Current Work

Duration Dependence in US Expansions: A re-examination of the evidence

with Paul Beaudry, 2019

published in Economics Letters Volume 183, October 2019, 

Pre-publication version  (also CEPR working paper 13626)


It is commonly accepted that economic expansions do not exhibit 
duration dependence, that is, the probability of an expansion 
terminating in the near future is thought to be independent of the 
length of the expansion. Our main focus is on determining the 
probability of the US economy entering a recession in the following 
year (or following two years) conditional on the expansion having 
lasted q quarters. When looking at the probability of entering a 
recession within a year (or 2 years), we find considerable evidence 
of economically significant duration dependence, especially when 
adopting a non-parametric approach. For example, for an expansion 
that has lasted only 5 quarters, the probability of entering a 
recession in the next year is around 10%, while this increases to 
30-40% if the expansion has lasted over 35 quarters. Similarly, if 
looking at a two years window, we find the probability of entering a 
recession in the next two years raises from 25-30% to around 50-80% 
as the expansion extends from 5 quarters to 32 quarters. This 
pattern suggests that certain types of macroeconomic vulnerabilities 
may be accumulating as the expansion ages causing the arrival of a 
recession to become more likely. Our non-parametric estimates 
suggest that this later pattern is especially important once a 
recession has lasted more than 6 years.

Real Keynesian Models and Sticky Prices

with Paul Beaudry, 2018

Current version (also CEPR and NBER working paper)


In this paper we present a generalized sticky price model  which 
allows, depending on the parameterization, for demand shocks to 
maintain strong expansionary effects even in the presence of 
perfectly flexible prices. The model is constructed to incorporate 
the standard three-equation New Keynesian model as a special case. 
We refer to the parameterizations where demand shocks have 
expansionary effects regardless of the degree of price stickiness as 
Real Keynesian parameterizations. We use the model to show how the 
effects of monetary policy-- for the same degree of price 
stickiness-- differ depending whether the model parameters are 
within the Real Keynesian subset or not. In particular, we show that 
in the Real Keynesian subset, the effect of a monetary policy that 
tries to counter demand shocks creates the opposite tradeoff between 
inflation and output variability than under more traditional 
parameterizations. Moreover, we show that under the Real Keynesian 
parameterization neo-Fisherian effects emerge even though the 
equilibrium remains unique. We then estimate our extended sticky 
price model on U.S. data to see whether estimated parameters tend to 
fall within the Real Keynesian subset or whether they are more in 
line with the parameterization generally assumed in the New 
Keynesian literature. In passage, we use the model to justify a new 
SVAR procedure that offers a simple presentation of the data 
features which help identify the key parameters of the model. The 
main finding from our multiple estimations, and many robustness 
checks is that the data point to model parameters that fall within 
the Real Keynesian subset as opposed to a New Keynesian subset. We 
discuss both (i) how a Real Keynesian parametrization offers an 
explanation to puzzles associated with joint behavior of inflation 
and employment during the zero lower bound period and during the 
Great Moderation period, (ii) how it potentially changes the 
challenge faced by monetary policy if authorities want to achieve 
price stability and favor employment stability.

When is nonfundamentalness in SVARs a real problem?

with Paul Beaudry, Patrick Fève and Alain Guay, 2019

Last version


In SVARs, identification of structural shocks can be subject to 
nonfundamentalness, as the econometrician may have an information 
set smaller than the economic agents' one. How serious is that 
problem from a quantitative point of view? In this paper we propose 
a simple diagnostic for the quantitative importance of 
nonfundamentalness in structural VARs. The diagnostic is of interest 
as nonfundamentalness is not an either/or question, and its 
quantitative implications can be more or less severe. As an 
illustration, we apply our diagnostic to the identification of TFP 
news shocks and we find that nonfundamentalness is of little 
quantitatively importance in that context.

Putting the Cycle Back into Business Cycle Analysis

with Paul Beaudry and Dana Galizia, 2016

Latest version (March 2019), nber working paper


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.

