Spurious Investment Prices
Unpublished manuscript :: With McKay :: January 2007
+ abstract We introduce a vintage capital model in which workers are matched with machines of increasing quality. Quality improvements of the machines are the sole source of technological change in this economy. However, the matching of workers with machines implies that there is no well defiĀ
ned capital aggregate in this economy. Hence, investment price indices are a spurious measure of price changes in capital goods. We show that the use of such spurious measures of investment price changes can lead to misleading conclusions about (changes in) the trend properties of the economy.
The CHAT Dataset
NBER WP 15319 :: With Comin :: September 2009
+ abstract This note accompanies the Cross-country Historical Adoption of Technology (CHAT) dataset. CHAT is an unbalanced panel dataset with information on the adoption of over 100 technologies in more than 150 countries since 1800. The data is available for download at: http://www.nber.org/data/chat We discuss the main aim of CHAT, its scope and limitations, as well as several ways in which we have used the data so far and ways to potentially use the data for other research.
+ supplement
Implementing Technology
NBER WP 12886 :: With Comin :: February 2007
+ abstract We introduce a tractable model of endogenous growth in which the returns to innovation are determined by the technology adoption decisions of the users of new technologies. Technology adoption involves an implementation investment that determines the initial productivity of a new technology. After implementation, learning increases the productivity of a technology to its full potential. In this framework, implementation enhances growth, while growth increases obsolescence and reduces implementation. In a calibrated version of our model, the optimal policy involves a subsidy to capital and to implementation and a R&D tax. This policy would lead to a welfare improvement of 7.6 percent. Out of steady-state analysis yields that the transitional dynamics of the detrended variables after a shock to capital are very similar to the dynamics of the neoclassical growth model, but transitory shocks have permanent effects on the level of productivity.
Five Facts You Need to Know about Technology Diffusion
NBER WP 11928 :: With Comin and Rovito :: January 2006
Household Inflation Experiences in the U.S.: A Comprehensive Approach
2009-19 :: With Mayer, Stennis, and Topa :: September 2009
+ abstract We present new measures of household-specific inflation experiences based on comprehensive information from the Consumer Expenditure Survey (CEX). We match households in the Interview and the Diary Surveys from the CEX to produce both complete and detailed pictures of household expenditures. The resulting household inflation measures are based on a more accurate and detailed description of household expenditures than those previously available. We find that our household-based inflation measures track aggregate measures such as the CPI-U quite well and that the addition of Diary Survey data induces small but significant differences in the measurement of household inflation. The distribution of inflation experiences across households exhibits a large amount of dispersion over the entire sample period. In addition, we uncover a significantly negative relationship between mean inflation and inflation inequality across households.
Unemployment Dynamics in the OECD
2009-04 :: With Elsby and Sahin :: February 2009
+ abstract We provide a set of comparable estimates for the rates of inflow to and outflow from unemployment for 14 OECD economies using publicly available data. We then devise a method to decompose changes in unemployment into contributions accounted for by changes in inflow and outflow rates for cases where unemployment deviates from its flow steady state, as it does in many countries. Our decomposition reveals that fluctuations in both inflow and outflow rates contribute substantially to unemployment variation within countries. For Anglo-Saxon economies we find approximately a 20:80 inflow/outflow split to unemployment variation, while for Continental European and Nordic countries, we observe much closer to a 50:50 split. Using the estimated flow rates we compute gross worker flows into and out of unemployment. In all economies we observe that increases in inflows lead increases in unemployment, whereas outflows lag a ramp up in unemployment.
+ supplement
CONDI: A Cost-Of-Nominal-Distortions Index
2009-03 :: With Eusepi and Tambalotti :: February 2009
+ abstract We construct a price index with weights on the prices of different PCE goods chosen to minimize the welfare costs of nominal distortions: a cost-of-nominal-distortions index (CONDI). We compute these weights in a multisector New Keynesian model with time-dependent price setting, calibrated using U.S. data on the dispersion of price stickiness and labor shares across sectors. We find that the CONDI weights mostly depend on price stickiness and are less affected by the dispersion in labor shares. Moreover, CONDI stabilization leads to negligible welfare losses compared to the optimal policy and is better approximated by core rather than headline inflation targeting. An even better approximation of the CONDI can be obtained with an adjusted core index that covers total expenditures excluding autos, clothing, energy, and food at home, but that includes food away from home.
