James Morley

Why Are the Beveridge-Nelson and Unobserved-Components Decompositions of GDP So Different?

This paper reconciles two widely used decompositions of GDP into trend and cycle that yield starkly different results. The Beveridge-Nelson (BN) decomposition implies that a stochastic trend accounts for most of the variation in output, whereas the unobserved-components (UC) implies cyclical variation is dominant. Which is correct has broad implications for the relative importance of real versus nominal shocks. We show the difference arises from the restriction imposed in UC that trend and cycle innovations are uncorrelated. When this restriction is relaxed, the UC decomposition is identical to the BN decomposition. Furthermore, the zero-correlation restriction can be rejected for U.S. quarterly GDP, with the estimated correlation being -0.9.

The Asymmetric Business Cycle

The business cycle is a fundamental yet elusive concept in macroeconomics. In this paper, we consider the problem of measuring the business cycle. First, we argue for the output-gap view that the business cycle corresponds to transitory deviations in economic activity away from a permanent, or trend, level. Then we investigate the extent to which a general model-based approach to estimating trend and cycle for the U.S. economy leads to measures of the business cycle that reflect models versus the data. We find empirical support for a nonlinear time series model that produces a business cycle measure with an asymmetric shape across NBER expansion and recession phases. Specifically, this business cycle measure suggests that recessions are periods of relatively large and negative transitory fluctuations in output. However, several close competitors to the nonlinear model produce business cycle measures of widely differing shapes and magnitudes. Given this model-based uncertainty, we construct a model-averaged measure of the business cycle. This measure also displays an asymmetric shape and is closely related to other measures of economic slack such as the unemployment rate and capacity utilization.

A state-space approach to calculating the Beveridge-Nelson decomposition

Abstract A state–space approach provides a general unified framework for calculation of the Beveridge–Nelson decomposition for a wide variety of time series models, including all univariate and vector ARIMA models.

State-dependent effects of fiscal policy

We investigate the effects of government spending on US output with a threshold structural vector autoregressive model. We consider Bayesian model comparison and generalized impulse response analysis to test for nonlinearities in the responses of output to government spending. Our empirical findings support state-dependent effects of fiscal policy, with the government spending multiplier larger and more persistent whenever there is considerable economic slack. Based on capacity utilization as the preferred threshold variable, the estimated multiplier is large (1.6) for a low-utilization regime that accounts for more than half of the sample observations from 1967 to 2012 according to the estimated threshold level.

The Structural Break in the Equity Premium

This article uses Bayesian marginal likelihood analysis to compare univariate models of the stock return behavior and test for structural breaks in the equity premium. The analysis favors a model that relates the equity premium to Markov-switching changes in the level of market volatility and accommodates volatility feedback. For this model, there is evidence of a one-time structural break in the equity premium in the 1940s, with no evidence of additional breaks in the postwar period. The break in the 1940s corresponds to a permanent reduction in the general level of stock market volatility. Meanwhile, there appears to be no change in the underlying risk preferences relating the equity premium to market volatility. The estimated unconditional equity premium drops from an annualized 12% before to the break to 9% after the break.

Peripherally Inserted Central Venous Catheter–Associated Bloodstream Infections in Hospitalized Adult Patients

BACKGROUND Limited data on the risk of peripherally inserted central venous catheter-associated bloodstream infections (PICC BSIs) in hospitalized patients are available. In 2007, dedicated intravenous therapy nurses were no longer available to place difficult peripheral intravenous catheters or provide PICC care Barnes-Jewish Hospital. OBJECTIVES To determine the hospital-wide incidence of PICC BSIs and to assess the effect of discontinuing intravenous therapy service on PICC use and PICC BSI rates. SETTING A 1,252-bed tertiary care teaching hospital. METHODS A 31-month retrospective cohort study was performed. PICC BSIs were defined using National Healthcare Safety Network criteria. RESULTS In total, 163 PICC BSIs were identified (3.13 BSIs per 1,000 catheter-days). PICC use was higher in intensive care units (ICUs) than non-ICU areas (PICC utilization ratio, 0.109 vs 0.059 catheter-days per patient-day for ICU vs non-ICU; rate ratio [RR], 1.84 [95% confidence interval {CI}, 1.78-1.91]). PICC BSI rates were higher in ICUs (4.79 vs 2.79 episodes per 1,000 catheter-days; RR, 1.7 [95% CI, 1.10-2.61]). PICC use increased hospital-wide after the intravenous therapy service was discontinued (0.049 vs 0.097 catheter-days per patient-day; P =.01), but PICC BSI rates did not change (2.68 vs 3.63 episodes per 1,000 catheter-days; P =.06). Of PICC BSIs, 73% occurred in non-ICU patients. CONCLUSIONS PICC use and PICC BSI rates were higher in ICUs; however, most of the PICC BSIs occurred in non-ICU areas. Reduction in intravenous therapy services was associated with increased PICC use across the hospital, but PICC BSI rates did not increase.