Is the Macroeconomy Locally Unstable and Why Should We Care?

with Paul Beaudry and Dana Galizia, 2016

Published in NBER Macroeconomics Annual, 2016

First preliminary version, prepared for the 2016 NBER Macroeconomic Annual


In most modern macroeconomic models, the steady state (or balanced 
growth path)  of the system is a local attractor, in the sense that, 
in the absence of shocks, the economy would converge to the steady 
state.  In this  paper, we examine whether the time series behavior 
of macroeconomic aggregates (especially labor market aggregates) is 
in fact supportive of this local-stability view of macroeconomic 
dynamics, or if it instead favors an alternative interpretation in 
which the macroeconomy may be better characterized as being locally 
unstable, with nonlinear deterministic forces capable of producing 
endogenous cyclical behavior. To do this, we extend a standard AR 
representation of the data to allow for smooth nonlinearities.  Our 
main finding is that, even using a procedure that may have low power 
to detect local instability, the data provide intriguing support for 
the view that the macroeconomy may be locally unstable and involve 
limit-cycle forces. An interesting finding is that the degree of 
nonlinearity we detect in the data is small, but nevertheless enough 
to alter the description of macroeconomic behavior. We complete the 
paper with a  discussion of  the extent to which these two different 
views  about the inherent dynamics of  the macroeconomy may matter 
for policy.

Reviving the Limit Cycle View of Macroeconomic Fluctuations

with Paul Beaudry and Dana Galizia, 2015

Revised as “Putting the Cycle Back into Business Cycle Analysis”

latest version (also CEPR DP 10645 and NBER WP 21241)


There is a long tradition in macroeconomics suggesting that market 
imperfections may explain why economies repeatedly go through 
periods of booms and busts, with booms sowing the seeds of the 
subsequent busts. This idea can be captured mathematically as a 
limit cycle. For several reasons, limit cycles play almost no role 
in current mainstream business cycle theory. In this paper we 
present both a general structure and a particular model with the aim 
of giving new life to this mostly dismissed view of fluctuations. We 
begin by showing why and when models with strategic 
complementarities---which are quite common in macroeconomics---give 
rise to unique equilibrium dynamics characterized by a limit cycle. 
We then develop and estimate a fully-specified dynamic general 
equilibrium model that embeds a demand complementarity to see 
whether the data favors a configuration supportive of a limit cycle. 
Booms and busts arise endogenously in our setting because agents 
want to concentrate their purchases of goods at times when purchases 
by others are high, since in such situations unemployment is low and 
therefore taking on debt is perceived as being less risky. A key 
feature of our approach is that we allow limit-cycle forces to 
compete with exogenous disturbances in explaining the data.
Our estimation results indicate that US business cycle fluctuations 
in employment and output can be well explained by endogenous demand-
driven cycles buffeted by technological disturbances that render 
those fluctuations irregular.

On The Quantitative Importance of Non-fundamentalness for News Shocks

with Paul Beaudry, 2014

revised as “When is nonfundamentalness in SVARs a real problem?”

latest version


It has been rightly suggested (see e.g. Forni and Gambetti [2014] 
and Forni, Gambetti, and Sala [2014]) that the identification of 
news shocks can be subject to non- fundamentalness. In this note we 
first illustrate why non-fundamentalness is not an either/or 
question, but is a quantitative issue which can be more or less 
severe. Second, we use the approach suggested by Forni, Gambetti, 
and Sala [2014] to re-examine whether non-fundamentalness is likely 
an important problem for the identification of news shocks. Using 
our preferred strategy for identifying news shocks, we find that 
non-fundamentalness is quantitatively unimportant and that news 
shocks continue to generate significant business cycle type 
fluctuations when adjust the estimating procedure to take into 
account the potential non-fundamentalness issue.

Technological Diffusion News,

A comment on “Whither News Shocks?” by Barsky, Basu & Lee


Published in the NBER Macroeconomics Annual, 2015

latest version


Barsky, Basu, and Lee [2014] are proposing to identify a 
technological news shock as the innovation in the expectation of TFP 
at a fixed horizon in the future that does not affect TFP on impact. 
In response to this shock, consumption typically rises following 
good news, but investment, consumer durables purchases and hours 
worked typically fall on impact. Noticing that this shock indeed 
moves TFP after one period, I propose ways to identify a 
technological diffusion news. By diffusion news, I mean that TFP is 
not affected in the short to medium run but permanently increases. 
In response to such a shock, the economy does display an aggregate 
boom with typical business cycles co-movements.

