Charles H. Whiteman

International Business Cycles: World, Region, and Country-Specific Factors

The paper investigates the common dynamic properties of business-cycle fluctuations across countries, regions, and the world. We employ a Bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates (output, consumption, and investment) in a 60-country sample covering seven regions of the world. The results indicate that a common world factor is an important source of volatility for aggregates in most countries, providing evidence for a world business cycle. We find that region-specific factors play only a minor role in explaining fluctuations in economic activity. We also document similarities and differences across regions, countries, and aggregates. (JEL F41, E32, C11, C32)

The power problems of unit root test in time series with autoregressive errors

Abstract Monte Carlo methods are used to study the size and power of serial-correlation-corrected versions of the Dickey-Fuller (1979,1981) unit root tests appropriate when the time series has unknown mean. The modifications do not cause serious size distortions or power deterioration in the white noise case. While studies in the literature have investigated the operating characteristics of these tests in the presence of moving average errors, of particular concern in this paper is the performance of these procedures in the presence of autoregressive errors. The Philips and Perron (1988) and Choi and Philips (1991) procedures are found to suffer from serious size distortions and have very low power when errors are autoregressively correlated. We conclude that even in the most favorable cases, these tests perform poorly against trend-stationary alternatives which are plausible for annual, quarterly, and monthly macroeconomic time series. The augmented Dickey-Fuller procedure, on the other hand, is reasonably well-behaved.

The observable implications of self-fulfilling expectations

Abstract Under a modest generalization of the dynamics permitted for variables which are seen by agents but not the econometrician, many of the existing tests for the presence of speculative bubbles are not statistically valid. Less restrictive tests lead us to concur with Flood and Garber that speculative bubbles were not part of the German hyperinflation, but dispute Shillers conclusion that stock prices are excessively volatile. Moreover, all such tests are subject to the admonition that what appears to be a speculative bubble could instead have arisen from rational agents responding solely to economic fundamentals not observed by the econometrician.

A Bayesian approach to dynamic macroeconomics

Abstract We propose and implement a coherent statistical framework for combining theoretical and empirical models of macroeconomic activity. The framework is Bayesian, and enables the formal yet probabilistic incorporation of uncertainty regarding the parameterization of theoretical models. The approach is illustrated using a neoclassical business-cycle model that builds on the Greenwood et al. (1988, American Economic Review 78, 402–417) variable-utilization framework to study out-of-sample forecasting of output and investment. The forecasts so produced are comparable with those from a Bayesian vector autoregression.

The Engine of Growth or Its Handmaiden? A Time-Series Assessment of Export-Led Growth

This paper presents an analysis of time-series data for the countries in the Summers-Heston (1991) data set, in an attempt to ascertain the evidence for or against the export-led growth hypothesis. We find that standard methods of detecting export-led growth using Granger-causality tests may give misleading results if imports are not included in the system being analyzed. For this reason, our main statistical tool is the measure of conditional linear feedback developed by Geweke (1984), which allows us to examine the relationship between export growth and income growth while controlling for the growth of imports. These measures have two additional features which make them attractive for our work. First, they go beyond meredetection of evidence for export-led growth, to provide a measurement of itsstrength. Second, they enable us to determine the temporal pattern of the response of income to exports. In some cases export-led growth is a long-run phenomenon, in the sense that export promotion strategies adopted today have their strongest effect after eight to 16 years. In other cases the opposite is true; exports have their greatest influence in the short run (less than four years). We find modest support for the export-led growth hypothesis, if “support” is taken to mean a unidirectional causal ordering. Conditional on import growth, we find a causal ordering from export growth to income growth in 30 of the 126 countries analyzed; 25 have the reverse ordering. Using a weaker notion of “support”—stronger conditional feedback from exports to income than vice versa, 65 of the 126 countries support the export-led growth hypothesis, although the difference in strength is small. Finally, we find that for the “Asian Tiger” countries of the Pacific Rim, the relationship between export growth and output growth becomes clearer when conditioned on human capital and investment growth as well as import growth.

Reconsidering 'Trends and random walks in macroeconomic time series' *

Abstract We employ a Bayesian perspective to identify the type of prior needed to support the inference that most macroeconomic time series follow random walks. For many of the series considered by Nelson and Plosser (1982) the required prior involves assigning very low probability to trendstationary alternatives. When this prior is relaxed trend-stationarity is generally supported, thus the unit root inference seems inappropriate for these series: despite Nelson and Plossers results indicating that macroeconomic time series are not inconsistent with the random walk hypothesis, our results indicate that for most series the trend-stationarity hypothesis is much more likely.

Supplanting the ‘Minnesota’ prior: Forecasting macroeconomic time series using real business cycle model priors

A cooling slot for passing cooling fluid through a heated plate such as an airfoil blade for use in gas turbine engines is created by forming a first plurality of passages within the blade, and then forming a second plurality of passages within the blade, wherein preselected of the passages of the second plurality intersect at least one of the passages of the first plurality to define a number of nodes between the points of intersection. When cooling fluid is passed through the blade, the nodes act as turbulence promoters and area increasers for improving convective heat transfer between the blade and the cooling fluid.

Bayesian Leading Indicators: Measuring and Predicting Economic Conditions in Iowa

This paper designs and implements a Bayesian dynamic latent factor model for a vector of data describing the Iowa economy. Posterior distributions of parameters and the latent factor are analyzed by Markov chain Monte Carlo methods, and coincident and leading indicators are computed by using posterior mean values of current and predictive distributions for the latent factor. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

The engine of growth or its handmaiden

This paper presents an analysis of time-series data for the countries in the Summers-Heston (1991) data set, in an attempt to ascertain the evidence for or against the export-led growth hypothesis. We find that standard methods of detecting export-led growth using Granger-causality tests may give misleading results if imports are not included in the system being analyzed. For this reason, our main statistical tool is the measure of conditional linear feedback developed by Geweke (1984), which allows us to examine the relationship between export growth and income growth while controlling for the growth of imports. These measures have two additional features which make them attractive for our work. First, they go beyond meredetection of evidence for export-led growth, to provide a measurement of itsstrength. Second, they enable us to determine the temporal pattern of the response of income to exports. In some cases export-led growth is a long-run phenomenon, in the sense that export promotion strategies adopted today have their strongest effect after eight to 16 years. In other cases the opposite is true; exports have their greatest influence in the short run (less than four years). We find modest support for the export-led growth hypothesis, if “support” is taken to mean a unidirectional causal ordering. Conditional on import growth, we find a causal ordering from export growth to income growth in 30 of the 126 countries analyzed; 25 have the reverse ordering. Using a weaker notion of “support”—stronger conditional feedback from exports to income than vice versa, 65 of the 126 countries support the export-led growth hypothesis, although the difference in strength is small. Finally, we find that for the “Asian Tiger” countries of the Pacific Rim, the relationship between export growth and output growth becomes clearer when conditioned on human capital and investment growth as well as import growth.

Risk Aversion versus Intertemporal Substitution: A Case Study of Identification Failure in the Intertemporal Consumption Capital Asset Pricing Model

Is the risk-aversion parameter in the intertemporal consumption capital asset pricing model “small” as stated by Hansen and Singleton or is its reciprocal—the intertemporal elasticity of substitution—small, as stated by Hall? We attribute the disparate estimates of this fundamental parameter not to failures of instrument admissibility as do Hall and Hansen and Singleton but rather to failures of instrumentrelevance. That is, the disparate estimates reflect near nonidentification due to the unpredictability of asset returns and consumption growth. Imposing natural identifying restrictions from the risk-aversion perspective and the intertemporal substitution perspective yields low and stable estimates in each case.