fluctuation, Growth, and Stabilization: An Empirical Investigation of Dual Policy Objectives in Bangladesh

2020 ◽  
Author(s):  
Richmond Sam Quarm ◽  
Mohamed Osman Elamin Busharads
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Business Cycle ◽  
Interest Rates ◽  
Money Supply ◽  
Macroeconomic Policy ◽  
Output Growth ◽  
Long Run ◽  
Short Run ◽  
The Business Cycle

In conventional economics, two types of macroeconomic policy i.e. fiscal policy and monetary policy are used to streamline the business cycle. This paper has examined the cyclical behavior of these variables over the business cycle of Bangladesh. The objective of this examination is to show whether policies (fiscal policy and monetary policy) in Bangladesh are taken with a motive to stabilize the economy or only to promote economic growth. In other words, it has examined whether the policies in Bangladesh are procyclical or countercyclical or acyclical. Hodrick Prescott (HP) filter has been used to separate the cyclical component of considered variables. Both correlation and regression-based analysis have provided that in Bangladesh government expenditure and interest rates behave procyclically, but money supply behaves acyclically over the business cycle. Besides, this paper has tried to identify the long-term as well as the short-term relationship between real GDP and the macroeconomic policy variables with the help of the Johansen cointegration test, vector error correction model (VECM), and block exogeneity Wald test. Through these analyses, this study has found that fiscal policy has a significant impact on GDP growth both in the short-run and long-run. In the case of monetary policy, although the interest rate has an impact on real output both in the short-run and long-run, the money supply has neither a short-run nor long-run effect on output growth.

scholarly journals Cyclical Fluctuation, Growth, and Stabilization: An Empirical Investigation of Dual Policy Objectives in Bangladesh

2020 ◽  
Vol 3 (4) ◽  
Author(s):  
Sakil Ahmmed ◽  
◽  
Jonaed Jonaed
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Business Cycle ◽  
Interest Rates ◽  
Money Supply ◽  
Macroeconomic Policy ◽  
Output Growth ◽  
Long Run ◽  
Short Run ◽  
The Business Cycle

In conventional economics, two types of macroeconomic policy i.e. fiscal policy and monetary policy are used to streamline the business cycle. This paper has examined the cyclical behavior of these variables over the business cycle of Bangladesh. The objective of this examination is to show whether policies (fiscal policy and monetary policy) in Bangladesh are taken with a motive to stabilize the economy or only to promote economic growth. In other words, it has examined whether the policies in Bangladesh are procyclical or countercyclical or acyclical. Hodrick Prescott (HP) filter has been used to separate the cyclical component of considered variables. Both correlation and regression-based analysis have provided that in Bangladesh government expenditure and interest rates behave procyclically, but money supply behaves acyclically over the business cycle. Besides, this paper has tried to identify the long-term as well as the short-term relationship between real GDP and the macroeconomic policy variables with the help of the Johansen cointegration test, vector error correction model (VECM), and block exogeneity Wald test. Through these analyses, this study has found that fiscal policy has a significant impact on GDP growth both in the short-run and long-run. In the case of monetary policy, although the interest rate has an impact on real output both in the short-run and long-run, the money supply has neither a short-run nor long-run effect on output growth.

The Association Between Bank Credit Terms and Conditions and the Business Cycle in the Euro Area

2019 ◽  
Vol 65 (4) ◽  
pp. 247-256
Author(s):  
Dimitrios Anastasiou ◽  
Konstantinos Drakos
Keyword(s):  
Business Cycle ◽  
Euro Area ◽  
Bank Loan ◽  
Bank Credit ◽  
Monetary Policies ◽  
Policy Makers ◽  
Long Run ◽  
Loan Terms ◽  
Short Run ◽  
The Business Cycle

Abstract We explored the trajectory of bank loan terms and conditions over the business cycle, where the latter was decomposed into its long-run (trend) and short-run (cyclical) components. We found that deterioration of each business cycle component leads to a significant tightening of credit terms and conditions. We found mixed results concerning the symmetry of impacts of the short and long run components. Symmetry was found between the terms and conditions on loans for small vs. large enterprises. Our findings provide very useful information to policy makers and should be taken into consideration when monetary policies are designed.

