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Working Paper Series



Identification of Inflation—Unemployment

B ennett T. McCallum

Working P a p e rs S eries
M acroeconom ic Issu es
R esearch D epartm ent
Federal R eserve Bank of C hicago
S ep tem b er (W P-94-16)

FEDERAL RESERVE BANK
O F CHICAGO

Identification of Inflation-Unemployment
Tradeoffs in the 1970s

Bennett T. McCallum
Carnegie Mellon University

Preliminary
March 1994

This note constitutes an extended version of comments made at the CarnegieRochester Conference on Public Policy meeting of November, 1993.
I am
indebted to Bob King, Allan Meltzer, and Mark Watson for helpful discussions.




In an ingenious and stimulating paper,

which draws on important prior

work of their own, * King and Watson (1994) have (along with more substantive
contributions)
analyses

of

provided

a "revisionist"

Phillips-curve

inflation-unemployment
properly

devoted

tradeoff exists;

to

phenomena— i.e.,

tradeoff.
the

whether,

historical

A

substantial

once-prominent
that

is,

of

of

issues

involving

amount

question

the permanent

account

of

of

account,

King and Watson distinguish

with Keynesian and monetarist economists,
cycle

(RBC) position for

2

the

attention

whether

a

is

long-run

maintenance of a higher

inflation rate would permanently induce less unemployment.
historical

econometric

In discussing the

two positions,

associated

and then add a third real business

the sake of comparison.

The difference between

econometric results obtained and promoted by Keynesians and monetarists is
ascribed

to

different

assumptions

dynamic structural relationship.
Keynesians

and

exogeneity

that

monetarists
led

to

used

to

provide

identification

of

the

In particular, King and Watson suggest that

made

crucially

different

choices

different
of

variables in estimated regression relationships.

assumptions

dependent

and

about

explanatory

3

The purpose of the present note is to argue

that,

from a historical

perspective, the King-Watson account is seriously inaccurate.

Both Keynesian

and monetarist economists relied upon the same identification assumptions and
estimated

Phillips

variables.

Then

proponents

entered

relations
when
the

with

the

Lucas,

Sargent,

fray,

they

same
and

dependent
other

introduced

identification of expectational values

an

and

explanatory

rational-expectations
issue

that was critical

pertaining

for the

to

long-run

tradeoff issue, but did not introduce new identification arguments regarding
short-run dynamics.

In sum, the King-Watson reinterpretation of history is,
4

like

many

revisionist

analyses,

basically

unwarranted.

paragraphs will seek to establish these points.




1

The

following

In order to describe the issues with any clarity,
have at hand a schematic macroeconomic model.

it will be useful to

Consider,

then,

the following

system in which yt, Pt» and mt denote the logarithms of aggregate output,

the

price level, and the money stock, respectively:
(1)

Apt = ao + a,yt + a2yt-i + a3Apt + ut

|a21<a1>0, 0<a3^l

(2)

yt = 0o + Pi (nit ~ Pt) + 02Yt-i + vt-

01*0.

1021^i•

Here equation (1) represents the dynamic Phillips relation between inflation
and unemployment, for we assume (throughout this note) that the unemployment
rate is negatively correlated with yt, to a very high degree."*

A lagged

value of yt is included to reflect the possibility of some adjustment-cost
dynamic

aspects

anticipated

to

the

relationship

inflation rate.

while

Finally,

Apt

reflects

the disturbance ut

random components of suppliers’ behavior.

an

expected

or

reflects omitted

Equation (2) is, by contrast,

an

aggregate demand relation in which the quantity demanded in period t depends
upon
again

prevailing

levels

represented

of

by

real

yt-i-

money

The

components of buyers’ behavior.

balances,

disturbance

with

term

dynamic

effects

vt reflects

random

The disturbances ut and vt are white noise

but may be mutually correlated contemporaneously.
Assuming that

|a2/a1|<1.0,

Apt and yt requires, of course,
researchers

sought

to

(NRH),^ by

estimating

test

the absence of a long-run tradeoff between
thata3 equals unity.

