Dr. Steven Cassou | Working Papers

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

Abstract: Croushore (2011) and others have noted that monetary policy may be sensitive to inconsistencies between real-time data available to policy makers when making their decisions and revised data which more accurately measure economic performance. This paper extends the asymmetric preference model suggested by Ruge-Murcia (2003) in order to focus on these inconsistencies which arise because of the long lag between the real-time data release and the revised data release. We focus on two related monetary policy models. In both models, the central banker targets a weighted average of revised and real-time inflation. The models differ by what the second variable is in the monetary objective function with the first model using a weighted average of revised and real-time output, whereas the second model uses a weighted average of revised and real-time unemployment. Our models identify several new potential sources of inflation bias due to data revisions in addition to the ones previously suggested in the literature. Our empirical results suggest that the Federal Reserve Bank mainly focuses on targeting revised data for all three variables, but it does weigh real-time data too. As a consequence, the inflation bias induced by real-time data increases by 12.6 basis points on average, but this figure becomes roughly twice as large at the start of recessions.​

Fiscal policy asymmetries and the sustainability of US government debt revisited

Abstract: This paper empirically investigates US fiscal policy sustainability and cyclicality in an empirical structure that allows fiscal policy responses to exhibit asymmetric behavior. We investigate this over two quarterly intervals of data, both of which begin in 1955. The results for a short sample that ends in the second quarter of 1995 shows some differences from the results for the full sample that includes the financial crisis and the Great Recession. For the full sample, US fiscal policy is asymmetrical in regard to both sustainability and cyclicality. Regarding fiscal policy sustainability, the best fitting models show evidence of fiscal policy sustainability for the short sample. However, the fiscal sustainability question does become less clear for the full sample that includes the recent financial crisis and the Great Recession. Regarding fiscal policy cyclicality, we find that during times of distress, policy is strongly countercyclical, but during good times the results are more mixed with some models showing that fiscal policy can be procyclical.​
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