Firms and Flexibility
FRB New York Staff Report 311 :: With Sahin :: December 2007
+ abstract We study the effects of labor market rigidities and frictions on firm-size distributions and dynamics. We introduce a model of endogenous entrepreneurship, labor market frictions, and firm-size dynamics with many types of rigidities, such as hiring and firing costs, search frictions with vacancy costs, unemployment benefits, firm entry costs, and a tax wedge between wages and labor costs. We use the model to analyze how each rigidity explains firm-size differentials between the United States and France. We find that when we include all rigidities and frictions except hiring costs and search frictions, the model accounts for much of the firm-size differentials between the United States and France. The addition of search frictions with vacancy costs generates implausibly large differentials in firm-size distributions.
On Both Sides of the Quality Bias in Price Indexes
FRB New York Staff Report 157 :: December 2002
+ abstract It is often argued that price indexes do not fully capture the quality improvements of new goods in the market. Because of this shortcoming, price indexes are perceived to overestimate the actual price increases that occur. In this paper, I argue that the quality bias in price indexes is just as likely to be upward as it is to be downward. I show how both the sign and the magnitude of the quality bias in the most commonly applied price index methods are determined by the cross-sectional variation of prices per quality unit across the product models sold in the market.
I do so by simulating a model of a market that includes monopolistically competing suppliers of the various product models and a representative consumer with CES (constant elasticity of substitution) preferences. I illustrate the bias in the commonly applied price index methods by comparing their estimates of inflation with the theoretical inflation rate implied by the data-generating process.
An Exploration of Technology Diffusion
Forthcoming in American Economic Review :: With Comin
+ abstract We develop and estimate a model where technology diffusion depends on the level of productivity embodied in capital and where this is, in turn, determined by two key mechanisms: the rate at which the quality embodied in new technology vintages increases (embodiment) and the gains from varieties induced by the introduction of new vintages (variety). In our model, these two effects are related to technology adoption decisions taken at two different levels. The capital goods suppliers' decisions of when to adopt a given vintage determines the embodiment margin. The workers' decisions of which of the adopted vintages to use in production determines the variety margin. Estimation of our model for a sample of 19 technologies, 21 countries, and the period 1870-1998 reveals that embodied productivity growth is large for many of the technologies in our sample. On average, increases in the variety of vintages available is a more important source of growth than the increases in the embodiment margin. There is, however, substantial heterogeneity across technologies. Where adoption lags matter, they are largely determined by a lack of educational attainment and lack of trade openness.
+ supplement Job-Finding and Separation Rates in the OECD
Economics Letters 104(3), September 2009, 107-111 :: With Sahin
+ abstract In this paper, we provide a set of comparable estimates of aggregate monthly job-finding and separation rates for 27 OECD (Organisation for Economic Co-operation and Development) countries; these estimates can be used for the cross-country calibration of search models of unemployment. We find that cross-country differences in job-finding rates are much greater than those in separation rates. Our results are quantitatively and qualitatively in line with those published in previous studies; however, they cover a much larger set of countries. We combine our estimates with evidence on unemployment and labor force participation rates to impute steady-state worker flows for 23 of the countries in our sample.
A New Approach to Measuring Technology with an Application to the Shape of the Diffusion Curves
Journal of Technology Transfer 33, 2008, 187-207 :: With Comin and Rovito
+ abstract This paper documents the sources and measures of the cross-country historical adoption technology (CHAT) data set that covers the diffusion of about 115 technologies in over 150 countries over the last 200 years. We use this comprehensive data set to explore the shape of the diffusion curves. Our main finding is that, once the intensive margin is measured, technologies do not diffuse in a logistic way.
Lobbies and Technology Diffusion
Review of Economics and Statistics 91, 2008, 229-244 :: With Comin
+ abstract This paper explores whether lobbies slow down technology diffusion. To answer this question, we exploit the differential effect of various institutional attributes that should affect the costs of erecting barriers when the new technology has a technologically close predecessor but not otherwise. We implement this test in a unique dataset compiled by us that covers the diffusion of 20 technologies for 23 countries over the past two centuries. We find that each of the relevant institutional variables that affect the costs of erecting barriers has a significantly larger effect on the diffusion of technologies with a competing predecessor technology than when no such a technology exists. These effects are quantitatively important. Thus, we conclude that lobbies are an important barrier to technology adoption and to development.