this

hypothesis,

the parameters

of

the

the

Consequently,

natural

structural

rate

and

well-known

example

was

Gordon

(1970);

somewhat

well-known were the studies of Solow (1968, 1969).

hypothesis

equation

determining whether or not a3 was significantly different from 1.0.
earlier

various

(1)

and

An early
but

less

In all of these studies a

distributed lag of past values of Apt was used to proxy for Apt; let us write
the implied expectational relation as
(3)




Apt = w, Apt-i + w 2 Apt - 2 + ---

2

The weights w 1#w2,... were assumed by Gordon and Solow to sum to 1.0.
(1) could be operationally

implemented by

including a distributed

Thus
lag of

7

Apt-j values and taking the sum of their coefficients as an estimate of a3.
Sargent

(1971)

and

Lucas

(1972)

expectations are formed rationally

then

recognized,
it

however,

is entirely possible

that

if

that

the

weights in a rational forecasting relation of the form (3) might sum to less
than 1.0,

in which case the sum of the Apt.j coefficients in an estimated

version of (1) would not provide a consistent estimate of a3.

Suppose,

for

example, that the actual univariate process for Apt is
(4)

Apt = SiApt-i + <52Apt-2 + £t,

with et white noise and with

+ S2 equal to 0.6.

Then the Solow-Gordon

procedure would yield an estimate of a3 of about 0.6 even if the true value
is 1.0

(provided that expectations are in fact rational).

That something

much like this is what was in fact going on has been suggested by Sargent
(1976b), McCallum (1987), Alogoskoufis and Smith (1991), and others.
All of the foregoing is well known and is not,
dispute with King and Watson.

I believe,

a source of

Where disagreement begins to arise is with

regard to the difference between the Keynesian procedure of Gordon and Solow
and that utilized by monetarist analysts.

According to King and Watson,

Keynesian studies estimated supplier behavior as shown in formulation
i.e.,

with

exogenous

Apt
to

Monetarists,

the

Apt

dependent

and

variable,

therefore

by contrast,

did not

because

uncorrelated

they

with

assumed

the

take yt to be exogenous

yt

to

disturbance
in

the
(1),
be
ut.

(1) and so

estimated it in the form
(1')

yt = a0 + a^t-i + a2Apt + Aa3Ap£ + u',

where a^ = -a2/a1, a2 = l/ccu
a3 = 0.

a3 = -a3/a1, and with the NRH expressed as a2 +

It is this claim that is, I contend, historically incorrect.

In discussing this contention it is necessary to distinguish between the




3

original "monetarist" economists— including Friedman,

Brunner,

Meltzer,

and

others to be mentioned shortly— and rational-expectations analysts such as
Lucas,

Sargent,

and Barro.

Considering first the monetarists,

there is a

slight difficulty in collecting evidence relating to their procedures because
Friedman,

Brunner,

and Meltzer engaged in time series econometric analysis

g

very rarely.
there

were

But evidence
significant

and

is available,
directly

if one searches a bit,

relevant

studies

conducted

because
by

other

influential members of the monetarist camp including Anderson and Carlson
(1970,

1972), Laidler (1972), and Parkin (1973).

Furthermore,

a collection

of six empirical studies of the inflation process was conducted under

the

sponsorship of Brunner and Meltzer, with scope and procedures determined in
collaborative sessions.
the

Five of these studies were published in Volume 8 of

Carnegie-Rochester Conference Series in Public Policy

(Brunner

and

Meltzer, 1978).
An examination of the nine monetarist studies just listed reveals that
all of them conform to the same basic framework as described above for the
Gordon

(1970) and Solow

(1968,

1969) studies.

In particular,

all nine of

these monetarist studies utilize Apt as the dependent variable in a relation
basically of form (1), not (1').

Furthermore the issue of identification was

not raised in any explicit manner that would reveal differences relative to
Keynesian analyses.

