This paper evaluates (i) the transmission of global uncertainty shocks to the expectations of professionals and disagreement among them and (ii) the relevance of policy choices in open economies in the context of the impossible trinity. Relying on a large set of survey data covering a wide range of expected macroeconomic outcomes for 33 countries, we establish evidence for an expectation channel of global uncertainty shocks. Global uncertainty exerts significant and adverse effects on expectations over domestic macroeconomic outcomes across the board and also frequently spills over to disagreement over these outcomes, increasing domestic uncertainty. Finally, we identify nonlinear relationships between the policy choices in an open economy and the transmission of uncertainty shocks. Policy choices affect the expected downswing in GDP in the aftermath of uncertainty shocks, the expected response of monetary policy, and the exchange rate and disagreement over future macroeconomic outcomes.

This paper examines the effects of heterogeneous biased expectations between the young and old on business cycles and explores its policy implications. Empirical findings reveal that individuals, particularly the young, can have more optimistic or pessimistic views about the future state of the economy compared to the data-generating measure. This study relates these results to the learning-from-experience literature, which suggests that individuals, particularly the young, place greater weight on recent observations when forming their expectations. Incorporating household weighting schemes into a life-cycle learning model, I show that household sensitivity to recent observations amplifies the effects of economic shocks. However, the amplification effects become less extensive as the population ages due to the lower sensitivity of the old. My simulation results indicate that a 10 percentage point increase in the old population ratio leads to a 16 percent decrease in output volatility. Regarding policy implications, this paper suggests that the government spending multiplier declines by approximately 10 percent when the old population ratio rises by 10 percentage points due to weak amplification effects. Moreover, the weakened output effects deteriorate the welfare of the population, particularly that of the young.

This paper empirically examines the dynamic relationship between stock market volatility and commodity prices through the time-varying risk aversion channel using daily data between December 31 in 1999 and June 14 in 2021. We employ a time-varying structural-form vector autoregressive model (VAR) model with (aggregate, sectoral and sixteen individual) commodity prices. The results suggest that the transmission mechanism of stock market volatility shocks on the commodity prices change over time. The negative effect of stock market volatility on commodity prices is more statistically significant in the 2008–09 Global Financial Crisis than that during the COVID-19 pandemic in 2020. Further, the effect is greater in energy commodities compared to the agricultural and metals markets. The long-lasting negative effect of risk aversion is stronger compared to that of the expected stock market volatility on the commodity price. The change in the stock-commodity transmission mechanism is likely due to changes in underlying sources of risk aversion and expected uncertainty over time.

We extend the growth-at-risk (GaR) literature by examining US growth risks over 130 years using a time-varying parameter stochastic volatility regression model. This model effectively captures the distribution of GDP growth over long samples, accommodating changing relationships across variables and structural breaks. Our analysis offers several key insights for policymakers. We identify significant temporal variation in both the level and determinants of GaR. The stability of upside risks to GDP growth, as seen in previous research, is largely confined to the Great Moderation period, with a more balanced risk distribution prior to the 1970s. Additionally, the distribution of GDP growth has narrowed significantly since the end of the Bretton Woods system. Financial stress is consistently associated with higher downside risks, without affecting upside risks. Moreover, indicators such as credit growth and house prices influence both downside and upside risks during economic booms. Our findings also contribute to the financial cycle literature by providing a comprehensive view of the drivers and risks associated with economic booms and recessions over time.

This paper distinguishes news about short-lived events from news about changes in longer term prospects using surveys of expectations. Employing a multivariate GARCH-in-Mean model for the US, the paper illustrates how the different types of news influence business cycle dynamics. The influence of transitory output shocks can be relatively large on impact but gradually diminishes over two to three years. Permanent shocks drive the business cycle, generating immediate stock price reactions and gradually building output effects, although they have more immediate output effects during recessions through the uncertainties they create. Markedly different macroeconomic dynamics are found if these explicitly identified types of news or uncertainty feedbacks are omitted from the analysis.

This article studies how sudden changes in bank credit supply impact economic activity. I identify shocks to bank credit supply based on firms’ aggregate debt composition. I use a model where firms fund production with bonds and loans. In the model, bank shocks are the only type of shock that imply opposite movements in the two types of debt as firms adjust their debt composition to new credit conditions. Bank shocks account for a third of output fluctuations and are predictive of the bond spread.

What is the relationship between short-run fluctuations in economic activity and the long-run evolution of the economy? There is empirical evidence that more perturbed economies tend to grow less. Yet matching this evidence has proven challenging for growth models without market failures. This paper examines the relationship between short-term fluctuations and long-term growth within a complete-market economy featuring Epstein-Zin preferences and unbounded growth driven by human and physical capital accumulation. With these preferences, risk aversion and intertemporal elasticity of substitution are allowed to be independent of each other. When the model is plausibly calibrated, the relationship between the mean and variance of growth turns out to be negative. In most cases, the effect of fluctuations on welfare is found to be negative and sizable, even when the long-run effect on growth is positive.

