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Economic fluctuations research meeting.

Economic Fluctuations Research Meeting

Over 100 economists attended a research meeting of the NBER's Program in Economic Fluctuations in Cambridge on July 13. The program, organized by Research Associates Andrei Shleifer of the University of Chicago and Lawrence H. Summers of Harvard University, was:

Robert B. Barsky, NBER and University of Michigan,

and J. Bradford De Long, NBER and Harvard

University, "Why Have Stock Prices Fluctuated?"

Discussant: John Y. Campbell, NBER and Princeton

University

Knut Anton Mork, Vanderbilt University, and Hans

Terje Mysen and Oystein Olsen, Central Bureau of

Statistics, Norway, "Macroeconomic Responses

to Oil Price Increases and Decreases in Six OECD

Countries"

Discussant: James Hamilton, University of Virginia

Lawrence M. Ausubel, Northwestern University,

"The Failure of Competition in the Credit Card

Market"

Discussant: Julio J. Rotemberg, NBER and MIT

Lawrence H. Summers, and Chris Carroll, MIT,

"Consumption Growth Parallels Income Growth: Some

New Evidence"

Discussant: Angus Deaton, NBER and Princeton

University

Steve J. Davis, University of Chicago, and John C.

Haltiwanger, University of Maryland, "Gross Job

Creation, Gross Job Destruction, and Employment

Reallocation"

Discussant: Lawrence J. Katz, NBER and Harvard

University

Finn E. Kydland, Carnegie-Mellon University, and

Edward C. Prescott, University of Minnesota,

Cyclical Movements of the Labor Input and Its Real

Wage"

Discussant: Kevin M. Murphy, NBER and University

of Chicago

Barsky and De Long reassess the relationship between stock prices and current and expected future dividends to determine whether market fluctuations are caused by shifts in fundamentals. Using data on dividends from 1900 to the present, they find that changes in the rationally expected growth rate of dividends may account for the sizable long-run variation in the dividend/price ratio. Movements in current and expected future dividends themselves also can explain much about the major historical long swings in stock prices. Previous conclusions to the contrary appear to depend on agents' assumed knowledge of certain features of the dividend process, but that knowledge was unavailable to investors at the time, Barsky and De Long believe.

Mork, Mysen, and Olsen analyze the correlations between oil price movements and GNP/GDP fluctuations for the United States, Canada, West Germany, Japan, the United Kingdom, and Norway. They find the clearest correlations for the United States, which also shows evidence of asymmetric responses to price increases and decreases. West Germany, Canada, and Norway show significant univariate, but not multivariate, correlations with oil price increases.

The bank credit card market, containing 4000 firms and lacking regulatory barriers, appears to be an example of perfect competition. Nevertheless, Ausubel reports that credit card interest rates have been exceptionally sticky relative to the cost of funds. Moreover, credit card issuers appear to have earned three to five times the ordinary rate of return in banking from 1983-7. The competitive model may fail partly because of consumer search or switch costs, which may be exacerbated by adverse selection.

Summers and Carroll argue that the versions of the permanent-income and life-cycle theories that recently have become fashionable are inconsistent with the most obvious features of cross-country and cross-sectional data on consumption and income. Consumption and income growth are much more closely linked than these theories would predict. Furthermore, consumption smoothing appears to take place over periods of several years, not several decades. Thus the usefulness of standard representative consumer approaches to the analysis of saving behavior is questionable. Increased emphasis on liquidity constraints and short-run precautionary saving may be necessary to explain consumption behavior.

Davis and Haltiwanger measure the heterogeneity of employment changes in the U.S. manufacturing sector at the establishment level from 1972-86. Their dataset has approximately 860,000 annual observations and 3.4 million quarterly observations on 160,000 manufacturing establishments. Based on March-to-March changes in establishment level employment, gross job reallocation (that is, job creation minus job destruction) averages 20 percent per year. Reallocation rates range from 17 to 23 percent per year in the manufacturing sector, Davis and Haltiwanger find. Virtually all of the time-series variation in gross job reallocation is explained by time-series variation in the idiosyncratic components of establishment growth rates. They conclude that the intensity of shifts in the pattern of employment opportunities across establishments is strongly countercyclical. This finding provides evidence of a systematic connection between aggregate fluctuations and the heterogeneity of employment changes at the establishment level.

Using data for 1969-82 on almost 5000 people in the Panel Study of Income Dynamics, Kydland and Prescott ask if aggregate hours worked are a good measure of labor input over a business cycle. The validity of aggregate hours as a cyclical measure requires that the composition of the work force by skill and ability remain approximately unchanged over the cycle. However, aggregate hours are more volatile cyclically than labor input is. Furthermore, the real wage is strongly procyclical, while average compensation per hour is not. Thus, aggregate hours are a poor measure of labor input.
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Title Annotation:Program in Economic Fluctuations
Publication:NBER Reporter
Date:Sep 22, 1989
Words:806
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