Riccardo Fiorito

Stylized facts of business cycles in the G7 from a real business cycles perspective

This paper investigates the basic stylized facts of business cycles in the G7 countries using quarterly data from 1960-89. The methodology used is based on Kydland and Prescott (1990). The evidence suggests that the real business cycles model can account for several important stylized facts for all seven countries. In particular, consumption is procyclical and fluctuates generally less than output; investment is procyclical and fluctuates more than output; net exports are countercyclical; prices are countercyclical; and money does not have a clear-cut cyclical pattern. Real business cycles models cannot at present account for some basic stylized facts of labour dynamics, however, primarily because they cannot account for variations in total hours and hours per worker. This and other evidence suggests that labour hoarding might, especially in Europe and Japan, be the main force behind employment dynamics.

Stylized Facts of Government Finance in the G-7

The stylized facts of government finance in the Group of Seven (G-7) industrial countries show that revenues lag real GDP procyclically, while government spending in most cases fails to lead the economy procyclically. This finding is not confined to transfers but also applies to the wage component of government consumption as well as, in most cases, to government fixed investment. Government deficits are always countercyclical but there is little evidence that stabilization is equally successful in stimulating the economy before shocks materialize.

Labor Supply Elasticities: Can Micro Be Misleading for Macro?

In this paper we compare in a consistent way micro and macro labor supply elasticities. The individual elasticity is obtained from the Panel Study of Income Dynamics (PSID). The aggregate, time-series, elasticity is estimated from the exact aggregation of the individual units in the PSID, each year. Our aggregation procedure is legitimate since it relies on exact aggregation of first-order conditions in a simple life-cycle labor supply model with home production. We find that the individual elasticity is about 0.1, a low value that agrees with standard micro estimates, but that the aggregate elasticity is 1.5, a much larger value that incidentally agrees with the pioneering estimate of Lucas and Rapping (1969). This result derives from a pure aggregation effect: not surpisingly, most of the difference is due to the extensive margin, i.e. participation/employment decisions. An implication of our result is that micro evidence is not always a reliable guidance for calibrating aggregate macroeconomic parameters.

Regional unemployment in Italy: Sources and cures

Abstract A regional model of Italy is presented to analyze unemployment responses to supply and demand shocks in the market for labor and goods. Both supply and demand components of unemployment are endogenous. Employment has low elasticity to output in Southern Italy where labor force increases more because of demographic and participation rate changes. This also makes it difficult to close the gap between this region and the most developed areas of the country.

Analysis of US real GNP and unemployment interactions : State space approach

Abstract Instead of the more common unemployment rate, the time series data of the level of US unemployment is used together with US real GNP, and later also with the US money stock, to identify a bivariate and trivariate structural model. The model is then used to examine the interaction of the unemployment level with the real GNP in the business cycle frequencies. The commonly perceived Okuns law is shown to disappear in the trivariate model.

Inventory changes and the closing of macroeconometric models

Inventory changes can help econometric models to balance the supply and the demand side and to endogenize utilization variables without resorting to an arbitrary potential output level. Both results stem from formu- lating inventory-augmented production functions in which inventory changes act as a stationary ECM between value added and inputs on one side and value added and Þnal sales on the other. This happens because factors or prices may adjust too slowly to productivity and sales shocks. The empirical imple- mentation refers to the Italian Treasury Econometric Model (ITEM) in which inventory changes are obtained as a residual from endogenous value added and spending components.