The only significant specificational differences stem

from the inclusion of some additional variables, pertaining to taxes or other
institutional details, and alternative measures of "excess demand" variables
utilized in place of yt or the unemployment rate.
Why

then,

one

might

ask,

did

the

monetarist

studies

tend

to

find

estimates of a3 much closer to 1.0 than the 0.5 - 0.6 values estimated by
Gordon and Solow?

Clearly,

the answer may be different

for

the various

studies and in some cases may depend upon the particular variables utilized.




4

But it is also true that the monetarist studies were conducted somewhat later

than

those of Gordon and Solow,

which

is of

relevance

because

estimated

autoregressive (AR) models of Apt were by then yielding parameter estimates
that implied larger values for Ewj.

This tendency is documented in Table 1,

where Zwj values are reported for AR(5) models estimated over sample periods
beginning with 1954.1 and ending with the fourth quarter of each year from
1966 through 1980.

9

As can readily be seen,

the ZWj values obtained fell

well below 1.0 through the end of the 1960s, but then began to climb to the
vicinity of 0.85 - 0.90.
to its true value,

The latter values would yield estimates of a3 close

according to the Sargent-Lucas hypothesis,

whereas

the

lower values would not.
Even more telling, perhaps,

than our examination of the nine monetarist

studies mentioned above is the evidence provided by a comprehensive review of
empirical work through 1974 in Laidler and Parkin’s "Inflation:
(1975).

A Survey"

Considerable attention is devoted to relevant methodological

econometric

issues— including

the

Sargent-Lucas

point— but

there

and

is

no

mention of alternative identification assumptions utilized by Keynesians and
monetarists.
Now let us turn to studies conducted by the second group of critics of
the Keynesian

position,

the

rational-expectations

analysts.

The

studies

mentioned most prominently by King and Watson are Sargent (1976a) and Barro
and Rush

(1980).

In both of these,

basically of the form

(l7),

rather

the Phillips equations estimated are
than

(1) — i.e.,

rather than Apt as the dependent variable.

are expressed with yt

As an empirical matter,

this

switch of the dependent and regressor variables will yield quite different
estimates of
particular,
of

the short-run

(i.e.,

single period)

In

the estimated value of a2 will be much smaller than an estimate

the same magnitude but based on




tradeoff magnitude.

(1) and calculated as

5

l/o^.

And

the

Table 1

Coefficient Sums, AR(5) Model for Apt
Sample Period: 1954.1 - indicated date

Note:




Final Date,

Sum of Coefficients

4th Qtr. of

in Estimated AR(5)

1966

0.3872

1967

0.2861

1968

0.5641

1969

0.6947

1970

0.7040

1971

0.7807

1972

0.7399

1973

0.8792

1974

1.0162

1975

0.8975

1976

0.8516

1977

0.8575

1978

0.8781

1979

0.8891

1980

0.9212

pt is log of GNP deflator, SA.

Constant term included in AR model

6

switch

may

also

tradeoff.
results,

lead

But
in

in practice

in principle

the

following

other

least

squares

simultaneous

consistency.

sense.

of

the

long-run

imply any difference
viewed

as

in

jointly

then neither (1) nor (l7) is appropriate for

estimation:

equations

an

instrumental

procedure

is

variable

needed

to

(IV)

obtain

or

some

estimator

Of course different results might again be forthcoming from (1)

equation

sample

estimates

If yt and Apt are

and (l7) even with IV estimation.
the

different

the switch does not

dependent endogenous variables,
ordinary

to

is mispecified

size

is

large

or

enough

But such an outcome would indicate that
the

for

instruments
asymptotic

are

illegitimate,

distribution

if

theory

the

to

be

relevant.
It is not the case, furthermore, that all rational-expectations analysts
used

formulation

(l7).