This paper assesses the information content and predictive capabilities of Divisia monetary indicators concerning sector-specific economic activities. Although existing evidence strongly supports the informative nature and predictive potential of various Divisia indicators at an aggregate level, studies focusing on Divisia information content for specific industries are notably sparse. Sector-level data provide a more detailed insight into economic and labor market dynamics. By analyzing comprehensive sector-specific data on real GDP, value added, employment, and unemployment rates across thirteen diverse sectors in the United States, this paper investigates the predictive abilities of narrow and broad Divisia money across three categories (original, credit card-augmented, and credit card-augmented inside money). The results show that narrow Divisia money serve as robust predictors of sector-specific economic and labor market indicators, often surpassing the predictive capacity of the conventional Fed funds rate and slightly outperforming broad Divisia measures in relation to these indicators.

While the competitive behavior of firms with regard to entry and exit activities serves as a driving force behind the business cycle, little attention has been paid to the issue of industry clusters when discussing belief-driven cyclical fluctuations. Faced with this deficiency, this study analyzes the possibility of the emergence of equilibrium indeterminacy from the perspective of industrial organization. By analyzing the effects of endogenous overhead costs in the market, this paper finds that belief-driven business cycle fluctuations are related to industry clusters. More specifically, a stronger spillover effect or a less pronounced congestion effect tends to increase the likelihood of local indeterminacy.

An article published in 2018 by J.D. Hamilton gained significant attention due to its provocative title, “Why you should never use the Hodrick-Prescott filter.” Additionally, an alternative method for detrending, the Hamilton regression filter (HRF), was introduced. His work was frequently interpreted as a proposal to substitute the Hodrick–Prescott (HP) filter with HRF, therefore utilizing and understanding it similarly as HP detrending. This research disputes this perspective, particularly in relation to quarterly business cycle data on aggregate output. Focusing on economic fluctuations in the United States, this study generates a large amount of artificial data that follow a known pattern and include both a trend and cyclical component. The objective is to assess the effectiveness of a certain detrending approach in accurately identifying the real decomposition of the data. In addition to the standard HP smoothing parameter of $\lambda = 1600$, the study also examines values of $\lambda ^{\star }$ from earlier research that are seven to twelve times greater. Based on three unique statistical measures of the discrepancy between the estimated and real trends, it is evident that both versions of HP significantly surpass those of HRF. Additionally, HP with $\lambda ^{\star }$ consistently outperforms HP-1600.

Emissions are directly linked to economic output and consequently subject to business cycle fluctuations. The present study analyses the interactions between climate policies and business cycles through the lens of a New Keynesian dynamic stochastic general equilibrium model. We compare a static cap-and-trade policy with a dynamically adjusting policy in terms of macroeconomic stabilisation, welfare and emissions price dynamics. The results of the quantitative evaluation suggest that a constant policy leads to lower aggregate volatility but is associated with larger welfare costs. In contrast, under the dynamic policy emissions prices and labour markets display less variations.

Based on a multisector general equilibrium framework, we show that the sectoral elasticity of substitution plays the key role in the evolution of asymmetric tails of macroeconomic fluctuations and the establishment of robustness against productivity shocks. A non-unitary elasticity of substitution renders a nonlinear Domar aggregation, where normal sectoral productivity shocks translate into non-normal aggregated shocks with variable expected output growth. We empirically estimate 100 sectoral elasticities of substitution, using the time-series linked input-output tables for Japan and find that the production economy is elastic overall, relative to a Cobb-Douglas economy with unitary elasticity. In addition to the previous assessment of an inelastic production economy for the USA, the contrasting tail asymmetry of the distribution of aggregated shocks between the USA and Japan is explained. Moreover, the robustness of an economy is assessed by expected output growth, the level of which is led by the sectoral elasticities of substitution under zero-mean productivity shocks.

In the 1950s and 1960s unemployment averaged about 2 per cent. The lowest level of unemployment in the last twenty years was double that and long term unemployment, virtually unknown in the 1950s and 1960s, has been a severe problem. In each period there were two major slumps. We examine the progress of each slump and macroeconomic policy responses in each case, in order to search for reasons for this contrast. The priority given to minimising unemployment rather than restraining inflation is the most important difference between the two periods. Other major principles stand out, the most important of which are that in response to a downturn a fiscal policy stimulus is essential and must play the major part of any response; and that implementation must be swift and then followed up by further measures if necessary.

