The role of inventories for the propagation of aggregate fluctuations: lessons for Bulgaria (1999–2019)

PurposeIn this study, inventories are introduced as a productive input into a real-business-cycle (RBC) setup augmented with the government.Design/methodology/approachThe model is calibrated to Bulgarian data for the period 1999–2019. The quantitative importance of the presence of inventories is investigated.FindingsThe quantitative effect of inventories is found to be important: decreasing consumption volatility and increasing employment variability. Those results, however, are at the expense of decreasing wage volatility and increasing investment volatility, and generally worsening the contemporaneous correlations of the main variables with output.Originality/valueFluctuations in inventory levels matter for business cycle fluctuations in Bulgaria, which is a novel result. Still, there is a need for more research on the incorporation of inventories into RBC models to better fit the Bulgarian experience.

Macroprudential Policy in a Heterogeneous Environment—An Application of Agent-Based Approach in Systemic Risk Modelling

Assessment of welfare effects of macroprudential policy seems the most important application of the Dynamic Stochastic General Equilibrium (DSGE) framework of macro-modelling. In particular, the DSGE-3D model, with three layers of default (3D), was developed and used by the European Systemic Risk Board and European Central Bank as a reference tool to formally model the financial cycle as well as to analyze effects of macroprudential policies. Despite the extreme importance of incorporating financial constraints in Real Business Cycle (RBC) models, the resulting DSGE-3D construct still embraces the representative agent idea, making serious analyses of diversity of economic entities impossible. In this paper, we present an alternative to DSGE modelling that seriously departs from the assumption of the representativeness of agents. Within an Agent Based Modelling (ABM) framework, we build an environment suitable for performing counterfactual simulations of the impact of macroprudential policy on the economy, financial system and society. We contribute to the existing literature by presenting an ABM model with broad insight into heterogeneity of agents. We show the stabilizing effects of macroprudential policies in the case of economic or financial distress.

INSTABILITY OF SUNSPOT EQUILIBRIA IN REAL BUSINESS CYCLE MODELS UNDER INFINITE HORIZON LEARNING

This paper examines the stability of sunspot equilibria in one-sector RBC models under infinite horizon learning. We present general conditions under which the reduced-form model can possess E-stable sunspot equilibria and apply these conditions to three prominent one-sector RBC models. We find that the rational expectations sunspot equilibria are generally unstable under learning.

Synergistic Integration of Laboratory and Numerical Approaches in Studies of the Biomechanics of Diseased Red Blood Cells

In red blood cell (RBC) disorders, such as sickle cell disease, hereditary spherocytosis, and diabetes, alterations to the size and shape of RBCs due to either mutations of RBC proteins or changes to the extracellular environment, lead to compromised cell deformability, impaired cell stability, and increased propensity to aggregate. Numerous laboratory approaches have been implemented to elucidate the pathogenesis of RBC disorders. Concurrently, computational RBC models have been developed to simulate the dynamics of RBCs under physiological and pathological conditions. In this work, we review recent laboratory and computational studies of disordered RBCs. Distinguished from previous reviews, we emphasize how experimental techniques and computational modeling can be synergically integrated to improve the understanding of the pathophysiology of hematological disorders.

An Enhanced Spring-Particle Model for Red Blood Cell Structural Mechanics: Application to the Stomatocyte–Discocyte–Echinocyte Transformation

Red blood cells (RBCs) are the most abundant cellular element suspended in blood. Together with the usual biconcave-shaped RBCs, i.e., discocytes, unusual-shaped RBCs are also observed under physiological and experimental conditions, e.g., stomatocytes and echinocytes. Stomatocytes and echinocytes are formed from discocytes and in addition can revert back to being discocytes; this shape change is known as the stomatocyte–discocyte–echinocyte (SDE) transformation. To-date, limited research has been conducted on the numerical prediction of the full SDE transformation. Spring-particle RBC (SP-RBC) models are commonly used to numerically predict RBC mechanics and rheology. However, these models are incapable of predicting the full SDE transformation because the typically employed bending model always leads to numerical instability with severely deformed shapes. In this work, an enhanced SP-RBC model is proposed in order to extend the capability of this model type and so that the full SDE transformation can be reproduced. This is achieved through the leveraging of an advanced bending model. Transformed vesicle and RBC shapes are predicted for a range of reduced volume and reduced membrane area difference (MAD), and very good agreement is obtained in the comparison of predicted shapes with experimental observations. Through these predictions, vesicle and SDE transformation phase diagrams are developed and, importantly, in the SDE case, shape boundaries are proposed for the first time relating RBC shape categories to RBC reduced volume and reduced MAD.