My

own

studies

(McCallum

1975,

1976)

relied

on

formulation (1) even though they were expressly designed to take account of
the Sargent-Lucas point about the effect on the estimate of a3, and thus the
long-run

tradeoff,

Interestingly,

of

the

possibility

that

Zwj

is

less

than

1.0.

taking account of that point raised my estimated value of a3

from about 0.4 to 0.8 in the case of the United States and from about 0.4 or
0.7

to 0.75 or 0.9 for

the United Kingdom

(depending on

the wage

index

used).^
Returning
distinguish

to

the

two aspects.

issue

of

identification,

The first of these

it

will

be

useful

to

is the Sargent-Lucas point,

mentioned above, which concerns the proxy for expected inflation whereas the
second

aspect

concerns

the

basic

identification

of

supplier

behavior

as

distinct from that of demanders, an issue that would remain even if inflation
expectations were directly observed.

With regard to the latter aspect, it is

my impression that treating yt as exogenous

in (1) was not the method of

identification used in the Keynesian studies (or, given the argument above,




7

the monetarist studies).
determined

with

Apt,

To the extent
the

problem

that yt was recognized as jointly

was

viewed

as

one

simultaneous-equation bias, not as a loss of identification.

of

potential

The

manner

in

which identification was ostensibly obtained relied upon variable exclusion
restrictions;

even

if

yt and

Apt

are

jointly

dependent

in

(1),

that

equation’s basic identification will be not be lost if (1) excludes at least
one predetermined variable that is important elsewhere in the system.
model

In the

(1) - (3), mt is excluded from (1) and is treated as a predetermined

variable.

That last assumption is actually dubious, to put it mildly, but it

was made by all parties to the dispute in the 1970s,

including the rational

expectations analysts.
Indeed, there was not much concern over identification during the 1960s
and 1970s because the usual way of formulating models— which did not rely on
optimizing

general

presumptions
equation

to the model

systems

equations.

equilibrium

with

lots

analysis

but

instead

applied

theoretical

“one equation at a time"— almost always
of

excluded

predetermined

variables

led to

for

most

Of course it is now realized that there are (at least) two very

weak links in this identification scheme, both of which were brought to the
profession’s attention principally by Sims (1980).
variables cannot

First,

lagged endogenous

legitimately be counted as predetermined unless there

is

some basis for a priori knowledge concerning the degree of serial correlation
in the model’s disturbance

terms.**

Second,

coherent general

equilibrium

theorizing tends to suggest that the relevant predetermined variables should
be much the same for most of the model’s equations.

Recognition of these

points certainly makes 1970s-style identification highly dubious.

But that

does not imply that Keynesian and monetarists differed in their practice.
is my contention that they did not, to any substantial extent.
monetarists




accepted

the Lucas-Sargent

8

point

about

the

It

Of course the

identification

of

expectational

magnitudes much more promptly than did most Keynesians,

that is another matter.

but

The fact that Sims (1980) attacked the credibility

of identification via exclusion restrictions,

and did not mention different

identification schemes for Keynesians and monetarists, provides another piece
of evidence in favor of the interpretation presented above.
Thus

my

conclusion

is

that

the

King-Watson

12

revisionist

account

of

identification restrictions utilized by tradeoff researchers during the 1970s
is historically misleading.
necessary

disagreement

That conclusion does not, of course,

with

substantive— as

thought— aspects of their analysis.




9

opposed

to

imply any

history-of-

References

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of

Inflation,

and

the

Lucas

Critique:

Evidence

the Persistence

From

Exchange-Rate

Regimes," American Economic Review 81 (December), 1254-1275.
Anderson,

L.C., and K.M.

Carlson

(1970)

"A Monetarist Model

for Economic

Stabilization," Federal Reserve Bank of St. Louis Review (April), 7-25.
_______________
Relation

and
of

____________

Monetary

Unemployment,"
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by

0.

in

(1972)

Variables

"An
to

Econometric

the

Behavior

Analysis
of

of

Prices

the
and

The Econometrics of Price Determination Conference,

Eckstein.