scholarly journals ENDOGENOUSLY SEGMENTED ASSET MARKET IN AN INVENTORY-THEORETIC MODEL OF MONEY DEMAND

2012 ◽  
Vol 18 (2) ◽  
pp. 438-472 ◽  
Author(s):  
Jonathan Chiu
Keyword(s):  
Interest Rates ◽  
Money Demand ◽  
Asset Market ◽  
Fixed Cost ◽  
Theoretic Model ◽  
Long Run ◽  
Nominal Interest Rates ◽  
Goods Market ◽  
Short Run ◽  
Money Transfers

This paper studies the effects of monetary policy in an inventory-theoretic model of money demand. In this model, agents keep inventories of money, despite the fact that money is dominated in rate of return by interest-bearing assets, because they must pay a fixed cost to transfer funds between the asset market and the goods market. In contrast to exogenous segmentation models in the literature, the timing of money transfers is endogenous. As a result, the model endogenizes the degree of market segmentation as well as the magnitudes of liquidity effects, price sluggishness, and the variability of velocity. I first show that the endogenous segmentation model can generate the positive long-run relationship between money growth and velocity observed in the data, which the exogenous segmentation model fails to capture. I also show that the short-run effects of money shocks on prices, inflation, and nominal interest rates are not robust.

Fluctuations and Rigidities in Local Labor Markets. Part 1: Theory and Evidence

1983 ◽  
Vol 15 (2) ◽  
pp. 165-185 ◽  
Author(s):  
G L Clark
Keyword(s):  
Spectral Analysis ◽  
Labor Market ◽  
Business Cycle ◽  
Labor Markets ◽  
Local Labor Markets ◽  
Hours Worked ◽  
Long Run ◽  
Short Run ◽  
The Business Cycle ◽  
Us Cities

Cyclical sensitivity in employment, wages, and hours worked are explored with reference to three industries and eleven US cities over the period 1972–1980. Conventional neoclassical discrete-exchange models of the labor market are shown to be inadequate because of marked rigidities in the patterns of short-run adjustment. Money wages are very stable, being dominated by a long-run trend, and firms tend to adjust hours worked and only then employment in the short run. There are, however, significant interregional variations in these patterns within the same industry. Spectral analysis and tests for periodicities in the patterns of residuals derived from trend-line estimates of money wages confirm a supposition that urban Phillips curves do not exist. The evidence supports the implicit notion of contract theory that continuous employer-worker relationships exist over the business cycle. The question of how useful, in general, this theory might be is left open for the present.

Real House Prices in the UK

2011 ◽  
Vol 216 ◽  
pp. F62-F68 ◽  
Author(s):  
Ray Barrell ◽  
Simon Kirby ◽  
Rachel Whitworth
Keyword(s):  
Interest Rates ◽  
Housing Market ◽  
House Prices ◽  
Consumer Welfare ◽  
Best Interests ◽  
Long Run ◽  
Nominal Interest Rates ◽  
Cyclical Pattern ◽  
Income Ratio ◽  
The Uk

The housing market plays a fundamental role in the economy, and its functioning affects both consumer welfare and economic stability, as the recent crisis has made clear. Research by Barrell et al. (2010) shows that house prices are a key determinant of financial crisis probabilities in OECD economies, and contribute significantly towards systemic banking risk. This must lead the regulator to assess carefully the role of the housing market in this relationship, and if necessary impose regulatory restrictions on the market so as to ensure it functions in a way that reflects the best interests of the economy. In this note we look at the evolution of real house prices in the UK, noting that they have a strong cyclical pattern. We then look at the factors that might affect the evolution of real house prices, and we estimate a dynamic equation describing those prices. After considering a wide set of factors, we demonstrate that there is little role for the supply of housing relative to the number of households. This may be because the ratio of these two variables has been relatively constant over the past thirty years. We show that real borrowing costs, real incomes and the loan-to-income ratio are significant factors determining the long-run path of real house prices, and that front loading problems from high short-term nominal interest rates affect the path of adjustment. Overvaluations can persist for years, and we would judge that real house prices are currently fundamentally overvalued by around 10 per cent. If loan-to-income ratios are reduced then the fundamental overvaluation will increase, and such a policy will put further downward pressure on real house prices.

scholarly journals Seigniorage Revenue, Inflation Tax and Indian Economy: A Cointegration Analysis

