Dr. Steven Cassou | Working Papers
- “Employment Comovements at the Sectoral Level over the Business Cycle,” with Jesus Vazquez.
- “New Keynesian Model Features that can Reproduce Lead, Lag and Persistence Patterns,” with Jesus Vazquez.
- “Policy effects of the elasticity of substitution between skilled and unskilled labor in life cycle models,” with Arantza Gorostiaga and Iker Uribe.
Abstract: This paper extends the technique suggested by den Haan (2000) to investigate contemporaneous
as well as lead and lag correlations among economic data for a range of forecast horizons.
The technique provides a richer picture of the economic dynamics generating the data
and allows one to investigate which variables lead or lag others, and whether the
lead or lag pattern is short term or long term in nature. The technique is applied
to monthly sectoral level employment data for the U.S. and shows that among the ten
industrial sectors followed by the U.S. Bureau of Labor Statistics, six tend to lead
the other four. These six have high correlations indicating that the structural shocks
generating the data movements are mostly in common. Among the four lagging industries,
some lag by longer intervals than others and some have low correlations with the leading
industries indicating that these industries are partially influenced by structural
shocks beyond those generating the six leading industries.
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Abstract: This paper uses a new method for describing dynamic comovement and persistence in
economic time series which builds on the contemporaneous forecast error method developed
in den Haan (2000). This data description method is then used to address issues in
New Keynesian model performance in two ways. First, well known data patterns, such
as output and inflation leads and lags and inflation persistence, are decomposed into
forecast horizon components to give a more complete description of the data patterns.
These results show that the well known lead and lag patterns between output and inflation
arise mostly in the medium term forecasts horizons. Second, the data summary method
is used to investigate a rich New Keynesian model with many modeling features to see
which of these features can reproduce lead, lag and persistence patterns seen in the
data. We show that a simple general equilibrium model with persistent IS curve shocks
and persistent supply shocks can reproduce the lead, lag and persistence patterns
seen in the data.
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Policy effects of the elasticity of substitution between skilled and unskilled labor in life cycle models
Abstract: This paper investigates how the production function elasticity of substitution between skilled and unskilled labor impacts the results of policy analysis in multiperiod lived agent overlapping generations models. We critique and investigate the popular structure that simply assumes that skilled and unskilled labor are perfectly substitutable in production. This structure is inconsistent with empirical evidence of production complementarities. We investigate this issue using two consumer labor skill foundations. We couch our findings in the context of two types of policy reforms: a social security reform and a tax reform. These reforms were chosen in part because of the large interest in them, but also because of their differing effects on life cycle decisions. We find that ignoring production complementarity may influence the conclusions of policy analysis.