Washington: Board

of

Governors

of

the

Federal

Reserve System.
Barro, R.J., and M. Rush (1980) "Unanticipated Money and Economic Activity,"
in

Rational Expectations and Economic Policy.

ed.

by

S.

Fischer.

Chicago: University of Chicago Press for NBER.
Brunner,

K. ,

and

A. H.

Meltzer,

eds. (1978)

Carnegie-Rochester Conference

Series on Public Policy 8.
Brunner,

K. ,

A.

Activity,

Cukierman,

and

Inventories

and

A.H. Meltzer
Business

(1978)
Cycles,"

"Money

and

Economic

Journal of Monetary

Economics 11 (May), 281-319.
Duesenberry,

J.S., G.

Quarterly

Fromm,

Econometric

L.R.

Model

Klein,

and E.

Kuh

(1965)

of the

United

States.

The Brookings
Amsterdam:

North-Holland.
Fisher, M., and J. Seater (1993) "Long-Run Neutrality and Superneutrality in
an ARIMA Framework,: American Economic Review 83 (June), 402-415.
Friedman,

M.

(1966)

"Comments,"

in

Guidelines. Informal Controls, and the

Market Place, ed. by G.P. Shultz and R.Z. Aliber. Chicago: University of
Chicago Press.




10

____________

(1968) "The Role of Monetary Policy," American Economic Review

58 (March), 1-17.
Gordon, R.J.

(1970) "The Recent Acceleration of Inflation and Its Lessons for

the Future," Brookings Papers on Economic Activity (No.1), 8-41.
Griliches, 2.

(1968) "The Brookings Model Volume: A Review Article," Review

of Economics and Statistics 50 (May), 215-234.
Hatanaka, M. (1975) "On the Global Identification of the Dynamic Simultaneous
Equation

Model

Review 16 (
King,

R.G., and

with

Stationary

Disturbances,"

International Economic

) 545-554.
M.W.

Watson

(1992)

"Testing

Long

Run

Neutrality,"

NBER

Working Paper No. 4156.
___________ and ____________

(1994)

"The Post-War U.S.

Phillips

Curve:

A

(1972) "The Influence of Money on Real Income and Inflation:

A

Revisionist Econometric History," Working Paper (March).
Laidler,

D.

Simple Model with Some Empirical Tests for the United States 1953-72,"
Manchester School 41 (December), 125-144.
Laidler, D., and M. Parkin (1975) "Inflation: A Survey," Economic Journal 85
(December), 741-809.
Lucas, R.E., Jr.
in

(1972) "Econometric Testing of the Natural Rate Hypothesis,"

The Econometrics of Price Determination Conference.

ed.

by

0.

Eckstein. Washington: Board of Governors of the Federal Reserve System.
McCallum, B.T.

(1975) "Rational Expectations and the Natural Rate Hypothesis:

Some Evidence for

the United Kingdom,"

Manchester School

43

(March),

56-67.
______________ (1976) "Rational Expectations and the Natural Rate Hypothesis:
Some Consistent Estimates," Econometrica 44 (January), 43-52.




11

______________

(1987)

"Inflationary

Expectations,"

Dictionary of Economics, ed. by J. Eatwell,

in

The New Palgrave: A

M. Milgate,

and P. Newman.

London: Macmillan Press.
Meltzer,

A. H.

(1963)

"The

Demand

for

Money:

The

Evidence

from

the

Time

Series," Journal of Political Economy 71 (June), 219-246.
Parkin, M. (1973) "The Short Run and Long Run Trade-Off Between Inflation and
Unemployment

in

Australia,"

Australian Economic Papers

12

(

),

127-144.
Phelps, E.S.

(1967) "Phillips Curve,

Expectations of Inflation,

and Optimal

Unemployment Over Time," Economica 34 (August), 254-81.
Sargent, T.J.