Reexamining the Cyclical Behavior of the Relative Price of Investment

with Paul Beaudry and Alban Moura, 2014

Published in Economics Letters, 2015

latest version


We document the cyclical behavior of several measures of the 
relative price of investment goods for the U.S. economy over the 
last fifty years. Our main result is that there is no robust 
evidence that this relative price is countercyclical in the data. 
Furthermore, for the recent (post-Volcker) period, the relative 
price of investment appears predominantly procyclical. When looking 
at more disaggregated series, most measures are  procyclical, a few 
acyclical, and only the price of equipment is countercyclical for 
some periods and measures. The procyclical behavior of the relative 
price of aggregate investment is also found for the six other 
countries of the G7.

Reconciling Hayek’s and Keynes views of recessions

with Paul Beaudry and Dana Galizia, 2014

Published in The Review of Economic Studies, 2018

latest version (deeply revised, September 2016)nber working papercepr working paper


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 mainly reflect periods of needed liquidation resulting 
from past over-investment. According to the main proponents of this 
view, government spending 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. We show why and how liquidations 
can produce periods where the economy functions particularly 
inefficiently, with many socially desirable trades between 
individuals remaining unexploited when the economy inherits too many 
capital goods. In this sense, our model illustrates how liquidations 
can cause recessions characterized by deficient aggregate demand and 
accordingly suggests that Keynes' and Hayek's views of recessions 
may be much more closely linked than previously recognized. In our 
framework, interventions aimed at stimulating aggregate demand face 
the trade-off emphasized by Hayek whereby current stimulus mainly 
postpones the adjustment process and therefore prolongs the 
recessions. However, when examining this trade-off, we find that 
some stimulative policies may nevertheless remain desirable even if 
they postpone a recovery.

News Driven Business Cycles: Insights and Challenges

with Paul Beaudry, 2013

Published in the Journal of Economic Literature, 2014

latest versionnber working papercepr working paper


There is a widespread belief that changes in expectations may be an 
important independent driver of economic fluctuations. The news view 
of business cycles offers a formalization of this perspective. In 
this paper we discuss mechanisms by which changes in agents' 
information, due to the arrival of news, can cause business cycle 
fluctuations driven by expectational change, and we review the 
empirical evidence aimed at evaluating its relevance. In particular, 
we highlight how the literature on news and business cycles offers a 
coherent way of thinking about aggregate fluctuations, while at the 
same time we emphasize the many challenges that must be addressed 
before a proper assessment of its role in business cycles can be 

Data and codes are available here.

Comparing Two Methods for the Identification of News Shocks

with Paul Beaudry and Atılım Seymen

Working paper version (ZEW Discussion Paper No. 13-110)


Recent empirical literature delivered, based on different structural 
VAR approaches, controversial results concerning the role of 
anticipated technology—news—shocks in business cycle fluctuations. 
We deal with this controversy and investigate (i) the extent to 
which two prominent structural VAR approaches can be useful in 
recuperating news shock dynamics from artificially generated data in 
general and (ii) why and to what extent these SVAR approaches differ 
in the results they deliver in particular. Thereby, we provide 
several insights for the users of both VAR techniques with small 
samples in practice.

Understanding Non-Inflationary Demand Driven Business Cycles

with Paul Beaudry, 2013

This is a revised version of “A Gains from Trade Perspective on Macroeconomic Fluctuations”, that is published in the Macroeconomics Annual 2013, Volume 28.

Final version


During the last thirty years, US business cycles have been 
characterized by countercyclical technology shocks and almost 
constant inflation. While the first fact runs counter to an RBC view 
of fluctuation and calls for demand shocks as a source of 
fluctuations, the second fact is difficult to reconcile with a New 
Keynesian model in which demand shocks, when accommodated, should be 
inflationary. In this paper we show that non-inflationary demand 
driven business cycles can be very easily explained if one moves 
away from the representative agent framework on which both the New 
Keynesian model and the RBC model are based. In particular, we first 
show how changes in demand induced by changes in perceptions about 
the future can cause business cycle type fluctuations in a Walrasian 
setting when agents' skills are specialized in different sectors. 
Such a model is able to generate demand driven positive co-movements 
of consumption, investment and hours together with pro-cyclical real 
wages and relative price of investment. To illustrate how the real 
mechanism we put forward works in the presence of sticky prices, we 
present a modified New Keynesian model with specialized agents where 
non inflationary demand driven fluctuations arise as the outcome. We 
also document the relevance of the assumptions underlying our 
framework using PSID data over the period 1968-2007.

