Consumption following a permanent income hypothesis (PIH) is a theoretical concept the validity of which in a given economy during a given period can be confirmed or non-confirmed by the help of an econometric approach. Mathematical formulation of PIH following adaptive expectation technique given by Friedman and the ways of testing the validity of permanency are recapitulated. Two alternative approaches are established: (a) Model published by Campbell and Mankiw  looking for an appropriate econometric technique starting by permanent income hypothesis; based on the results of Hall and Flavin, the model allows to reflect an existence of both PIH and non - PIH consumers and to quantify their proportion. (b) Model of error correction mechanism as a theoretical concept bringing a solution of problems arising by dealing with non - stationary time - series (e.g. ) which happened to suite PIH as an application. Possible influence of financial and economic crises is proposed to be measured by introducing relevant dummies in the models. Using the actual data of the Visegrád group (Czech Republic, Hungary, Poland, Slovakia) and comprising Austrian economy to provide a comparison, both models are estimated. Small discrepancies according to model in question are evident by following individual economies. Treating Visegrád as a panel, both models provide an identical result. PIH cannot be applied to whole economies, nevertheless, as it is shown about 50% of households in the four Visegrád economies consume according to PIH. Critical years 2008-2012 (end of the data sample) do not change this result significantly.
A paper uses disaggregated data on bank balance sheets to provide a test of the lending view of monetary policy transmission. It is argued that if the lending view is correct, one should expect the loan and security portfolios of large and small banks to respond differentially to a contraction in monetary policy. This point is developed with a theoretical model, then it is tested to see if the model's predictions are borne out in the data. Overall, the empirical results are supportive of the lending view.
This paper investigates empirically and attempts to identify the sources of real exchange-rate fluctuations since the collapse of Bretton Woods. The paper's main contribution is to build and estimate a three-equation open macro model in the spirit of Dornbusch and Obstfeld and to identify the model's structural shocks to demand, supply, and money - using the approach pioneered by Blanchard and Quah. For two of the four countries studied, Germany and Japan, the structural estimates imply that monetary shocks explain the majority of the variance in real exchange-rate fluctuations, while supply shocks explain very little. The model's estimated short-run dynamics are strikingly consistent with the predictions of the simple textbook Mundell-Fleming model.
Little is known about the characteristics or behavior of commercial paper issuers at the firm level, or about the reasons for the countercyclical issuance of commercial paper in the aggregate. In order to examine these issues, a new panel data-set is constructed linking Moody's data on commercial paper outstanding with S&P's Compustat. It is found that high credit quality is a requirement for entry into the commercial paper market, but that long-term credit quality is not a sufficient statistic for measuring short-term credit quality. In contrast to the known fact that aggregate commercial paper is countercyclical, it was found that firm-level paper issuance and sales are positively correlated.
This paper explores what the shocks are that drive economic fluctuations. Technology and money shocks are examined in some detail, and the evidence on oil price and credit shocks are briefly reviewed. Whether consumption shocks, reflecting news that agents see but we do not, can account for fluctuations is then examined. It is found that it may be possible to construct models with this feature, though it is more difficult than is commonly realized. If this view is correct, we will forever remain ignorant of the fundamental causes of economic fluctuations.
A wide-ranging investigation of the post-war US Phillips correlations and Phillips curve is presented. Many economists view the Phillips correlations as chimerical, given the rise in both inflation and unemployment during the 1970s, and the Phillips curve as plagued by subtle identification difficulties raised by Lucas and Sargent. Yet, a strikingly stable negative correlation exists over the business cycle, and recent theory indicates the Lucas-Sargent critique may not be empirically relevant. When the long-run trade-off is estimated it is found to be roughly one-for-one. This traditional Keynesian identification also makes business cycles entirely due to demand shocks. However, the Gordon-Solow model is not the only one that fits the data well. Alternative identifications lead to much more modest effects of demand on business cycles and essentially negligible long-run trade-offs.
Macroeconomists are divided on the best way to explain short-run economic fluctuations. This paper presented the case for traditional theories based on short-run price stickiness. It discusses the fundamental basis for believing in this class of macroeconomic models. It also discusses recent research on the macroeconomic foundation of sticky prices.
Cross-country evidence on consumption, income, saving and investment indicates that there remain opportunities for international risksharing. One explanation of the lack of global risksharing is that the gains are not sufficient to offset even small frictions. A paper evaluates the utility gains from risksharing under different assumptions about market structure, country size, technology and preferences. It is found that the gains from risksharing range from zero to 2% of lifetime consumption. When countries are able to self-insure by adjusting labor supply and investment, the gains from risksharing are insignificantly different from zero.