(1971) "A Note on the Accelerationist Controversy," Journal of

Money, Credit, and Banking 3 (August), 50-60.
_____________

(1976a)

"A Classical

Macroeconometric

Model

for

the

United

States," Journal of Political Economy 84 (April), 207-237.
_____________

(1976b)

"Testing

for

Neutrality

and

Rationality,"

in

A Prescription for Monetary Policy: Proceedings from a Seminar Series.
Minneapolis: Federal Reserve Bank of Minneapolis.
Sims,

C. A.

(1980)

"Macroeconomics and Reality," 'Econometrica 48

(January),

1-48.
Solow,

R.M.

(1968)

"Recent

Controversies

on

the Theory

of

Inflation:

An

Eclectic View," in Inflation: Its Causes. Consequences, and Control, ed.
by S.W. Rousseas. New York: New York University.
___________

(1969)

Price Expectations and the Behavior of the Price Level.

Manchester, U.K.: Manchester University Press.




12

F o o tn o te s

^Specifically,

their "Testing Long Run Neutrality"

(1992), one major message

of which has also been delivered by Fisher and Seater (1993).

2

Actually,

King

and

Watson

sometimes

monetarist-rational expectations group.

refer

to

the

latter

In the argument below,

as

the

I will treat

monetarists and rational-expectationists separately.

3

The relevant discussion appears primarily in King and Watson’s sections 3.1,

3.2, 3.3, and 4.1, with 3.4 - 3.7 also of some importance.
4
This argument does not imply, of course, that the identification scheme used
by King and Watson is uninteresting or implausible, but only that it was not
used

historically.

It

cannot,

that

is,

explain

why

Keynesians

and

monetarists of the 1970s reached differing conclusions.
^This assumption,

termed Okun’s Law, was extremely common in the research of

the day.
^It is possible to distinguish between two related but distinct hypotheses.
One,

which

policy

I call

behavior

permanently low).
output

the NRH,

that

can

postulates

keep

output

that

there

permanently

is no

type of monetary

high

(and unemployment

The second, termed the accelerationist hypothesis, is that

(unemployment)

can

be

kept

permanently

permanently accelerating rate of inflation.

high

(low)

only

by

a

The latter is due to Friedman

(1966) (1968) and Phelps (1962); the former to Lucas (1972).

7

Solow assumed that Wj = Aw j .-i with 0<A<1 and relied upon a truncation of the

infinite series for estimation,

trying various values of A.

This "adaptive

expectations" case can be implemented instead, of course, by elimination of
the unobservable Ap* and estimation of A.




13

g

Exceptions

include

Meltzer

(1964)

and

Friedman

and

Meiselman

(1963),

neither of which were concerned with the inflation-unemployment tradeoff.
9

In those estimates a fifth-order AR specification was used because for many

of the samples the fifth lag term was the last to enter with a t statistic in
excess of 1.0.
*^The sample periods are 1952.1 - 1970.4 for the U.S.
1956.1 - 1971.4 for the U.K.

(McCallum,

1976) and

(McCallum, 1975).

**This part of Sims's argument relies on the analytical results of Hatanaka
(1975).

12Also relevant is the fact that identification is scarcely mentioned in the
700 page presentation by Duesenberry,
Brookings model or in Griliches*




Fromm,

Klein,

and Kuh

(1968) critical review.

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in the Great Lakes Region

W P-93-8

D a v id R. A llardice, R ichard H. M attoon and William A. Testa

The Midwest Stock Price Index-Leading Indicator
ofRegional Economic Activity

W P-93-9

W illiam A. Strauss

Lean Manufacturing and the Decision toVertically Integrate
Some Empirical Evidence From the U.S. Automobile Industry

WP-94-1

Thomas H. K lier

Domestic Consumption Patterns and the Midwest Economy

WP-94-4

R obert Schnorbus and Paul B allew




l

W orking paper series continued

To Trade orNot toTrade: Who Participates inRECLAIM?

