National Bureau of Economic Research

About: National Bureau of Economic Research is a nonprofit organization based out in Cambridge, Massachusetts, United States. It is known for research contribution in the topics: Monetary policy & Population. The organization has 2626 authors who have published 34177 publications receiving 2818124 citations. The organization is also known as: NBER & The National Bureau of Economic Research.

The persistence of volatility and stock market fluctuations

Abstract: This paper examines the potential influence of changing volatility in stock market prices on the level of stock market prices. It demonstrates that volatility is only weakly serially correlated, implying that shocks to volatility do not persist. These shocks can therefore have only a small impact on stockmarket prices, since changes in volatility affect expected required rates of return for relatively short intervals. These findings lead us to be skeptical of recent claims that the stock market's poor performance during the 1970's can be explained by volatility-induced increases in risk premia.

On the Predictability of Stock Returns: An Asset-Allocation Perspective

Abstract: Sample evidence about the predictability of monthly stock returns is considered from the perspective of an investor allocating funds between stocks and cash. A regression of stock returns on a set of predictive variables might seem weak when described by usual statistical measures, but such measures can fail to convey the economic significance of the sample evidence when it is used by a risk-averse Bayesian investor to update prior beliefs about the regression relation and to compute an optimal asset allocation. Even when those prior beliefs are weighted substantially against predictability, the current values of the predictive variables can exert a strong influence on the portfolio decision.

Understanding Financial Crises: A Developing Country Perspective

Abstract: This paper explains the puzzle of how a developing economy can shift from a path of reasonable growth before a financial crisis, as in Mexico in 1994, to a sharp decline in economic activity after a crisis occurs. It does so by outlining an asymmetric information framework for analyzing banking and finan- cial crises in developing countries. The asymmetric inforamtion framework shows why the banking sector is so important to the economy, and provides a rationale for bank regulation and supervision. This asymmetric information framework is then used to understand why banking and financial crises occur and why they can have such a devastating effect on the economy countries. The paper concludes by discussing policy implications for developing countries. An important theme is that an appropriate institutional structure is critical to preventing banking and financial crises in developing countries and to reducing their undesirable effects if they should occur.

The Survival of Noise Traders in Financial Markets

Abstract: We use the revised estimates of U.S. GNP constructed by Christina Romer (1989) to assess the time-series properties of U.S. output per capita over the past century. We reject at conventional significance levels the null that output is a random walk in favor of the alternative that output is a stationary autoregressive process about a linear deterministic trend. The difference between the lack of persistence of output shocks either before WWII or over the entire century, on the one hand, and the strong signs of persistence of output shocks found by Campbell and Mankiw (1987) and by Nelson and Plosser (1982) for more recent periods is striking. It suggests to us a Keynesian interpretation of the large unit root in post-WWII U.S. output: perhaps post-WWII output shocks appear persistent because automatic stabilizers and other demand-management policies have substantially damped the transitory fluctuations that made up the pre-WWH Bums-Mitchell business cycle.

Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series

Abstract: This paper develops a set of approximate band-pass filters designed for use in a wide range of economic applications. In particular, we design and implement a specific band-pass filter which isolates business-cycle fluctuations in macroeconomic time series. This filter was designed to isolate fluctuations in the data which persist for periods of two through eight years. This filter also 'detrends' the data, in the sense that it will render stationary time series that are integrated of order two or less, or that contain deterministic time trends. We apply our filter to several of the key macroeconomic time series, and describe the picture of the U.S. postwar business cycle that emerges from our analysis. We also provide detailed comparisons with several alternative detrending methods.