New Developments in Macroeconomics, UCL, Wednesday 9 November 2016, London

On Wednesday, I am participating to  the workshop “New Developments in Macroeconomics” at University College London. I will present my joint work with Paul Beaudry and Dana Galizia,: “Putting the Cycle Back into Business Cycle Analysis“.

The program the workshop is:

09:00-09:15	Registration, Coffee and Welcome
09:15-10:15	“Putting the Cycle Back into Business Cycle Analysis” Franck Portier (TSE) with Paul Beaudry and Dana Galizia
10:15-10:30	Coffee Break
10:30-11:30	“Turnover Liquidity and the Transmission of Monetary Policy” Shengxing Zhang(LSE) with Ricardo Lagos
11:30-12:30	“Taxing Capital Income to Consolidate under Incomplete Markets” Ralph Luetticke (UCL) with Christian Bayer
12:30-14:00	Lunch
14:00-15:00	“The Price of Macroeconomic Uncertainty when Beliefs are Tenuous” Lars Hansen (University of Chicago)
15:00-16:00	“Firm Default Cycles” Wei Cui (UCL) with Leo Kaas
16:00-16:30	Coffee Break
16:30-17:30	“Consumption and House Prices in the Great Recession” Kurt Mitman (IIES Stockholm) with Greg Kaplan and Gianluca Violante

New version of “Reconciling Hayek’s and Keynes’ Views of Recessions”, to be published in The Review of Economic Studies

I have posted on my “current work” page a new version of the paper with Paul Beaudry  and Dana Galizia “Reconciling Hayek’s and Keynes’ Views of Recessions“. As written in the abstract,

Recessions often happen after periods of rapid accumulation of houses, consumer durables and business capital. This observation has led some economists, most notably Friedrich Hayek, to conclude that recessions often reflect periods of needed liquidation resulting from past over-investment. According to the main proponents of this view, government spending or any other form of aggregate demand policy  should not be used to mitigate such a liquidation process, as doing so would simply result in a needed adjustment being postponed. In contrast, ever since the work of Keynes, many economists have viewed recessions as periods of deficient demand that should be countered by activist fiscal policy. In this paper we reexamine the liquidation perspective of recessions in a setup where prices are flexible but where not all trades are coordinated by centralized markets. The model illustrates why liquidations likely cause recessions characterized by deficient aggregate demand and accordingly suggests that Keynes’ and Hayek’s views of recessions may be closely linked. In our framework, interventions aimed at stimulating aggregate demand face a trade-off whereby current stimulus postpones the adjustment process and therefore prolongs the recessions, but where some stimulative policies may nevertheless remain desirable.

Key Words are Business Cycle, Unemployment, Liquidations.

JEL Classification code are E32.

Note : The paper is  forthcoming in The Review of Economic Studies

New paper : Putting the Cycle Back into Business Cycle Analysis

I have posted on my “current work” page a new paper with Paul Beaudry  and Dana Galizia “Putting the Cycle Back into Business Cycle Analysis“. As written in the abstract,

This paper begins by re-examining the spectral properties of several cyclically sensitive variables such as hours worked, unemployment and capacity utilization. For each of these series, we document the presence of an important peak in the spectral density at a periodicity of approximately 36-40 quarters. We take this pattern as suggestive of intriguing but little-studied cyclical phenomena at the long end of the business cycle, and we ask how best to explain it. In particular, we explore whether such patterns may reflect slow-moving limit cycle forces, wherein booms sow the seeds of the subsequent busts. To this end, we present a general class of models, featuring local complementarities, that can give rise to unique-equilibrium behavior characterized by stochastic limit cycles. We then use the framework to extend a New Keynesian-type model in a manner aimed at capturing the notion of an accumulation-liquidation cycle. We estimate the model by indirect inference and find that the cyclical properties identified in the data can be well explained by stochastic limit cycles forces, where the exogenous disturbances to the system are very short lived. This contrasts with results from most other macroeconomic models, which typically require very persistent shocks in order to explain macroeconomic fluctuations.

Key Words are Business Cycle, Limit Cycle.

JEL Classification code are E3, E32, E24.

Note : The paper is  a heavily revised version of a paper previously circulated under the heading “Reviving the Limit Cycle View of Macroeconomic Fluctuations.”

An online appendix can also be found on my “current work” page