THE TWO INTERPRETATIONS OF THE BEVERIDGE–NELSON DECOMPOSITION

The Beveridge–Nelson decomposition calculates trend and cycle for an integrated time series. However, there are two ways to interpret the results from the decomposition. One interpretation is that the optimal long-run forecast (minus any deterministic drift) used to calculate the Beveridge–Nelson trend corresponds to an estimate of an unobserved permanent component. The other interpretation is that the optimal long-run forecast defines an observable permanent component. This paper examines some issues surrounding these two interpretations and provides empirical support for interpreting the Beveridge–Nelson trend as an estimate when considering macroeconomic data.

Changes in U.S. Inflation Persistence

We investigate the existence and timing of changes in U.S. inflation persistence. To do so, we develop an unobserved components model of inflation with Markov-switching parameters and we measure persistence using impulse response functions based on the model. An important feature of our model is its allowance for multiple regime shifts in parameters related to the size and propagation of shocks. Inflation persistence depends on the configuration of these parameters, although it need not change even if the parameters change. Using the GDP deflator for the sample period of 1959-2006, we find that U.S. inflation underwent two sudden permanent regime shifts, both of which corresponded to changes in persistence. The first regime shift occurred around the collapse of the Bretton Woods system at the beginning of the 1970s and produced an increase in inflation persistence, while the second regime shift occurred immediately after the Volcker disinflation in the early 1980s and produced a decrease in inflation persistence. Meanwhile, consistent with the New Keynesian Phillips Curve, the gap between inflation and its long-run trend displayed little or no persistence throughout the entire sample period.

Does an intertemporal tradeoff between risk and return explain mean reversion in stock prices

Abstract When volatility feedback is taken into account, there is strong evidence of a positive tradeoff between stock market volatility and expected returns on a market portfolio. In this paper, we ask whether this intertemporal tradeoff between risk and return is responsible for the reported evidence of mean reversion in stock prices. There are two relevant findings. First, price movements not related to the effects of Markov-switching market volatility are largely unpredictable over long horizons. Second, time-varying parameter estimates of the long-horizon predictability of stock returns reject any systematic mean reversion in favour of behaviour implicit in the historical timing of the tradeoff between risk and return.

Daily bathing with chlorhexidine-based soap and the prevention of Staphylococcus aureus transmission and infection

OBJECTIVE Determine whether daily bathing with chlorhexidine-based soap decreased methicillin-resistant Staphylococcus aureus (MRSA) transmission and intensive care unit (ICU)-acquired S. aureus infection among ICU patients. DESIGN Prospective pre-post-intervention study with control unit. SETTING A 1,250-bed tertiary care teaching hospital. PATIENTS Medical and surgical ICU patients. METHODS Active surveillance for MRSA colonization was performed in both ICUs. In June 2005, a chlorhexidine bathing protocol was implemented in the surgical ICU. Changes in S. aureus transmission and infection rate before and after implementation were analyzed using time-series methodology. RESULTS The intervention unit had a 20.68% decrease in MRSA acquisition after institution of the bathing protocol (12.64 cases per 1,000 patient-days at risk before the intervention vs 10.03 cases per 1,000 patient-days at risk after the intervention; β, -2.62 [95% confidence interval (CI), -5.19 to -0.04]; P = .046). There was no significant change in MRSA acquisition in the control ICU during the study period (10.97 cases per 1,000 patient-days at risk before June 2005 vs 11.33 cases per 1,000 patient-days at risk after June 2005; β, -11.10 [95% CI, -37.40 to 15.19]; P = .40). There was a 20.77% decrease in all S. aureus (including MRSA) acquisition in the intervention ICU from 2002 through 2007 (19.73 cases per 1,000 patient-days at risk before the intervention to 15.63 cases per 1,000 patient-days at risk after the intervention [95% CI, -7.25 to -0.95]; P = .012)]. The incidence of ICU-acquired MRSA infections decreased by 41.37% in the intervention ICU (1.96 infections per 1,000 patient-days at risk before the intervention vs 1.15 infections per 1,000 patient-days at risk after the intervention; P = .001). CONCLUSIONS Institution of daily chlorhexidine bathing in an ICU resulted in a decrease in the transmission of S. aureus, including MRSA. These data support the use of routine daily chlorhexidine baths to decrease rates of S. aureus transmission and infection.