Sumru Altug

Time to build and aggregate fluctuations: some new evidence

This paper presents maximum likelihood estimates and tests of a model similar to one Kydland and Prescott (1982) suggested. For this purpose, it derives equilibrium laws of motion for a set of aggregate variables as functions of the models parameters and the innovation to the technology shock. The paper shows that a single unobservable index can explain the variability in the observed series, but identifying the single index with the innovation to the technology shock implies that per capita hours is not well explained. It also shows that time-separable preferences with respect to leisure are consistent with the data. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Household choices in equilibrium

This paper is an empirical investigation of equilibrium restrictions on household consumption and male labor supply. It exploits a simple factor structure, rationalized by two assumptions, that household allocations are Pareto optimal and that the labor market is competitive. The paper estimates household preferences, and tests how well this parsimonious factor structure represents panel data on married couples and time series data on asset returns. Most of the estimates are roughly comparable to those found in previous work; no evidence against the simple factor representation is found and the intertemporal capital asset pricing model is not rejected. Copyright 1990 by The Econometric Society.

Sources of Long-term Economic Growth for Turkey: 1880-2005

This article considers the sources of long-term economic growth for Turkey over the period 1880–2005. The period in question covers the decline and eventual dissolution of the former Ottoman Empire and the emergence of the new Turkish Republic in 1923. Hence, the article provides a unique look at the growth experience of these two different political and economic regimes. The article examines in detail the evolution of factors that led to growth in output across broad periods, including the post-World War II period and the era of globalization beginning in the 1980s. It also considers output growth in the agricultural and non-agricultural sectors separately and allows for the effects of sectoral re-allocation. The lessons from this exercise have important implications for Turkeys future economic performance, for its ability to converge to per capita income levels of developed countries, and for the viability of its current bid for European Union membership.

Time-to-Build, Delivery Lags, and the Equilibrium Pricing of Capital Goods

This paper characterizes the behavior of investment expenditures, optimal capital stocks, and real interest rates in the time-to-build model of investment. The paper derives equilibrium pricing relationships involving the prices of new and used capital and uses these relationships to obtain simple tests of the underlying investment technology. The paper also demonstrates that empirical versions of the delivery lag model are misspecified because the term structure of interest rates over the time horizon for which investment yields productive capital are omitted and that the use of stock market data to measure Tobins q is inappropriate within the time-to-build model. Copyright 1993 by Ohio State University Press.

Business Cycles in Developed and Emerging Economies: Evidence from a Univariate Markov Switching Approach

This paper characterizes business cycle phenomena in a sample of twenty-seven developed and emerging economies using a univariate Markov regime-switching approach. It examines the efficacy of this approach for detecting business cycle turning points and for identifying distinct economic regimes for each country in question. The paper also presents results on business cycle synchronization for the sample of countries under consideration. The findings of the paper have implications for understanding the commonalities and differences in cyclical phenomena for a diverse set of developed and emerging economies.

Are Technology Shocks Nonlinear

The behavior of postwar real U.S. GNP, the inputs to an aggregate production function, and several formulations of the associated Solow residuals for the presence of nonlinearities in their generating mechanisms are examined. Three different statistical tests for nonlinearity are implemented: the McLeod-Li test, the BDS test, and the Hinich bicovariance test. We find substantial evidence for nonlinearity in the generating mechanism of real GNP growth but no evidence for nonlinearity in the Solow residuals. We further find that the generating mechanism of the labor input series is nonlinear, whereas that of the capital services input appears to be linear. We therefore conclude that the observed nonlinearity in real output arises from nonlinearities in the labor markets, not from nonlinearities in the technical shocks driving the system. Finally, we investigate the source of the nonlinearities in the labor markets by examining simulated data from a model of the Dutch economy with asymmetric adjustment costs.

Scale effects, time-varying markups, and the cyclical behaviour of primal and dual productivity

This paper presents estimates of the degree of returns to scale using nonparametric measures of primal and dual productivity for 2-digit US manufacturing industries. As part of the analysis, the cyclical behaviour of primal and dual productivity measures are considered, time-varying markups are allowed for, and the small sample properties of the instrumental variables estimator used to derive the estimates from the primal and dual relations examined. Both the primal and dual estimates indicate the existence of increasing returns to scale for the durable goods industries. The simulation results indicate there is a slight tendency for the dual equation estimates to overestimate the degree of returns to scale. However, small sample bias appears to be most severe for the non-durable goods industries.

Business Cycles: Fact, Fallacy and Fantasy

This book provides an overview of the modern theory and empirics of business cycles. Written by one of the pioneering authors in this field, it examines the notion of a business cycle and discusses alternative approaches to modeling. Arguably, one of the most important debates in this literature has been the issue of i°matchingi± a business cycle to the data. In their original contribution, Kydland and Prescott (1982) proposed the method of calibration as a way of examining the implications of a business cycle model; yet, even at its inception, this approach came under criticism from a variety of sources. This monograph will examine some of these criticisms and discuss alternative approaches that have been put forward. More generally, it will discuss what lies ahead for modern business cycle theory.

Search Frictions, Financial Frictions and Labor Market Fluctuations in Emerging Economies

ABSTRACT This article examines the role of the extensive and intensive margins of labor input in the context of a business cycle model with a financial friction. We document significant variation in the hours worked per worker for many emerging-market economies using manufacturing data. Both employment and hours worked per worker are positively correlated with each other and with output. We show that a search-theoretic context in a small open-economy model requires a small wealth effect to explain these regularities at the expense of a smaller wage response. On the other hand, introducing a financial friction in the form of a working capital requirement can explain the observed movements of labor market variables such as employment and hours worked per worker, as well as other distinguishable business cycle characteristics of emerging economies. These include highly volatile and cyclical real wages, labor share, and consumption.

Cost Uncertainty, Taxation and Irreversible Investment

We examine the impact of learning about the unknown costs of investment on irreversible investment decisions, and show that the presence of learning increases the endogenous cost of adjustment and depresses investment. We demonstrate convergence of the state of information and capital stock to the ergodic set. Once learning is complete, in contrast to the exogenous cost-of-adjustment model, a mean-preserving increase in risk raises the endogenous marginal adjustment cost, reducing investment and the steady-state capital stock.