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Department of Economics

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Economics Department
Kansas State University
327 Waters Hall
1603 Old Claflin Place
Manhattan, KS 66506
785-532-7357
785-532-6919 fax
econ@k-state.edu

 

ecoreps

Dr. Steven Cassou | Working Papers

 Asymmetric effects of expectation shocks when monetary policy regimes shift: Evidence from survey data.

Abstract: Using the Survey of Professional Forecasters and Livingston Survey data, this paper empirically investigates the effects of expectation shocks on macroeconomic activities when monetary policy shifts between policy regimes. Two policy regime structures, including an opportunistic monetary policy structure and a structure contingent on the unemployment rate, are investigated. Identifying an expectation shock by using the timing of information in the survey forecasts and the actual data releases, we show that the effects of expectation shocks on current and future macroeconomic activities are stronger in a hawkish monetary policy regime than in a dovish monetary policy regime. Our findings do not support the view of some central bank critics who argued that keeping monetary policy too easy for too long is responsible for fueling the booms. Instead, we find that a positive (negative) expectation about the future coincides with an anticipatory tightening (easing) of monetary policy.

Do US government tax revenues and expenditures respond to debt levels and economic conditions asymmetrically over the business cycle?

Abstract: This paper empirically investigates whether there are asymmetries in the responses of US government tax revenues and expenditures to debt levels and economic conditions over the business cycle. State of the art regime switching models, including Threshold Regression and Markov Switching, are investigated. Both sides of the government budget show asymmetries, but the asymmetries for tax revenue show greater statistical significance. The results show that fiscal authorities take weaker action in response to debt during poor economic times. In addition, the asymmetric responses to economic conditions for both sides of the government budget shows that stronger countercyclical policy is taken during poor economic times.

 Optimal monetary policy: Does considering real-time data change things?

Abstract: Yes, it does. This paper extends a variant of the asymmetric preference model suggested by Ruge-Murcia (2003a) to investigate the use of real-time data available to policy makers when making their decisions and revised data which more accurately measure economic performance (Croushore, 2011). In our extended model, the central banker targets a weighted average of revised and real-time inflation together with a weighted average of revised and real-time output. Moreover, we allow for an asymmetric central bank response to real-time data depending on whether the unemployment rate is high or low. Our model identifies several new potential sources of inflation bias due to data revisions. Our empirical results suggest that the Federal Reserve Bank focuses on targeting revised inflation during low unemployment periods, but it weighs heavily real-time inflation during high unemployment periods. The inflation bias due to data revisions is comparable in magnitude to the bias from asymmetric central banker preferences with the bias being somewhat larger during high unemployment.

Real-time vs ex-post monetary policy evaluation under opportunistic policy.

Abstract: In this paper we show that there are striking differences in impulse response results when using revised and real-time data under opportunistic threshold structures.  Notably, the impulse responses using revised data show almost no threshold behavior differences between the two sides of an opportunistic threshold structure while real-time data show significant differences between the two sides.  This result is important to recognize since policy makers do not have ex-post revised data during their decision deliberations.  As a result, economists using revised data may misread policy making behavior that can only be revealed using real-time data.

 Government Capital and Production: Industry Level Estimates.

Abstract: This paper estimates sectoral level production functions using U.S. data for nine industry groups. It is shown that the public capital elasticity differs across industries. This implies that not all industries are equally impacted by public capital spending and that using a single generic production function with constant returns to scale to represent all industries is not appropriate.

 

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