A Gains from Trade Perspective on Macroeconomic Fluctuations

with Paul Beaudry, 2011

Revised as “Understanding Non-Inflationary Demand Driven Business Cycles”

newest version, nber working paper, cepr working paper, zew working paper


Business cycles reflect changes over time in the amount of trade 
between individuals. In this paper we show that incorporating 
explicitly intra-temporal gains from trade between individuals into 
a macroeconomic model can provide new insight into the potential 
mechanisms driving economic fluctuations as well as modify key 
policy implications. We first show how a "gains from trade" approach 
can easily explain why changes in perceptions about the future 
(including "news" about the future) can cause booms and bust. We 
then turn to fiscal policy, and discuss under what conditions fiscal 
multipliers can be observed. While much of our analysis is conducted 
in a flexible price environment, we also present implications of our 
model for a sticky price environments, as it allows to understand 
stable-inflation boom-bust cycles. The source of the explicit gains 
from trade in our setup derives from simply assuming that in the 
short run workers are not perfect mobile across all sectors of the 
economy. We provide evidence from the PSID in support of this 
modeling assumption.

Monetary policy and herd behavior in new-tech investment

with Olivier Loisel and Aude Pommeret, 2010

newest version (April 1, 2012)


We study the role of monetary policy when asset-price bubbles may 
form due to herd behavior in investment in a new technology whose 
productivity is uncertain. To that aim, we build a simple general-
equilibrium model whose agents are households, entrepreneurs, and a 
central bank. Entrepreneurs receive private signals about the 
productivity of the new technology and borrow from households to 
publicly invest in the old or the new technology. Monetary policy, 
by a ecting their cost of resources, can make them invest in the new 
technology if and only if they receive an encouraging private signal 
about its productivity. In doing so, it makes their investment 
decision reveal their private signal, and therefore prevents herd 
behavior and the asset-price bubble. We show that such a `leaning 
against the wind' monetary policy, contingent on the central bank's 
information set, may be preferable to laisser-faire, in terms of ex 
ante welfare, even though the central bank has less information than 
private agents on the productivity of the new technology.

La “grande récession” : une mise en perspective

avec Martial Dupaigne, 2011

Dernière version (21 juin 2012).

Publié dans la Revue d’Économie Politique, 2012.


Dans cet article, nous analysons la récession actuelle à l'aune de 
50 années d'observation dans 34 pays de l'OCDE. Ces donnés 
historique nous permettent en effet d'établir les caractéristiques 
(longueur, profondeur, etc..) d'une récession médiane, mais aussi la 
distribution de ces caractéristiques sur toute les récessions 
observées. La récession actuelle apparaît comme celle qui touche le 
plus de pays. Elle apparaît également comme exceptionnelle en durée 
et en profondeur. Nous analysons également les caractéristiques 
médianes des récessions concernant les évolutions de la 
consommation, de l'investissement, des dépenses publiques, des 
exportations et des importations, mais aussi en décomposant le PIB 
en 7 branches d'activité. Il s'agit d'une récession essentiellement 
tirée par l'investissement;  la consommation se maintient en France 
et dans une moindre mesure en Allemagne. Sectoriellement, le secteur 
manufacturier est fortement touché en France. Toujours en France, la 
gravité de la récession dans secteur de la construction n'est 
exceptionnelle que sur la dernière année.

9 thoughts on “Current Work

  1. Pingback: Seminars and Conferences since April 2018 | (macro)Economics live from London

  2. Pingback: New paper : Real Keynesian Models and Sticky Prices | (macro)Economics live from London

  3. Pingback: New version : Putting the Cycle Back into Business Cycle Analysis | (macro)Economics live from London

  4. Pingback: New version of “Reconciling Hayek’s and Keynes’ Views of Recessions”, to be published in The Review of Economic Studies | (macro)Economics live from Toulouse

  5. Pingback: New paper : Putting the Cycle Back into Business Cycle Analysis | (macro)Economics live from Toulouse

  6. Pingback: New paper : Technological Diffusion News | (macro)Economics live from Toulouse

  7. Pingback: New paper : Reconciling Hayek’s and Keynes’ views of recessions | (macro)Economics live from Toulouse

  8. Pingback: New paper : News Driven Business Cycles: Insights and Challenges | (macro)Economics live from Toulouse

  9. Pingback: European Summer Symposium in International Macroeconomics; Tarragona, 22 – 25 May 2012 « (macro)Economics live from Toulouse

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