Stephen J. Perez

Post hoc ergo propter once more An evaluation of 'Does monetary policy matter?' in the spirit of James Tobin

Christina and David Romer’s paper ‘Does Monetary Policy Matter?’ advocates the so-called ‘narrative’ approach to causal inference. We demonstrate that this method will not sustain causal inference. First, it is impossible to distinguish monetary shocks from oil shocks as causes of recessions. Second, a world in which the Fed only announces intentions to act cannot be distinguished from one in which it in fact acts. Third, the techniques of dynamic simulation used in the Romers’ study are inappropriate and quantitatively misleading. And, finally, their approach provides no basis for establishing causal asymmetry.

The NBA and the influx of international basketball players

The determinants of salaries for professional athletes in the National Basketball Association (NBA) are examined to investigate how international athletes have fared relative to athletes trained in the United States. It is found that international basketball players were paid a large premium above other players of similar skills and characteristics for the 1996–97 and 1997–98 seasons, after which the premium disappeared. This temporary premium is likely attributable to a ‘winners curse’ experienced by NBA teams before investing significant resources in scouting and evaluating international players.

Testing for Credit Rationing: An Application of Disequilibrium Econometrics

Testing for credit rationing has traditionally consisted of examining the response of loan rates to other market interest rates. A model developed by Greenwald and Stiglitz (1990) allows for a direct test for persistent excess demand for credit. I estimate three models of the short-term credit market: all firms experience equilibrium, all firms are rationed (have an excess demand for short-term credit), and a mixture of the two. A heuristic likelihood ratio test comparing the all equilibrium likelihood to the mixed likelihood constitutes the test for credit rationing. Application of the test to firm-level data reveals that banks ration some firms in every sample examined.

A Bootstrap Method for Identifying and Evaluating a Structural Vector Autoregression

Graph-theoretic methods of causal search based in the ideas of Pearl (2000), Spirtes, Glymour, and Scheines (2000), and others have been applied by a number of researchers to economic data, particularly by Swanson and Granger (1997) to the problem of finding a data-based contemporaneous causal order for the structural autoregression (SVAR), rather than, as is typically done, assuming a weakly justified Choleski order. Demiralp and Hoover (2003) provided Monte Carlo evidence that such methods were effective, provided that signal strengths were sufficiently high. Unfortunately, in applications to actual data, such Monte Carlo simulations are of limited value, since the causal structure of the true data-generating process is necessarily unknown. In this paper, we present a bootstrap procedure that can be applied to actual data (i.e., without knowledge of the true causal structure). We show with an applied example and a simulation study that the procedure is an effective tool for assessing our confidence in causal orders identified by graph-theoretic search procedures.

Looking back at forward-looking monetary policy

Abstract One explanation for accommodative monetary policy in the 1970s is that the Federal Reserve responded less aggressively to inflation. Using real-time estimates of future inflation, I estimate Taylor rule type reaction functions for monetary policy. Contrary to results that rely on final, revised data, I show that the FOMC’s intended response to inflation was similar during both periods. Policy may have turned out to be accommodative largely because of the FOMC’s difficulty in forecasting inflation or because the Federal Reserve’s inflation target was higher in the 1970s, but not because they responded less aggressively to inflation.

Causal ordering and ‘The bank lending channel’

The bank lending channel implies the Federal Reserve can influence real income by controlling the level of intermediated loans. Using the notion of causality developed by Simon (1953) and the causal order methodology developed by Hoover (1990), I test for an operative bank lending channel in the transmission mechanism of monetary policy. I find loans did cause real income; there is evidence that a bank lending channel did exist in the 1960s. The data appears to show, however, that by the early 1990s the bank lending channel was no longer operative.

Does Intercollegiate Athletics Draw Local Students to a University

This article presents evidence showing that success in football and men’s basketball at the National Collegiate Athletic Association (NCAA) Division I level positively affects enrollment of local high school graduates at a college or university. Panel regressions for eight California State Universities (CSUs) from 1986 to 2009 show that one win in football can increase the percentage of local high school graduates entering the local CSUs by 0.051 percentage points and one win against a Division I basketball team results in an increase of 0.018 percentage points.

Monetary Policy Does Matter: Control Causality and Superexogeneity

In this paper, the sufficiency of superexogeneity for control causality is exploited in the case of monetary policy and real output. The superexogeneity of the formulation of monetary policy for the real output gap is tested and found to be true implying a causal link from monetary policy to the real output gap. Given the empirical evidence, the Lucas Critique appears to be a theoretical possibility but not empirically relevant in this case. Copyright 2002 by Blackwell Publishing Ltd

Myopia, liquidity constraints, and aggregate consumption: what do the data say?

Abstract This letter attempts to explain an apparent ‘sensitivity puzzle’ relating to US consumption data as resulting from agents who expect their income to rise over their working lives prior to retirement being liquidity constrained when young.