Technology Usage Lags
Journal of Economic Growth 13, 2008, 237-256 :: With Comin and Rovito
+ abstract We present evidence on the differences in the intensity with which ten major technologies are used in 185 countries across the world. We do so by calculating how many years ago these technologies were used in the U.S. at the same intensity as they are used in the countries in our sample. We denote these time lags as technology usage lags and compare them with lags in real GDP per capita. We find that (i) technology usage lags are large, often comparable to lags in real GDP per capita, (ii) usage lags are highly correlated with lags in per-capita income, and (iii) usage lags are highly correlated across technologies. The productivity differentials between the state of the art technologies that we consider and the ones they replace combined with the usage lags that we document, lead us to infer that technology usage disparities might account for a large part of cross-country TFP differentials.
Technology Diffusion within Central Banking: The Case of Real-Time Gross Settlement
International Journal of Central Banking 3(3), September 2007, 147-181 :: With Bech
+ abstract We examine the diffusion of real-time gross settlement (RTGS) technology across all 174 central banks. RTGS reduces settlement risk and facilitates financial innovation in the settlement of foreign exchange trades. In 1985, only three central banks had implemented RTGS systems, and by year-end 2005, that number had increased to ninety. We find that the RTGS diffusion process is consistent with the standard S-curve prediction. Real GDP per capita, the relative price of capital, and trade patterns explain a significant part of the cross-country variation in RTGS adoption. These determinants are remarkably similar to those that seem to drive the cross-country adoption patterns of other technologies.
Menu Costs at Work: Restaurant Prices and the Introduction of the Euro
Quarterly Journal of Economics 121(3), August 2006, 1,103-1,131 :: With Ravenna and Tambalotti
+ abstract Restaurant prices in the euro area saw an unprecedented increase after the introduction of the euro. We use an extension of commonly used models of sticky prices and argue that the increase in restaurant prices can be explained by menu costs. The extension we use involves the state-dependent decision of firms about when to adopt the euro. Two main mechanisms drive the result. First, our model concentrates otherwise staggered price increases around the introduction of the euro. Second, before the adoption of the euro, prices do not reflect marginal cost increases expected to occur after the changeover. This horizon effect disappears as soon as the new currency is adopted, contributing to a jump in prices at that time. For realistic parameter values, the model generates a blip in inflation of the same magnitude observed in the data.
+ supplement Inflation Inequality in the United States
Review of Income and Wealth 51, August 2005, 581-606 :: With Lagakos
+ abstract Different spending patterns across households and differences in price increases across goods and services lead to unequal levels of inflation faced by different households. In this paper we measure the
degree of inequality in inflation across U.S. households for the period 1987-2001. The broad picture that emerges from our results is that over our whole sample period there are substantial differences in
the inflation experiences across U.S. households. We find that the cost of living increases were generally higher for the elderly, in large part because of their health care expenditures, and that the cost of
living of poor households is most sensitive to the, historically large, fluctuations in gasoline prices. Still, when looking at the whole population, we find that individual households that are confronted with
high inflation in one year do not generally face high inflation in the subsequent year as well.
Generalizations of the KPSS-test for Stationarity
Statistica Neerlandica 58(4), December 2004, 483-502 :: With Franses and Ooms
+ abstract We propose automatic generalizations of the KPSS-test for the null hypothesis of stationarity of a univariate time series. We can use these tests for the null hypotheses of trend stationarity, level stationarity and zero mean stationarity. We introduce the asymptotic null distributions and we determine consistency against relevant nonstationary alternatives. We compare the properties of the tests with those of other proposed tests for stationarity. Monte Carlo simulations support the relevance of the tests when an autoregressive process with large positive autocorrelations is likely under the null hypothesis.
+ supplement Cross-Country Technology Adoption: Making the Theories Face the Facts
Journal of Monetary Economics 51(1), January 2004, 39-83 :: With Comin
+ abstract We examine the diffusion of more than twenty technologies across twenty-three of the world's leading industrial economies. Our evidence covers major technology classes such as textile production, steel manufacture, communications, information technology, transportation, and electricity for the period 1788-2001. We document the common patterns observed in the diffusion of this broad range of technologies.
Our results suggest a pattern of trickle-down diffusion that is remarkably robust across technologies. Most of the technologies that we consider originate in advanced economies and are adopted there first. Subsequently, they trickle down to countries that lag economically. Our panel data analysis indicates that the most important determinants of the speed at which a country adopts technologies are the country's human capital endowment, type of government, degree of openness to trade, and adoption of predecessor technologies. We also find that the overall rate of diffusion has increased markedly since World War II because of the convergence in these variables across countries.
