Modelling cyclical variation in the cost pass-through: a regime-dependent approach

2020 ◽  
Vol 67 (2) ◽  
pp. 97-113
Author(s):  
Karolina Konopczak
Keyword(s):  
Business Cycle ◽  
Cyclical Variation ◽  
Business Cycle Fluctuations ◽  
Industrial Sectors ◽  
Labour Costs ◽  
Cyclical Behaviour ◽  
The Business Cycle ◽  
Pass Through ◽  
The Cost ◽  
Markup Adjustment

In this study a regime-dependent ARDL model is developed in order to investigate how labour costs feed through into prices conditional on the business cycle position. Its estimates enable inference on the cyclical behaviour of markups. The proposed methodology is applied to the Polish industrial sectors. The obtained estimates point to procyclicality as the prevailing pattern of markup adjustment. Thus, overall markups in the Polish industry seem to have a mitigating effect on business cycle fluctuations. The degree of procyclicality seems, however, to be positively correlated with the degree of the industry’s competitiveness.

A NOTE ON THE BUSINESS CYCLE IMPLICATIONS OF TRADE IN INTERMEDIATE GOODS

2013 ◽  
Vol 18 (5) ◽  
pp. 1172-1186 ◽  
Author(s):  
Aurélien Eyquem ◽  
Güneş Kamber
Keyword(s):  
Business Cycle ◽  
Open Economy ◽  
Small Open Economy ◽  
Intermediate Goods ◽  
Relative Prices ◽  
Cost Channel ◽  
The Business Cycle ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Cost

Trade in intermediate goods is an important feature of trade in developed small open economies. We show that a model that assumes trade in intermediate goods brings the dynamics of an otherwise standard small open economy closer to what is observed in the data. With trade in intermediate goods, movements of international relative prices affect the economy through an additional channel, denoted the “cost channel.” A model embedding this channel comes closer to business cycle data in several dimensions compared to models with trade in final goods only. It increases the share of output variance explained by foreign shocks, lowers the exchange rate pass-through, and delivers a positive international correlation of outputs. In addition, the matching of other business cycle moments is at least as good as in a model with trade in final goods only.

scholarly journals Hiring, Churn, and the Business Cycle

2012 ◽  
Vol 102 (3) ◽  
pp. 575-579 ◽  
Author(s):  
Edward P Lazear ◽  
James R Spletzer
Keyword(s):  
Business Cycle ◽  
Job Creation ◽  
Labor Turnover ◽  
Present Evidence ◽  
Employment Dynamics ◽  
Job Openings ◽  
The Business Cycle ◽  
The Cost

Hires occur for two reasons - to grow a business and to replace those who have left (churn). Churn is an important part of employment dynamics, allowing workers to move to their most productive use. We present evidence on churn from the Job Openings and Labor Turnover Survey (JOLTS). Churn is procyclical. During the 2007-09 recession, four-fifths of hiring reductions are associated with reduced churn, not with reductions in job creation. We estimate that the cost of reduced churn is about two-fifths of a percentage point of GDP annually throughout the three-and-one-half year period since the beginning of the recession.

scholarly journals The Vietnamese business cycle in an estimated small open economy New Keynesian DSGE model

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Phuong V. Nguyen
Keyword(s):  
Business Cycle ◽  
Open Economy ◽  
Small Open Economy ◽  
Research Paper ◽  
New Keynesian ◽  
Dsge Model ◽  
Content Type ◽  
Business Cycle Fluctuations ◽  
Dynamic Stochastic ◽  
The Business Cycle

PurposeThe primary purpose of this paper is to investigate the sources of the business cycle fluctuations in Vietnam. To this end, the author develops a small open economy New Keynesian dynamic stochastic general equilibrium (SOE-NK-DSGE) model. Accordingly, this model includes various features, such as habit consumption, staggered price, price indexation, incomplete exchange-rate pass-through (ERPT), the failures of the law of one price (LOOP) and the uncovered interest rate parity. It is then estimated by using the Bayesian technique and Vietnamese data 1999Q1–2017Q1. Based on the estimated model, this paper analyzes the sources of the business cycle fluctuations in this emerging economy. Indeed, this research paper is the first attempt at developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.Design/methodology/approachA SOE-NK-DSGE model—Bayesian estimation.FindingsThis paper analyzes the sources of the business cycle fluctuations in Vietnam.Originality/valueThis research paper is the first attempt at developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.