Far from being an event of a decade ago, the 2008 global financial crisis is a manifestation of an ongoing crisis of the world order, with social, political and ecological dimensions that cannot be seen separately from each other. The root cause of the crisis can be traced back to the collapse of the Bretton Woods System in August 1971, and the failure to design an equitable and inclusive global financial and economic governance architecture consistent with the changed global economic realities. The vacuum was quickly taken up by the neoliberal orthodoxy that pushed the agenda of wholesale liberalisation, resulting in unprecedented domination of speculative finance capital and multinational corporation–led globalisation. This has seen falling share of wages in national income, growing wealth concentration, rising income inequality and ballooning of household debts. The consequence was frequent and increasingly deeper and wider financial crises.

These books, different in style and content but united in purpose and major conclusions, analyse events from 2007 to 2010 to ascertain why the economic disaster happened and what must be done to put the United States economy (on which both books focus) on a more secure footing, and prevent any recurrence of the extended crisis of those years. Both target the increasing influence of market liberalism over the last 30 years, and the institutions of capitalist economies which they have encouraged. Taylor focuses more on the regulation of the international financial sector, and Palley on labour market policy. They agree that both need to be addressed if the United States economy is to be restored to health. Both argue that growing income inequality in the US must be reversed before the US economy can significantly improve. Finally, they stress the interrelationship between political ideology and economic explanation, and argue that value free positive economics is a myth.

We use a labor search model with heterogenous households and firms to study the efficacy of a wage subsidy during a pandemic, relative to enhancing unemployment benefits. A large proportion of the economy is forced to shut down, and firms in that sector choose whether to lay off workers or keep them on payroll. A wage subsidy encourages firms to keep workers on payroll, which speeds up labor market recovery after the pandemic ends. However, a wage subsidy can be costlier than enhancing unemployment benefits. If the shutdown is long or profit margins are low, then a wage subsidy is preferable and vice versa. The optimal mixture of policies includes a wage subsidy that covers 90$\%$ of the first $200/week of earnings and expands unemployment benefits to cover all salary up to $275/week. Low-income workers, as well as those in less productive jobs, benefit the most from a wage subsidy.

This paper studies the macroeconomic effects of seven key TCJA provisions, including the tax cuts for individuals and businesses, the bonus depreciation of equipment, the amortization of R&D expenses, and the limits on interest deductibility. I use a dynamic general equilibrium model with interest deductibility and accelerated depreciation. I find that, initially, the tax reform had a small positive effect on output and investment. In the medium term, however, the effect on output will diminish, and the effect on investment will turn negative. The tax reform will depress investment in R&D. Government debt will surge.

The existing output gap measures for the US economy rely on aggregate data and assume a constant output gap over sectors (see Coibion et al. [(2018) Brookings Papers on Economic Activity, 333–441] and Owyang et al. [(2018) Federal Reserve Bank of St. Louis Review, 297–316]); however, each sector has its cycle, which does not necessarily match the business cycle (Burns and Mitchell [(1946) National Bureau of Economic Research]). By modeling sectoral cycles based on their investment cycles with a nonparametric method, I estimate output gaps of 20 US sectors over 1948–2020. The weighted mean output gap indicates a persistent spare capacity in the last business cycle, pointing to insufficient stabilization policies behind secular stagnation. Phillips curve estimations with the weighted quartiles of sectoral output gaps show that the output gap of bottleneck sectors (weighted Q3) is correlated strongly with inflation over 1950–2020. Policymakers can track bottleneck sectors to mitigate inflationary pressures while supporting the sectors with negative output gaps to stabilize the output at its potential. My findings show that it is possible to produce more output by sector-level demand supporting policies without generating inflation.

We examine the start date of the Great Recession across OECD countries. The Sahm Rule identifies the start of recession in the US to the beginning of 2008 but in most other OECD countries it identifies the start after that identified by two successive falls in quarterly GDP. We establish our own rule for predicting recession using the fear of unemployment series to predict recession. We show a 10-point rise in the series compared to its previous 12 month low predicted the onset of the Great Recession in both the United States and Europe.

This study investigates the time-varying effects of international uncertainty shocks. I use a global vector autoregressive model with drifting coefficients and factor stochastic volatility in the errors to model the G7 economies jointly. The measure of uncertainty is constructed by estimating a time-varying scalar driving the innovation variances of the latent factors, which is also included in the conditional mean of the process. To achieve regularization, I use Bayesian techniques for estimation, and rely on hierarchical global–local priors to shrink the high-dimensional multivariate system towards sparsity. I compare the obtained econometric measure of uncertainty to alternative indices and discuss commonalities and differences. Moreover, I find that international uncertainty may differ substantially compared to identically constructed domestic measures. Structural inference points towards pronounced real and financial effects of uncertainty shocks in all considered economies. These effects are subject to heterogeneities over time and the cross-section, providing empirical evidence in favor of using the flexible econometric framework introduced in this study.