Steven R. Cunningham

Is Keynesian Demand Management Policy Still Viable

Keynesian policy in the United States, and to call for a defense. The debate no longer revolves solely around obscure theoretical issues. The arguments supporting policy ineffectiveness inthe current economy exceed differences between schools of economic thought and political ideologies, and need not challenge the wisdom or effectiveness of the policies of past decades. As a result of earlier policy choices, changing technologies, and special innovations in the financial industry, the structure of the economy has changed. In the present U.S. economic setting, demand management policies may be largely ineffective, and in some cases, contribute more to the problems than to the solutions. The postwar era through the 1970s was dominated by economic policies that focused on adjustments to aggregate demand. The dominant policy approach involved attempting to overpower apparent failures at the level of individual markets by gross changes to spending at the aggregate level. This approach is consistent with Keynesian theory, and some argue that it may even have been effective. There was no evidence of significant crowding effects, exchange rates were fixed under the Bretton Woods agreement, and the rapid growth in real output exceeded the growth of monetary aggregates that were required to continue the domestic interest

A Time Series Analysis of the Relationship between Inflation Uncertainty and Unemployment

Abstract This paper examines the empirical relationship between inflation uncertainty and unemployment rates. We find supportive evidence of a significant positive association between inflation uncertainty and unemployment, but this relationship depends critically on three factors. First, the inflation uncertainty-unemployment relationship is not significant before the mid-1970s. Second, the inflation uncertainty-unemployment relationship does not hold across all single digit SIC industries. And third, the inflation uncertainty-unemployment relationship is concentrated at business cycle and long-run components of the data, rather than high-frequency components.

Time aggregation and causality tests: results from a monte carlo experiment

This paper examines the importance of time aggregation in causality testing. We find that temporal aggregates are between two and ten times more unlikely to detect a true causal relationship than are systematic sampled aggregates over short aggregation spans.

Tests for Nonlinearity in EMS Exchange Rates

This paper tests for nonlinearity in EMS exchange rates using the bispectrum. The early experience of the ERM witnessed numerous realignments. We find that exchange rates follow a linear process over the period 1979-1987, consistent with the predictions of the realignment target zone model, where a stabilizing nonlinearity is absent. But from 1987-1992, no realignments occurred, and many currencies conformed to a nonlinear process, consistent with the credible target zone model where an inherent nonlinearity stabilizes exchange rates. However, the Italian lira and the Irish pound follow a linear process, which suggests that a target zone has not proven effective in stabilizing exchange rates.

Time Aggregation and the Money-Real GDP Relationship

Abstract This paper investigates the influence of temporal aggregation and systematic sampling on conclusions about the money-output relationship. We find that a causal relationship from M2 to real output is more likely detected using systematic sampling rather than temporal aggregation. Systematic sampled M2 has greater variation concentrated at business cycle frequencies, and this frequency band is important in explaining movements in output. In the case of M1, we find that temporal aggregation introduces a spurious causal relationship, and that the relationship between M1 and output is not stable. We find little evidence that base money or M3 help predict output.

Comparing U.S. GNP volatility across exchange rate regimes: An application of spahe cracking

Abstract Providing empirical evidence regarding the increased or decreased volatility of domestic real gross national product (GNP) measures following the change from a fixed to a flexible exchange rate regime has proved difficult. Comparing the volatility of GNP measures across the two regimes in conventional ways begs the question. The question is not whether the volatility of the measure has changed, but rather whether the volatility is different than it otherwise would have been. This paper introduces the cosine-squared cepstrum to provide evidence that U.S. real GNP has been less volatile since 1973 than it would have been had the fixed exchange rate regime continued.