+ supplement Another View of Investment: 40 Years Later
In Knowledge, Information, and Expectations in Modern Macroeconomics: In Honor of Edmund S. Phelps, ed. by P. Aghion, R. Frydman, J. Stiglitz, and M. Woodford :: Princeton, NJ: Princeton University Press, 2003 :: With Benhabib
+ abstract This chapter revisits the embodiment hypothesis in economic growth and, in particular, discusses Phelps's contributions to the literature on this hypothesis in the context of a DSGE vintage capital model.
The Information Technology Revolution and the Stock Market: Evidence
American Economic Review 91(5), December 2001, 1,203-1,220 :: With Jovanovic
+ abstract Why did the stock market decline so much in the early 1970s and remain low until the early 1980s? We argue that it was because information technology arrived on the scene and the stock-market incumbents of the day were not ready to implement it. Instead, new firms would bring in the new technology after the mid-1980s. Investors foresaw this in the early 1970s and stock prices fell right away. In our model, new capital destroys old capital, but with a lag. The prospect of this causes the value of the old capital to fall right away.
Are Living Standards Converging?
Structural Change and Economic Dynamics 12, August 2001, 171-200 :: With Franses
+ abstract We re-address the convergence issue that is so prominent in the economic growth literature and present evidence as to what extent there is convergence across measures of living standards, alternative to per capita income. The four additional indicators that we use are daily calorie supply, daily protein supply, infant mortality rates, and life expectancy at birth.
+ supplement Did Trade Liberalization Induce a Structural Break in Imports of Manufactures in Turkey?
In Modeling of Economic Transition Phenomena, ed. by R. Kulikowski, Z. Nahorski, and J.W. Owsinski :: Warsaw, University of Information Technology and Management Press, 2001 :: With de Boer, Bayar, Martinez, and Pamukcu
+ abstract The year 1980 was a turning point in the political economy of Turkey. For many decades, Turkish governments used quotas and tariffs as instruments of protection of domestic producers from foreign competition. But since 1980, a fundamental liberalization program has been implemented. This paper evaluates, with the framework of an Almost Ideal Deman System, the impact of the new trade policies on manufacturing imports.
Asymptotically Perfect and Relative Convergence of Productivity
Journal of Applied Econometrics 15-1, 2000, 59-81 :: With Franses
+ abstract In this paper we examine the extent to which countries are converging in per capita productivity levels. We propose to use cluster analysis in order to allow for the endogenous selection of converging countries. We formally define convergence in a time series analytical context, derive the necessary and sufficient conditions for convergence, and introduce a cluster analytical procedure that distinguishes several convergence clubs by testing for these conditions using a multivariate test for stationarity. We find a large number of relatively small convergence clubs, which suggests that convergence might not be such a widespread phenomenon.
+ supplement Increasing Seasonal Variation: Unit Roots versus Shifts in Mean and Trend
Applied Stochastic Models and Data Analysis 14, 1997, 255-261 :: With Franses
+ abstract In this paper we consider model selection for time series with increasing (or decreasing) seasonal variation, where this variation can be described by (seasonal) unit root models with significant deterministic components or by models with less unit roots but with shifts in seasonal means and trends. As a model selection device we use tests based on the Osborn et al. regression, which we modify to allow for shifts in mean and trend. An application to disposable income in Japan yields that apparent unit roots are not robust to structural shifts induced by the Oil Crisis in the fourth quarter of 1973.
+ supplement Critical Values for Unit Root Tests in Seasonal Time Series
Journal of Applied Statistics 24, 1997, 25-47 :: With Franses
+ abstract In this paper, we present tables with critical values for a variety of tests for seasonal and non-seasonal units roots in seasonal time series. We consider (extensions of) the Hylleberg et al. and Osborn et al. test procedures. These extensions concern time series with increasing seasonal variation and time series with structural breaks in the seasonal means. For each case, we give the appropriate auxiliary test regression, the test statistics, and the corresponding critical values for a selected set of sample sizes. We also illustrate the practical use of the auxiliary regressions for quarterly new car sales in the Netherlands.