WP-94-11

Thomas H. K lie r an d R ich ard M attoon

Restructuring & Worker Displacement in theMidwest

WP-94-18

P aul D . B allew an d R obert H . Schnorbus

ISSUES IN FINANCIAL REGULATION
Incentive Conflict in Deposit-Institution Regulation: Evidence from Australia

WP-92-5

E dw ard J. K ane an d G eorge G. Kaufman

Capital Adequacy and the Growth ofU.S. Banks

WP-92-11

H erbert B aer and John M cE lravey

Bank Contagion: Theory and Evidence

WP-92-13

G eorge G . Kaufman

Trading Activity, Progarm Trading and the Volatility of Stock Returns

WP-92-16

Jam es T. M oser

Preferred Sources of Market Discipline: Depositors vs.
Subordinated Debt Holders

WP-92-21

D ou glas D . E vanoff

An Investigation ofReturns Conditional
on Trading Performance
Jam es T. M oser an d Jacky C. So

WP-92-24

The Effect of Capital on PortfolioRisk atLife Insurance Companies

W P-92-29

E lijah B rew er III, Thomas H . M ondschean, and P hilip E. Strahan

A Framework forEstimating the Value and
InterestRate Risk ofRetail Bank Deposits

WP-92-30

D a v id E. Hutchison, G eorge G . Pennacchi

Capital Shocks and Bank Growth-1973 to 1991

WP-92-31

H erbert L. B aer and John N . M cElravey

The Impact of S&L Failures and Regulatory Changes
on the CD Market 1987-1991

WP-92-33

Elijah B rew er and Thomas H . Mondschean




2

W orking paper series continued

Junk Bond Holdings, Premium Tax Offsets, and Risk
Exposure atLife Insurance Companies

WP-93-3

Elijah B rew er III and Thomas H. Mondschean

Stock Margins and the Conditional Probability ofPrice Reversals

WP-93-5

P au l Kofman an d Jam es T. M oser

IsThere Lif(f)e AfterDTB?
Competitive Aspects of Cross ListedFutures
Contracts on Synchronous Markets

WP-93-11

P aul Kofman, Tony Bouwman and Jam es T. M oser

Opportunity Cost and Prudentiality: A RepresentativeAgent Model of Futures Clearinghouse Behavior

WP-93-18

H erbert L. B aer, Virginia G. France and Jam es T. M oser

The Ownership Structure ofJapanese Financial Institutions

WP-93-19

H esna G enay

Origins of the Modem Exchange Clearinghouse: A History ofEarly
Clearing and Setdement Methods atFutures Exchanges

W P-94-3

Jam es T. M oser

The Effectof Bank-Held Derivatives on Credit Accessibility

WP-94-5

E lijah B rew er III, Bernadette A. M inton and Jam es T. M oser

Small Business Investment Companies:
Financial Characteristics and Investments

WP-94-10

Elijah B rew er III and H esna Genay

MACROECONOMIC ISSUES
An Examination of Change inEnergy Dependence and Efficiency
in the Six Largest Energy Using Countries-1970-1988

WP-92-2

Jack L. H ervey

Does theFederal Reserve Affect Asset Prices?

WP-92-3

Vefa Tarhan

Investment and Market Imperfections in the U.S. Manufacturing Sector

WP-92-4

P aula R. Worthington




3

W orking p aper series continued

Business Cycle Durations and Postwar Stabilization of the U.S. Economy

WP-92-6

M ark W. Watson

A Procedure forPredicting Recessions with Leading Indicators: Econometric Issues
and Recent Performance
WP-92-7
Jam es H. Stock and M ark W. Watson

Production and Inventory Control at the General Motors Corporation
During the 1920s and 1930s

WP-92-10

A nil K . K ashyap and D a v id W. W ilcox

Liquidity Effects,Monetary Policy and the Business Cycle

WP-92-15

Law rence J. Christiano an d M artin Eichenbaum

Monetary Policy and External Finance: Interpreting the
Behavior ofFinancial Flows and InterestRate Spreads

WP-92-17

Kenneth N. K uttner

Testing Long Run Neutrality

WP-92-18

R obert G. King an d M ark W. Watson
A Policymaker's Guide to Indicators ofEconomic Activity
C harles Evans, Steven Strongin, and F rancesca Eugeni