ROBERTSON’S INDUSTRIAL FLUCTUATION (1915): AN EARLY REAL BUSINESS CYCLE-LIKE APPROACH

This paper re-examines Dennis Robertson’s ‘real’ business cycle (RBC) theory outlined in his 1915 A Study in Industrial Fluctuation. Even if, for Robertson, cycles find their origin and respond to oscillations in entrepreneurs’ “rational inducement” to invest, in opposition to RBC models in which every outcome is by construction an equilibrium outcome, Robertson discusses in a traditional way the short-run consequences of such exogenous technological shocks. There are no intertemporal equilibrium phenomena in the sense of the RBC approach; cycle theory is organized, for Robertson, around a Marshallian-defined center of gravity (or long-run equilibrium state of rest). For him, the real forces are represented by the gestation period of investment, but also by investment’s durability, its imperfect divisibility, and, allied with these, its intractability. These features of investment lead to excessive outlays upon capital investment, which ultimately depresses their marginal productivity. The inevitable and rational result is a downturn in the capital goods industries and the onset of a cycle.

CAN RBC MODELS EXPLAIN BUSINESS CYCLES IN KOREA?

I examine whether an RBC model can generate a higher volatility of consumption relative to output, a strong negative correlation between output and the trade balance, and a weak countercyclicality of the real interest rate, phenomena that have been observed in the business cycles of emerging economies, including Korea. From an RBC model with recursive utility, I show that it is not the degree of relative risk aversion, but the elasticity of intertemporal substitution (EIS), that governs the movements of the variables of the model in the log linearized environment. The Bayesian estimation results based on Korean data from the period 1987 to 2013 suggest that there are some elements of success in describing the Korean economy based on the simple RBC model both with the EIS larger than one and with an error term for the real interest rate equation. An EIS larger than one improves the performance of the simple RBC model mainly in the direction of raising the volatility of consumption relative to output. Simulation results show that the error term for the real interest rate process mostly reflects the endogenous channel of financial frictions where the domestic real interest rate depends negatively on the expected (transitory) productivity shock.

Some Notes on Historical, Theoretical, and Empirical Background of DSGE Models

In this paper I present the historical, theoretical and empirical background of DSGE models. I show that the fundament of these models lies in optimizing agents framework and argue which impulses fueled the development of DSGE models. I demonstrate the evolution of DSGE models with an accent on the role and effects of the monetary policy, using distinction between RBC models and New Keynesian models. I explain the paradigm shift from the RBC models to the New Keynesian models by pointing out the main pitfalls of the RBC models and showing how adding nominal rigidities to the otherwise standard RBC models enhances empirical properties of these models. I also discuss how nominal rigidities are modeled in New Keynesian DSGE models and what the pros and cons of different approaches are. Finally, I review the most important New Keynesian theories of nominal rigidities and some of the empirical evidence on price and wage rigidities

ON THE EFFECTS OF TECHNOLOGY SHOCKS OVER LABOR INPUT AT BUSINESS-CYCLE FREQUENCIES: AN EMPIRICAL NOTE

In the last years, there has been a heated debate over the empirical adequacy of Real-Business-Cycle (RBC) models (GALÍ, 1999; CHRISTIANO; EICHENBAUM; VIGFUSSON, 2003; FRANCIS; RAMEY, 2005). In this empirical note, we check the robustness of some of the main results obtained in this strand of the literature. Our contribution is twofold: first, we provide robust results by using different data sources; second, we show that the results related to labor input’s dynamic pattern over business-cycle horizons are sensitive to the way labor input is modelled. The results obtained favor specifications where labor input is modelled as growth rates. These results may help distinguishing the most desirable empirical specifications to be employed over the debate in the future.