Keith Sill

Regional income fluctuations: common trends and common cycles

This paper investigates trend and cycle dynamics in per capita income for the major U.S. regions during the 19561995 period. Cointegration and serial correlation common features information are used in jointly decomposing the series into trend and cycle components. We find considerable differences in the volatility of regional cycles. Controlling for differences in volatility, we find a great deal of comovement in the cyclical response for all regions but the Far West. Possible sources underlying differences in regional cycles are explored, such as the share of a regions income accounted for by manufacturing, defense spending as a proportion of a regions income, oil price shocks, and the stance of monetary policy. Somewhat surprisingly, we find that the share of manufacturing in a region seems to account for little of the variation in regional cycles relative to national cycles, but manufacturing share differentially affects trend growth for four of the seven regions studied.

Monetary policy, oil shocks, and TFP: accounting for the decline in U.S. volatility

The volatility of the U.S. economy since the mid-1980s is much lower than it was during the prior 20-year period. The proximate causes of the increased stability and their relative importance remain unsettled, but the sharpness of the volatility decline and its timing has led authors such as Taylor (2000) to argue that a sudden shift in monetary policy is a prime candidate. The authors assess this claim using a calibrated stochastic dynamic general equilibrium model to quantify the contribution of monetary policy and exogenous shocks to the postwar volatility pattern for U.S. output. Their principal finding is that the change in monetary policy played a relatively small role in the postwar volatility decline, accounting for 10 to 15 percent of the drop in real output volatility. The model attributes most of the output volatility decline to smaller TFP shocks: oil shocks end up increasing volatility in the post-84 period relative to the pre-79 period. Negative oil shocks do lead to significant downturns in real output in the model, but the pattern of exogenous shocks post-84 is not different enough from the pre-79 pattern to play a meaningful role in lowering output volatility.

The Long and Large Decline in State Employment Growth Volatility

This study documents a general decline in the volatility of employment growth during the period 1956 to 2002 and examines its possible sources. The authors use a panel design that exploits the considerable state-level variation in volatility during the period. The roles of monetary policy, oil prices, industrial employment shifts and a coincident index of business cycle variables are explored. Overall, these four variables taken together explain as much as 31 percent of the fluctuations in employment growth volatility. Individually, each of the four factors is found to have significantly contributed to fluctuations in employment growth volatility, although to differing degrees.

Exchange Rates, Monetary Policy Regimes, and Beliefs

The authors investigate an international monetary business-cycle model in which agents face monetary policy processes that incorporate regime shifts. In any given period agents cannot directly observe the policy regime, but instead form beliefs that are updated via Bayesian learning. As a result, expectation adjustment displays inertia that adds persistence to the effects of monetary shocks. Monetary policy process for the U.S. and an aggregate of OECD countries are estimated using Hamiltons Markov-switching model. The authors then solve and calibrate a version of the model and examine its quantitative properties.

On the stability of employment growth: a postwar view from the U.S. states

In 1952, the average quarterly volatility of U.S. state employment growth stood at 1.5 percent. By 1995, employment growth volatility came in at just under 0.5 percent. While all states shared in the decline, some states declined much more dramatically than others. We analyze aspects of this decline using new data covering industry employment by state during the postwar period. Estimates from a pooled cross-section/time-series model corrected for spatial dependence indicate that fluctuations in state-specific and aggregate variables have both played an important role in explaining volatility trends. However, state-level differences in responses to aggregate shocks account for less of the postwar fluctuations in employment growth volatility than do state-specific forces.