WP-92-19

Barriers toTrade and Union Wage Dynamics

WP-92-22

Ellen R . Rissm an

Wage Growth and Sectoral Shifts: Phillips Curve Redux

WP-92-23

Ellen R . Rissman

Excess Volatility and The Smoothing of InterestRates:
An Application Using Money Announcements

WP-92-25

Steven Strongin

Market Structure,Technology and the CyclicalityofOutput

W P-92-26

B ruce P etersen and Steven Strongin

The Identification of Monetary Policy Disturbances:
Explaining theLiquidity Puzzle

WP-92-27

Steven Strongin




4

W orking paper series continued

Earnings Losses and Displaced Workers

WP-92-28

Louis S. Jacobson , R obert J. LaLonde , and D aniel G. Sullivan

Some Empirical Evidence of the Effects on Monetary Policy
Shocks on Exchange Rates

WP-92-32

M artin Eichenbaum and Charles Evans

An Unobserved-Components Model of
Constant-Inflation Potential Output

WP-93-2

Kenneth N. Kuttner

Investment, Cash Flow, and Sunk Costs

WP-93-4

P aula R. Worthington

Lessons from theJapanese Main Bank System
forFinancial System Reform inPoland

W P-93-6

Takeo H oshi, Anil K ashyap, and G ary Loveman

Credit Conditions and the Cyclical Behavior of Inventories

WP-93-7

Anil K. K ashyap , Owen A. Lam ont and Jerem y C. Stein

Labor Productivity During the Great Depression

WP-93-10

M ichael D . B ordo and C harles L. Evans

Monetary Policy Shocks and Productivity Measures
in the G-7 Countries

WP-93-12

C harles L. Evans and Fernando Santos

Consumer Confidence and Economic Fluctuations

WP-93-13

John G. M atsusaka and A rgia M. Sbordone

Vector Autoregressions and Cointegration

WP-93-14

M ark W. Watson

Testing forCointegration When Some of the
Cointegrating Vectors Are Known

WP-93-15

M ichael T . K. H orvath and M ark W. Watson

Technical Change, Diffusion, and Productivity

WP-93-16

Jeffrey R. C am pbell




5

W orking paper series continued

Economic Activity and the Short-Term Credit Markets:
An Analysis ofPrices and Quantities

W P-93-17

Benjamin M . Friedm an an d Kenneth N. K uttner

Cyclical Productivity in a Model ofLabor Hoarding

WP-93-20

A rgia M. Sbordone

The Effects of Monetary Policy Shocks: Evidence from theFlow ofFunds

WP-94-2

L aw rence J. Christiano, M artin Eichenbaum and C harles Evans

Algorithms for Solving Dynamic Models with Occasionally Binding Constraints

WP-94-6

L aw rence J . Christiano and Jonas D M . Fisher

Identification and the Effects ofMonetary Policy Shocks

WP-94-7

Law rence J. Christiano , M artin Eichenbaum and Charles L. Evans

Small Sample Bias inG M M Estimation ofCovariance Structures

WP-94-8

Joseph G. A ltonji an d L ew is M. Segal

Interpreting theProcyclical Productivity of Manufacturing Sectors:
External Effects ofLabor Hoarding?

WP-94-9

A rgia M. Sbordone

Evidence on Structural Instability in Macroeconomic Time SeriesRelations

W P-94-13

Jam es H. Stock an d M ark W. Watson

The Post-War U.S. Phillips Curve: A RevisionistEconometric History

W P-94-14

R obert G . King an d M ark W. Watson

The Post-War U.S. PhillipsCurve: A Comment

WP-94-15

C harles L. E vans

Identification of Inflation-Unemployment

W P-94-16

B ennett T. M cCallum

The Post-War U.S. PhillipsCurve: A RevisionistEconometric History
Response toEvans and McCallum

WP-94-17

R obert G. K ing an d M ark W. Watson




6