+ supplement Structural Models of Factor Demands and Technological Change: An Empirical Assessment of Dynamic Adjustment Specifications for Sectors of the Dutch Economy
Economic Systems Research 8(4), 1996, 341-360 :: With Lesuis, de Boer, and Harkema
+ abstract We combine a translog cost functional form with an adjustment process according to the error correction mechanism to explain the simultaneous determination of factor demands and technological change. To save degrees of freedom in the estimation procedure, we also consider the imposition of restrictions on the matrices of lag parameters and/or the covariance matrix of the disturbances. Using a model selection strategy based on a combination of economic-theoretical considerations and a formal model selection criterion, a model is selected for each of 17 sectors of the Dutch economy.
Do Alternative Measures of GDP Affect its Interpretation?
Forthcoming in Current Issues in Economics and Finance :: With Steindel
Unemployment in the Current Crisis
VOXEU.org, February 2009 :: With Elsby and Sahin
+ abstract Unemployment is rising--job losses are up 30% in the US and 50% in the UK since 2007. How bad will it get? This column uses data on unemployment inflows and duration to predict labor market trends. A conservative estimate says that unemployment will reach at least 5% in Britain and 13.5% in Spain.
Commodity Price Movements and PCE Inflation
Current Issues in Economics and Finance 14(8), November 2008, 1-7
+ abstract With the recent run-up in crop and energy prices--and the subsequent sharp reversal of these trends--the effects of commodity price movements on U.S. inflation merit renewed attention. A study of the contributions of grain and oil prices to the PCE index of inflation suggests that the effects are more modest than one might expect. Moreover, commodity price increases affect relatively few goods prices: Higher crop prices translate narrowly into price hikes for food, tobacco, and gardening supplies; rising oil prices mainly influence fuel, energy, and transportation prices.
What Has Homeland Security Cost? An Assessment: 2001-2005
Current Issues in Economics and Finance 13(2), February 2007 :: With Sager
+ abstract While homeland security is widely seen as an important national objective, the costs of this effort are not well understood. An analysis of public and private expenditures on homeland security shows that overall spending rose by $44 billion between 2001 and 2005--a clear increase but one that represents a gain of only 1/4 of 1 percent as a share of U.S. GDP. Private sector expenditures increased very modestly in dollar terms and remained unchanged as a fraction of the sector's GDP.
U.S. Jobs Gained and Lost through Trade: A Net Measure
Current Issues in Economics and Finance 11(8), August 2005 :: With Groshen and McConnell
+ abstract Recent concerns about the transfer of U.S. services jobs to overseas workers have deepened long-standing fears about the effects of trade on the domestic labor market. But a balanced view of the impact of trade requires that we consider jobs created through the production of U.S. exports as well as jobs lost to imports. A new measure of the jobs gained and lost in international trade flows suggests that the net number of U.S. jobs lost is relatively small--2.4 percent of total U.S. employment as of 2003.
Taking the Pulse of the Tech Sector: A Coincident Index of High-Tech Activity
Current Issues in Economics and Finance 9(10), October 2003 :: With Stiroh and Antoniades
+ abstract A new index of the U.S. high-tech sector--drawing upon a range of technology-specific data--has the potential to offer a more timely assessment of economic activity than has been possible to date. The index suggests that while the tech sector has rebounded from its poor performance in the 2000-01 "tech bust," it has not resumed its rapid expansion of the late 1990s.
+ supplement
Social Security and the Consumer Price Index for the Elderly
Current Issues in Economics and Finance 9(5), May 2003 :: With Lagakos
+ abstract Some argue that social security benefits should be adjusted using a price index that reflects the spending habits of the elderly rather than those of workers. This study suggests that if such an index were adopted today, over the next forty years benefit levels would increase and the social security trust fund could become insolvent up to five years sooner than projected.
What Will Homeland Security Cost?
Economic Policy Review 8(2), November 2002, 21-33
+ abstract The increased spending on security by the public and private sectors in response to September 11 could have important effects on the U.S. economy. Sizable government expenditures, for example, could trigger a rise in the cost of capital and wages and a reduction in investment and employment in the private sector, while large-scale spending by businesses could hamper firm productivity. This article attempts to quantify the likely effects of homeland security expenditures on the economy. It suggests that the total amount of public- and private-sector spending will be relatively small: the annual direct costs of the homeland security efforts are estimated to be $72 billion, or 0.66 percent of GDP in 2003. In the private sector, homeland security expenses are estimated to lower labor productivity levels by at most 1.12 percent. Therefore, the reallocation of resources associated with homeland security is unlikely to have any large and long-lasting effects on the U.S. economy.