2016 ◽  
Vol 12 (1) ◽  
pp. 3-15
Author(s):  
Md. Samsur Jaman
Keyword(s):  
Interest Rates ◽  
Cointegration Analysis ◽  
Tax Revenue ◽  
Indian Economy ◽  
Long Run ◽  
Nominal Interest Rates ◽  
Time Series Dataset ◽  
Inflation Rates ◽  
Inflation Tax ◽  
Short Run

The aim of this paper is to test the relationship between seigniorage revenue, inflation tax and interest rates for Indian Economy. For this purpose, we estimate the Mankiw’s optimal seigniorage model by using time series dataset for the time period 1970-2015 for Indian Economy with the cointegration and vector error correction methods (VECM). According to estimated econometric results, there is a significant relationship between inflation, nominal interest rates and tax revenue in the long run. However, in short run there is a causality relationship from nominal interest rates and inflation to tax revenue and tax revenue to nominal interest rates. Thus, this study suggests that in the long run higher tax rates are associated with lower inflation rates and lower nominal interest rates for Indian Economy

Predicting returns over several decades

2021 ◽  
pp. 292-312
Author(s):  
Jesper Rangvid
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Interest Rates ◽  
Stock Price ◽  
Turning Points ◽  
Long Run ◽  
The Business Cycle

This chapter looks at expectations of returns several decades out. This is obviously a difficult task, as fundamental economic structures might change over such long periods. But we need multi-decade forecasts in certain situations. One conclusion of this chapter is that we must look beyond variables that predict turning points in the business cycle and stock-price multiples when dealing with the very long run. Over multiple decades, we will live through multiple business cycles. Variables that predict the next business cycle will not be particularly informative about the returns we expect over many decades. The chapter focuses on the deep underlying drivers of long-run returns, primarily expectations to long-run economic activity.The chapter also looks at expected long-run interest rates.

Short Run Comovement, Persistent Shocks and the Business Cycle / Eine empirische Analyse der Wirkung kurz- und langfristiger Schocks im Konjunkturzyklus

1998 ◽  
Vol 217 (4) ◽  
Author(s):  
Jörg Breitung ◽  
Maik Heinemann
Keyword(s):  
Business Cycle ◽  
Rational Expectations ◽  
Impulse Response Functions ◽  
Business Cycle Theory ◽  
Productivity Shocks ◽  
Business Cycle Fluctuations ◽  
Long Run ◽  
Short Run ◽  
The Business Cycle ◽  
System Variables

SummaryFollowing standard real business cycle theory, long run economic growth and short run business cycle fluctuations are attributed to a series of productivity shocks propagated by the economic system which is assumed to be in a rational expectations equilibrium. Characterizing the technical progress as the common stochastic trend we are able to investigate the short and long run effects of the productivity shocks using a cointegrated system. From the empirical analysis it emerges that the long run relationship between the system variables can be traced back to a single permanent component which is interpreted as a measure of technological progress. The short run dynamic impact of the permanent innovations is investigated using the empirical impulse response functions. It turns out that the permanent shocks are able to explain a substantial portion of business cycle fluctuations.

Who Leads the Australian Interest Rates in the Short and Long Run? An Application of Long Run Structural Modelling

2006 ◽  
Vol 09 (01) ◽  
pp. 1-24 ◽  
Author(s):  
A. Mansur M. Masih ◽  
Trent Winduss
Keyword(s):  
Interest Rates ◽  
Structural Model ◽  
Policy Makers ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Trading Partners ◽  
Short Run ◽  
Variance Decompositions ◽  
The Uk

The focus of this paper is to test the cointegrating and Granger-causal relationships between Australian short-run interest rate securities and those of the UK, US, Japan, Hong Kong, Singapore and New Zealand. A relatively new methodology known as Long Run Structural Model (LRSM) (Pesaran and Shin, 2002) followed by vector error-correction model, generalized variance decompositions, generalized impulse response, and persistence profile have been used. The findings tend to suggest that Australia's short-term interest rates are cointegrated with those of its major trading partners. The results of this paper indicate that the ability of Australian policy makers to target and manipulate domestic interest rates may be limited and that they should look to the policy decisions of the US and Japan in particular when setting domestic policy.

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