ASYMMETRY AND THE AMPLITUDE OF BUSINESS CYCLE FLUCTUATIONS: A QUANTITATIVE INVESTIGATION OF THE ROLE OF FINANCIAL FRICTIONS

2016 ◽  
Vol 22 (2) ◽  
pp. 279-306 ◽  
Author(s):  
Manoj Atolia ◽  
John Gibson ◽  
Milton Marquis
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Financial Frictions ◽  
Quantitative Investigation ◽  
Macroeconomic Volatility ◽  
Access To Credit ◽  
Business Cycle Fluctuations ◽  
Key Features ◽  
The Business Cycle

We examine the quantitative significance of financial frictions that reduce firms' access to credit in explaining asymmetric business cycles characterized by disproportionately severe downturns. Using rate spread data to calibrate the severity of these frictions, we successfully match several key features of U.S. data. Specifically, although output and consumption are relatively symmetric (with output being slightly more asymmetric), investment and hours worked display significant asymmetry over the business cycle. We also demonstrate that our financial frictions are capable of significantly amplifying adverse shocks during severe downturns. Although the data suggest that these frictions are only active occasionally, our results indicate that they are still a significant source of macroeconomic volatility over the business cycle.

scholarly journals Measuring What Employers Do about Entry Wages over the Business Cycle: A New Approach

2012 ◽  
Vol 4 (4) ◽  
pp. 36-55 ◽  
Author(s):  
Pedro S Martins ◽  
Gary Solon ◽  
Jonathan P Thomas
Keyword(s):  
Longitudinal Data ◽  
Business Cycle ◽  
Unemployment Rate ◽  
Crucial Role ◽  
New Approach ◽  
Macroeconomic Models ◽  
Cyclical Variation ◽  
Wage Cyclicality ◽  
The Business Cycle ◽  
Newly Hired

Rigidity in real hiring wages plays a crucial role in some recent macroeconomic models. But are hiring wages really so noncyclical? We propose using employer/employee longitudinal data to track the cyclical variation in the wages paid to workers newly hired into specific entry jobs. Illustrating the methodology with 1982–2008 data from the Portuguese census of employers, we find real entry wages were about 1.8 percent higher when the unemployment rate was 1 percentage point lower. Like most recent evidence on other aspects of wage cyclicality, our results suggest that the cyclical elasticity of wages is similar to that of employment. (JEL E24, E32, J31, J64)

scholarly journals Maquiladora Downturn: Structural Change Or Cyclical Factors?

2011 ◽  
Vol 3 (8) ◽  
Author(s):  
Jesus Canas ◽  
Roberto Coronado ◽  
Robert W. Gilmer
Keyword(s):  
Business Cycle ◽  
Structural Changes ◽  
Economic Recession ◽  
Real Wages ◽  
Government Officials ◽  
Mexican Government ◽  
The Media ◽  
The Business Cycle ◽  
The Cost ◽  
Employment Decline

Mexicos maquiladora industry is currently the focus of much attention in the media, in corporate boardrooms, and among Mexican government officials. After watching the maquiladora industry sustain its biggest ever employment decline in recent years, many observers now question the industrys future in Mexico. The 2001 U.S. economic recession took a heavy toll on Mexicos maquiladora industry, although the size of the industrys contraction during the recent recessionalmost 260,000 jobssuggests there are more factors at work than the mild business cycle. The advantages of operating plants in Mexico, such as low wages and tax incentives, are now offered by a number of developing countries. At the same time, location has become less important for many products, as innovations in transportation and technology lower shipping costs. This paper attempts to estimate how much of the current maquiladora downturn is due to the business cycle and how much is due to structural changes. We use the Branson-Love methodology to estimate structural and cyclical impacts on the maquiladora employment downturn. Results suggest that the 2001 U.S. recession and rising real wages in Mexico account for much of the maquiladora downturn. Historically, these are the two most important factors during maquiladora growth, but new factors such as Chinas membership in the World Trade Organization, the Caribbean initiative and implementation of NAFTA Article 303 have changed corporate options for plant location or affected the cost structure in Mexico. Although our statistical results strongly suggest a recovery in maquiladora employment, potentially important qualifications are discussed as well.

