Short Run Fluctuations - HKUST HomePage Search短期波动-香港的网页搜索.ppt

Short Run Fluctuations Chapter 5 Neoclassical Dichotomy Theory of macroeconomy where output is given by labor, capital, and TFP. TFP is given by R D (and possibly allocative efficiency) Capital investment is given by real interest rates which is given by savings which is in turn given by demographic factors and the dynamics of future income. Labor is given by labor-leisure trade-off, real labor productivity and turnover in job market. No relationship between output between money, prices or inflation. Long run output, Y Business Cycles Pattern of production. GDP is growing over time. GDP growth is not smooth. Sometimes GDP is above and sometimes below the long term growth path. GDP has seasonal pattern with production consistently concentrated in 4th quarter. Christmas given as an explanation. These movements are so large they hide less predictable short-term movements in the economy. Solution: Seasonal adjustment. Smooth out the average changes associated with the season. Output Gap Study of long-term growth focuses on explaining the secular upward movement in GDP. Business cycles examine fluctuations around that trend. Object of interest is the output gap, the % deviation of GDP from its long-term trend path. Measuring Trend Simplest way to measure trend is to assume that it grows at a constant rate over time. Ln(TRENDt) = α0 + α1?t → ΔLn(TRENDt)= Ln(TRENDt)- Ln(TRENDt-1) = α1 In theory, corresponds with BGP of neoclassical growth model where α1 is the growth rate of technology. Estimating Trend Construct Data LHS: The natural log of GDP RHS: Index of Time Source: FRED Database Note: USA Annual Data used here for convenience. Can easily be applied to quarterly data. Estimate Regression Model Estimate Regression: ln(Yt) = α0 + α1?t +εt Regression coefficient is α1 =.03068 Output Gap The output gap is the % deviation from trend ln(Yt)-ln(TRENDt) which corresponds with εt. Use the fitted residual as a measure of the output gap. Deviations from Trend E