Brian Dombeck (University of Oregon) presented work exploring the importance of information and expectations in macroeconomics. Beaudry and Portier (2004) examined the requirements for an RBC type model to exhibit what they call “Pigou Cycles”, defined as a business cycle caused by optimistic expectations by agents about future investment productivity that turn out to be too optimistic. The realization that investment will be less productive than agents previously thought results in a mass disinvestment commensurate with a recession. The general feature of the Pigou cycle is one of the economy reacting positively to favorable news about the future, and negatively once the news is found to be untrue.

Slides from the presentation can be found here.

Jeremy Piger (University of Oregon) presented new work analyzing sample properties and estimation procedures for N-State Markov Switching models. Typically the correlation between the error terms and the states is assumed to be zero, but in some cases this may not be natural. For instance if shocks to the economy drive business cycles then we should allow the transition process to be affected by the shocks themselves. A small body of work has examined endogenous Markov-switching but has focused on estimation when the number of states is small i.e. N=2. Consider the case for N>2 allows the econometrician greater flexibility in estimating business cycle models.

Slides for the presentation can be found here.

Chad Fulton (University of Oregon) presented recent works highlighting the issues of accurately conducting macroeconomic analysis starting from microfoundations.

Adam Check (University of Oregon) presented preliminary work which attempts to relate the observed reduction in correlation between the money supply and inflation in the USA after the mid-80s to changes in Fed policy. The quantity theory of money states that changes in the money supply should cause one-for-one changes in the price level. Data on the money supply and aggregate price levels support this theory only until the mid 1980s, after which the correlation between the variables appears to be much lower (possibly zero). There are two leading hypothesis for this change. First, the way in which money is measured may provide an inadequate representation of the true money supply. Second, changes in Fed policy e.g. changing the relative weighting of fulfilling the Dual Mandate could have affected the observed correlation.

Sargent and Surico (2011) showed that changes in the monetary policy rule in a New Keynesian model could change the parameter estimates in a regression of money on inflation. The model is estimated using Bayesian techniques, and contour plots showing ranges for the regression coefficient mapped in policy parameter space reveals that as policy makers responded more aggressively to inflation, the correlation between money and inflation fell.

Slides from the presentation can be found here.

Matthew Wilson (University of Oregon) presented his job market paper “A Real Business Cycle Model with Money as a Sunspot Variable”.

Abstract: A well-known criticism of the RBC model is that it cannot match the data on money. Due to the perfect flexibility of prices and the absence of frictions, any exogenous increase in the money supply will be fully offset by wage and price increases, implying that money is neutral even in the short run. However, beliefs that money is non-neutral could become a self-fulfilling prophesy. By using money as a sunspot variable in an RBC model, I successfully replicate many of the correlations in the data, even though money does not directly affect the economy’s fundamentals. This shows that models with flexible prices are not necessarily incompatible with the monetary data and offers support for the use of sunspot variables in macroeconomics.

The paper can be found here.

Sacha Gelfer (University of Oregon) presented current work involving the introduction of adaptive learning to households in a medium-scale New Keynesian model featuring many frictions and shocks. The boundedly rational agents form expectations about future aggregate variables using recursive OLS and choose from three different models or “perceived laws of motion” using the Bayesian Information Criterion. Some of these include the usage of a professional forecast while other do not.  Results indicate agents indeed react to changes in variables by adapting their perceived law of motion.  Simulations show that macroeconomic volatility decreases when an accurate professional forecast announced to agents is used in their perceived law of motion. However, if their is large noise around the dissemination of the forecasts to the agent macroeconomic volatility will increase.

Slides from the presentation are here.

Tyler Shipper presented The Size Distribution of Farms and International Productivity Differences (AER 2014) by  Tasso Adamopoulos and Diego Restucc. The authors present a model of a two sector economy that helps explain why aggregate variables at the country level such as capital and productivity have limited explanatory power for farm size. Including country specific policies enhances the explanatory power from 1/4 of total variation to 1/2. The abstract and a link to the paper are below.

Abstract: We study the determinants of differences in farm-size across countries and their impact on agricultural and aggregate productivity using a quantitative sectoral model featuring a distribution of farms. Measured aggregate factors (capital, land, economy-wide productivity) account for ¼ of the observed differences in farm size and productivity. Policies and institutions that misallocate resources across farms have the potential to account for the remaining differences. Exploiting within-country variation in crop-specific price distortions and their correlation with farm size, we construct a cross-country measure of farm-size distortions which together with aggregate factors accounts for ½ of the cross-country differences in size and productivity.

The paper can be found here.

Jeff Allen presented Persistence of Power, Elites, and Institutions  by Daron Acemoglu and James A. Robinson (AER 2008). The paper presents a theoretical model of an economy characterized by two classes of agent, the citizenry and the elite. These classes choose an effort level to obtain de facto and/or de jure power. The baseline model predicts the elite will always control economic and political power, while extensions produce interesting cases such as “captured democracy” in which the citizenry control the political system but the elite control the economic system. The abstract and a link to the paper are below.

Abstract: We construct a model to study the implications of changes in political institutions for economic institutions. A change in political institutions alters the distribution of de jure political power, but creates incentives for investments in de facto political power to partially or even fully offset change in de jure power. The model can imply a pattern of captured democracy, whereby a democratic regime may survive but choose economic institutions favoring an elite. The model provides conditions under which economic or policy outcomes will be invariant to changes in political institutions, and economic institutions themselves will persist over time. (JEL D0, D7)

The paper can be found here.

Bruce McGough presented joint work with George Evans and Roger Guesnerie on eductive stability in a standard RBC model. Eductive stability, a stricter form of stability under learning,  refers to a type of equilibrium in which hyper-rational agents endowed with some Common Knowledge  are able to coordinate on an equilibrium. The abstract is below.

Abstract: Within the standard RBC model, we examine issues of expectational coordination on the unique rational expectations equilibrium. Our study first provides a comprehensive assessment of the sensitivity of agents’ plans and decisions to their short-run and long-run expectations. We show this sensitivity is much too great to trigger eductive coordination in a world of hyper-rational agents, who are endowed with Common Knowledge and contemplate the possibility of small deviations from equilibrium: eductive stability never obtains. This impossibility theorem has a counterpart when adaptive learning is incorporated and real-time paths are required to satisfy a collective initial view of the future.

The slides from the presentation are here.