Business-cycle fluctuations in economic activity

2021 ◽  
pp. 105-125
Author(s):  
Jesper Rangvid
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Empirical Evidence ◽  
Economic Activity ◽  
Second Phase ◽  
Growth Trend ◽  
Business Cycle Fluctuations ◽  
The Business Cycle ◽  
Two Phases

This chapter explains what the business cycle is and what causes business-cycle fluctuations. We call fluctuations in economic activity around the long-term growth trend ‘the business cycle’. The business cycle consists of two phases. The first is a period of strong economic activity. The second, following the first, is a period of weak economic activity. We call the first phase of the business cycle an ‘expansion’ and the second phase a ‘contraction’ or ‘recession’. The chapter explains what causes business cycles, and examines the empirical evidence on the lengths and strengths of the typical business cycle. It finds that expansions typically last longer than recessions. The chapter also shows that the length of expansions has increased during recent decades.

Synchronisation of Regional Business Cycles of Eastern Polish Provinces with the National Cycle in the Context of Regional Economic Structures

2015 ◽  
Vol 10 (2) ◽  
pp. 157-171
Author(s):  
Rafał Warżała
Keyword(s):  
Business Cycles ◽  
Business Cycle ◽  
Regional Variation ◽  
Regional Economic ◽  
Business Cycle Fluctuations ◽  
Cyclical Fluctuations ◽  
Band Pass ◽  
The Business Cycle ◽  
Regional Product ◽  
Regional Perspective

The objective of the article is to determine the degree of regional variation among provinces located in so-called Eastern Poland. The criterion for such variation is the structure of the generated GDP and the course of fluctuations in business cycles related to it. The analysis of economy structures in such provinces, as well as application of band-pass filters, used for separating the course of cyclical fluctuations, enabled the evaluation of the degree of structural discrepancies and business cycle discrepancies in five examined provinces. The analysis of cycle morphology in a regional perspective confirmed significant discrepancies in the course of the business cycle fluctuations in comparison to the cycle for Poland in general. The relation between the structure of the generated regional product and its co-convergence with the reference cycle is also visible. Regions characterised by a much higher or much lower share of agriculture in the GDP show different sensitivity to business cycle changes. Furthermore, these regions of Eastern Poland which have industries with a clearly pro-export nature (Warmia and Mazury, Podlasie and Podkarpackie) retain their separate character in the course of the fluctuations of the business cycle, differing from other regions included in the examined area of the country.

Strategic Timing of Investment over the Business Cycle: Machine Replacement in the US Rental Industry

2018 ◽  
Vol 238 (3-4) ◽  
pp. 295-351 ◽  
Author(s):  
John McClelland ◽  
John Rust
Keyword(s):  
Business Cycle ◽  
Programming Model ◽  
Optimal Timing ◽  
Data Set ◽  
Replacement Strategy ◽  
Equipment Replacement ◽  
Optimal Replacement ◽  
The Business Cycle ◽  
The Cost ◽  
Machine Replacement

Abstract We analyze a data set containing rental revenues, maintenance costs, and sale prices of five different types of rental machines to econometrically estimate key relationships needed to implement a dynamic programming model of the optimal timing of replacement of rental equipment owned by a large multi-location firm in the equipment rental industry. The model reveals significant potential to improve rental company profitability by improving the strategic timing of equipment replacement. The gains from the optimal replacement strategy come from exploiting seasonal variation in rental demand and the timing of the business cycle due to their effects on rental revenues and the cost of replacement. For some machines we find the optimal replacement strategy is procyclical, but for others we find that a countercyclical replacement strategy –- where replacements are concentrated in slow periods of the business cycle –- can significantly increase firm profits.

scholarly journals Endogenous Liquidity and the Business Cycle

2015 ◽  
Vol 105 (6) ◽  
pp. 1883-1927 ◽  
Author(s):  
Saki Bigio
Keyword(s):  
Asymmetric Information ◽  
Business Cycle ◽  
Great Recession ◽  
Financial Constraints ◽  
Aggregate Fluctuations ◽  
The Great Recession ◽  
The Business Cycle ◽  
The Cost

I study an economy where asymmetric information about the quality of capital endogenously determines liquidity. Liquid funds are key to relaxing financial constraints on investment and employment. These funds are obtained by selling capital or using it as collateral. Liquidity is determined by balancing the costs of obtaining liquidity under asymmetric information against the benefits of relaxing financial constraints. Aggregate fluctuations follow increases in the dispersion of capital quality, which raise the cost of obtaining liquidity. An estimated version of the model can generate patterns for quantities and credit conditions similar to the Great Recession. (JEL D82, E22, E24, E32, E44, G01)

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