N. Gregory Mankiw

Bio: N. Gregory Mankiw is an academic researcher from Harvard University. The author has contributed to research in topics: Monetary policy & New Keynesian economics. The author has an hindex of 97, co-authored 277 publications receiving 55138 citations. Previous affiliations of N. Gregory Mankiw include Massachusetts Institute of Technology & National Bureau of Economic Research.

A Contribution to the Empirics of Economic Growth

Abstract: This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The paper also examines the implications of the Solow model for convergence in standards of living, that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts. This paper takes Robert Solow seriously. In his classic 1956 article Solow proposed that we begin the study of economic growth by assuming a standard neoclassical production function with decreasing returns to capital. Taking the rates of saving and population growth as exogenous, he showed that these two vari- ables determine the steady-state level of income per capita. Be- cause saving and population growth rates vary across countries, different countries reach different steady states. Solow's model gives simple testable predictions about how these variables influ- ence the steady-state level of income. The higher the rate of saving, the richer the country. The higher the rate of population growth, the poorer the country. This paper argues that the predictions of the Solow model are, to a first approximation, consistent with the evidence. Examining recently available data for a large set of countries, we find that saving and population growth affect income in the directions that Solow predicted. Moreover, more than half of the cross-country variation in income per capita can be explained by these two variables alone. Yet all is not right for the Solow model. Although the model correctly predicts the directions of the effects of saving and

Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve

Abstract: This paper examines a model of dynamic price adjustment based on the assumption that information disseminates slowly throughout the population. Compared to the commonly used sticky-price model, this sticky-information model displays three, related properties that are more consistent with accepted views about the effects of monetary policy. First, disinflations are always contractionary (although announced disinflations are less contractionary than surprise ones). Second, monetary policy shocks have their maximum impact on inflation with a substantial delay. Third, the change in inflation is positively correlated with the level of economic activity.

Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve

Abstract: This paper examines a model of dynamic price adjustment based on the assumption that information disseminates slowly throughout the population. Compared with the commonly used sticky-price model, this sticky-information model displays three related properties that are more consistent with accepted views about the effects of monetary policy. First, disine ations are always contractionary (although announced disine ations are less contractionary than surprise ones). Second, monetary policy shocks have their maximum impact on ine ation with a substantial delay. Third, the change in ine ation is positively correlated with the level of economic activity. The dynamic effects of aggregate demand on output and ine ation remain a theoretical puzzle for macroeconomists. In recent years, much of the literature on this topic has used a model of time-contingent price adjustment. This model, often called “ the new Keynesian Phillips curve,” builds on the work of Taylor [1980], Rotemberg [1982], and Calvo [1983]. As the recent survey by Clarida, Gali, and Gertler [1999] illustrates, this model is widely used in theoretical analysis of monetary policy. McCallum [1997] has called it “ the closest thing there is to a standard specie cation.” Yet there is growing awareness that this model is hard to square with the facts. Ball [1994a] shows that the model yields the surprising result that announced, credible disine ations cause booms rather than recessions. Fuhrer and Moore [1995] argue that it cannot explain why ine ation is so persistent. Mankiw [2001] notes that it has trouble explaining why shocks to monetary policy have a delayed and gradual effect on ine ation. These problems appear to arise from the same source: although the price level is sticky in this model, the ine ation rate can change quickly. By contrast, empirical analyses of the ine ation process (e.g., Gordon [1997]) typically give a large role to “ ine ation inertia.”

Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence

Abstract: This paper proposes that the time-series data on consumption, income, and interest rates are best viewed as generated not by a single representative consumer but by two groups of consumers. Half the consumers are forward-looking and consume their permanent income, but are extremely reluctant to substitute consumption temporarily. Half the consumers follow the "rule of thumb" of consuming their current income. The paper documents three empirical regularities that, it argues, are best explained by this medal. First, expected changes in income are associated with expected changes in consumption. Second, expected real interest rates are not associated with expected changes in consumption. Third, periods in which consumption is high relative to income are typically followed by high growth in income. The paper concludes by briefly discussing the implications of these findings for economic policy and economic research.

Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence

Abstract: This paper proposes that the time-series data on consumption, income, and interest rates are best viewed as generated not by a single representative consumer but by two groups of consumers. Half the consumers are forward-looking and consume their permanent income, but are extremely reluctant to substitute consumption intertemporally. Half the consumers follow the "rule of thumb" of consuming their current income. The paper documents three empirical regularities that, it argues, are best explained by this model. First, expected changes in income are associated with expected changes in consumption. Second, expected real interest rates are not associated with expected changes in consumption. Third, periods in which consumption is high relative to income are typically followed by high growth in income. The paper concludes by briefly discussing the implications of these findings for economic policy and economic research.

Social Capital in the Creation of Human Capital

Abstract: In this paper, the concept of social capital is introduced and illustrated, its forms are described, the social structural conditions under which it arises are examined, and it is used in an analys...

A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle.

Abstract: This paper proposes a very tractable approach to modeling changes in regime. The parameters of an autoregression are viewed as the outcome of a discrete-state Markov process. For example, the mean growth rate of a nonstationary series may be subject to occasional, discrete shifts. The econometrician is presumed not to observe these shifts directly, but instead must draw probabilistic inference about whether and when they may have occurred based on the observed behavior of the series. The paper presents an algorithm for drawing such probabilistic inference in the form of a nonlinear iterative filter

Finance and Growth: Schumpeter Might Be Right

Abstract: Joseph Schumpeter argued in 1911 that the services provided by financial intermediaries - mobilizing savings, evaluating projects, managing risk, monitoring managers, and facilitating transactions -stimulate technological innovation and economic development. The authors present evidence that supports this view. Examining a cross-section of about 80 countries for the period 1960-89, they find that various measures of financial development are strongly associated with both current and later rates of economic growth. Each measure has shortcomings but all tell the same story: finance matters. They present three main findings, which are robust to many specification tests: The average level of financial development for 1960-89 is very strongly associated with growth for the period. Financial development precedes growth. For example, financial depth in 1960 (the ratio of broad money to GDP) is positively and significantly related to real per capita GDP growth over the next 30 years even after controlling for a variety of country-specific characteristics and policy indicators. Financial development is positively associated with both investment rate and the efficiency with which economies use capital. Much work remains to be done, but the data are consistent with Schumpeter's view that the services provided by financial intermediaries stimulate long-run growth.

The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis

Abstract: We consider the null hypothesis that a time series has a unit root with possibly nonzero drift against the alternative that the process is «trend-stationary». The interest is that we allow under both the null and alternative hypotheses for the presence for a one-time change in the level or in the slope of the trend function. We show how standard tests of the unit root hypothesis against trend stationary alternatives cannot reject the unit root hypothesis if the true data generating mechanism is that of stationary fluctuations around a trend function which contains a one-time break

Why Do Some Countries Produce so Much More Output Per Worker than Others

Abstract: Output per worker varies enormously across countries. Why? On an accounting basis, our analysis shows that differences in physical capital and educational attainment can only partially explain the variation in output per worker--we find a large amount of variation in the level of the Solow residual across countries. At a deeper level, we document that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which we call social infrastructure. We treat social infrastructure as endogenous, determined historically by location and other factors captured in part by language.