The ability of a two-sector model to quantify the contribution of the housing market to business fluctuations is investigated using U.S. data and Bayesian methods. The estimated model, which contains nominal and real rigidities and collateral constraints, displays the following features: first, a large fraction of the upward trend in real housing prices over the last 40 years can be accounted for by slow technological progress in the housing sector; second, residential investment and housing prices are very sensitive to monetary policy and housing demand shocks; third, the wealth effects from housing on consumption are positive and significant, and have become more important over time. The structural nature of the model allows identifying and quantifying the sources of fluctuations in house prices and residential investment and measuring the contribution of housing booms and busts to business cycles.

/pdf/housing-market-spillovers-evidence-from-an-estimated-dsge-cw32z51gvs.pdf

Housing Market Spillovers: Evidence from an Estimated DSGE Model

Testing Trade-Off and Pecking Order Predictions about Dividends and Debt

Recently, a number of authors have argued that the standard search model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies, given shocks of a plausible magnitude. We use data on the cost of vacancy creation and cyclicality of wages to identify the two key parameters of the model - the value of non-market activity and the bargaining weights. Our calibration implies that the model is, in fact, consistent with the data.

The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited

This paper introduces the concepts of time-speci…c weak and strong cross section dependence. A double-indexed process is said to be cross sectionally weakly dependent at a given point in time, t, if its weighted average along the cross section dimension (N) converges to its expectation in quadratic mean, as N is increased without bounds for all weights that satisfy certain ‘granularity’ conditions. Relationship with the notions of weak and strong common factors is investigated and an application to the estimation of panel data models with an in…nite number of weak factors and a …nite number of strong factors is also considered. The paper concludes with a set of Monte Carlo experiments where the small sample properties of estimators based on principal components and CCE estimators are investigated and compared under various assumptions on the nature of the

/pdf/weak-and-strong-cross-section-dependence-and-estimation-of-4sg0174d2g.pdf

Weak and Strong Cross Section Dependence and Estimation of Large Panels

Renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy. Because of modeling uncertainty, it is essential that policy evaluations be robust to alternative assumptions. We find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust. Government spending multipliers in an alternative empirically-estimated and widely-cited new Keynesian model are much smaller than in these old Keynesian models; the estimated stimulus is extremely small just when needed most, and GDP and employment effects are only one-sixth as large, with private sector employment impacts likely to be even smaller.

https://papers.ssrn.com/sol3/Delivery.cfm/nber_w14782.pdf?abstractid=1359478&mirid=3

New Keynesian versus Old Keynesian Government Spending Multipliers

This paper evaluates the extent of downward nominal and real wage rigidity for different categories of workers and firms using the methodology recently developed by the International Wage Flexibility Project (Dickens and Goette, 2006). The analysis is based on an administrative data set on individual earnings, covering one-third of employees of the private sector in Belgium over the period 1990-2002. Our results show that Belgium is characterised by strong real wage rigidity and very low nominal wage rigidity, consistent with the Belgian wage formation system of full indexation. Real rigidity is stronger for white-collar workers than for blue-collar workers. Real rigidity decreases with age and wage level. Wage rigidity appears to be lower in firms experiencing downturns. Finally, smaller firms and firms with lower job quit rates appear to have more rigid wages. Our results are robust to alternative measures of rigidity.

/pdf/downward-wage-rigidity-for-different-workers-and-firms-an-4pnrkl3axg.pdf

Downward Wage Rigidity for Different Workers and Firms: An Evaluation for Belgium Using the IWFP Procedure

This paper examines whether differences in wage rigidity across sectors can be explained by differences in workforce composition, competition, technology and wage-bargaining institutions. We adopt the measure of downward real wage rigidity (DRWR) developed by Dickens and Goette (2006), and rely on a large administrative matched employer-employee dataset for Belgium over the period 1990-2002. Firstly, our results indicate that DRWR is significantly higher for white-collar workers and lower for older workers and for workers with higher earnings and bonuses. Secondly, beyond labour force composition effects sectoral differences in DRWR are related to competition, firm size, technology and wage-bargaining institutions. We find that wages are more rigid in more competitive sectors, in labour-intensive sectors, and in sectors with predominant centralised wage setting at the sector level as opposed to firm-level wage agreements.

Understanding sectoral differences in downward real wage rigidity: workforce composition, institutions, technology and competition. NBB Working Papers. No. 156, 19 February 2009

Using firm-level data for Belgium over the period 1997-2005, we evaluate the elasticity of firms' labour and real average labour compensation to microeconomic total factor productivity (TFP). Our results may be summarised as follows. First, we find that the elasticity of average labour compensation to firm-level TFP is very low contrary to that of labour, consistent with real wage rigidity. Second, while the elasticity of average labour compensation to idiosyncratic firm-level TFP is close to zero, the elasticity with respect to aggregate sector-level TFP is high. We argue that average labour compensation adjustment mainly occur at the sector level through sectoral collective bargaining, which leaves little room for firm-level adjustment to firm-specific shocks. Third, we report evidence of a positive relationship between hours and idiosyncratic TFP, as well as aggregate TFP within the year.

Rigid labour compensation and flexible employment? Firm-level evidence with regard to productivity for Belgium. NBB Working Papers. No. 159, 11 March 2009

This paper assesses the degree of wage flexibility in Luxembourg using an administrative data set on individual base wages covering the entire economy over the period 2001-2006 with monthly frequency. We find that the wage flexibility at the discretion of the firm is rather low once we limit measurement error and remove wage changes due to institutional factors (indexation, changes in statutory minimum wage, age and marital status). The so adjusted frequency of wage change lies between 5% and 7%. On average, wages change less often than consumer prices. Less than one percent of (nominal) wages are cut both from month to month and from year to year. Due to automatic wage indexation, wages appear to be subject to substantial downward real wage rigidity. Finally, wage changes tend to be highly synchronised as they are concentrated around the events of wage indexation and the month of January.

/pdf/wages-are-flexible-aren-t-they-evidence-from-monthly-micro-zb963oi4xu.pdf

Wages Are Flexible, Aren’t They? Evidence from Monthly Micro Wage Data

This paper studies the behaviour of Internet prices. It compares price rigidities on the Internet and in traditional brick-and-mortar stores and provides a cross-country perspective. The data set covers a broad range of items typically sold over the Internet.It includes more than 5 million daily price quotes downloaded from price comparison web sites in France, Germany, Italy, the UK and the US. The following results emerge from our analysis. First, and contrary to the recent findings for common CPI data, Internet prices in the EU countries do not change less often than online prices in the US. Second, prices on the Internet are not necessarily more flexible than prices in traditional brick-and-mortar stores. Third, there is substantial heterogeneity in the frequency of price change across shop types and product categories. Fourth, the average price change on the Internet is relatively large, but smaller than the respective values reported for CPI data. Finally, panel logit estimates suggest that the likelihood of observing a price change is a function of both state- and time-dependent factors.

Ladislav Wintr

Papers

Downward Wage Rigidity for Different Workers and Firms: An Evaluation for Belgium Using the IWFP Procedure

Understanding sectoral differences in downward real wage rigidity: workforce composition, institutions, technology and competition. NBB Working Papers. No. 156, 19 February 2009

Rigid labour compensation and flexible employment? Firm-level evidence with regard to productivity for Belgium. NBB Working Papers. No. 159, 11 March 2009

Wages Are Flexible, Aren’t They? Evidence from Monthly Micro Wage Data

Are Internet Prices Sticky