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Friedman's Plucking Model of Business Fluctuations: Tests and Estimates of Permanent and Transitory Components

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In Milton Friedman's model, output cannot exceed a ceiling level but occasionally is "plucked" downward by recession, implying fluctuations are asymmetric, recessions transitory, and recessions duration dependent though expansions are not. The empirical literature lends support, but formal modeling has been absent. The econometric model presented here encompasses both plucking and symmetric fluctuations around a stochastic trend. We find GDP is well characterized by the plucking model, implied recessions correspond to NBER reference cycles, and no role for symmetric cycles. Decomposition of the unemployment rate reveals a corresponding asymmetry and timing. Paths of ceiling output and trend unemployment are presented.
... En el mejor de los casos, esta también tenía que ser duradera. Esto ocurre en 2014 y fue reconocido en Perú.13 En Perú, uno de los economistas que más ha puesto por escrito su comprensión de la noción de "reactivación" es Waldo Mendoza14 . ...
... Además, considerando que la política fiscal no es suficiente, propone el cambio de la política monetaria, pues como la tasa de10 IMF -Commodity Price volatility and the sources of growth. WP/12/12 IMF -Commodity Price Shocks and Financial Sector Fragility WP/16/1211 IMF -Riding the Wave -F&D Vol 45, N 0 1, March 200812 "…one may argue that even demand disturbances have a long run impact on output…However, we also believe that if so, those long run effects are small compared to those of supply disturbances" Blanchard y Quah (1989).13 Mendoza, Waldo (2014): "Ha quedado confirmado que la "década de oro", 2002-2011, ha pasado a mejor vida, y que a partir de fines del 2011 el contexto externo ha empeorado y no hay signos de que eso cambie en los próximos años." ...
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En base a la distinción necesaria entre choques económicos temporales y choques permanentes, en este trabajo se cuestiona algunas propuestas de políticas de reactivación ante la ocurrencia de choques a la economía. Se considera que estas políticas deben ser requeridas cuando los choques son temporales, pero ante choques permanentes o de larga duración lo recomendable es suavizar el proceso de hacia el nuevo equilibrio. Analizando a la economía peruana, se observa que los choques que experimentó, en particular, desde 2007 no tuvieron efectos comparables a los que experimentaron algunas de las economías más grandes del mundo. En particular, en lo relacionado con la tasa de inflación y la tasa de interés. Por esto, se cuestiona las recomendaciones de política monetaria y fiscal para Perú, que hacen algunos economistas y analistas. Como se ha vuelto frecuente denominar “inversión pública” a las políticas de expansión de gasto fiscal orientadas a compensar alguna percibida caída de la demanda agregada, en este trabajo enfatizamos la diferencia entre políticas de reactivación y políticas de crecimiento.
... Productivity and economic resilience have been proved to be positively correlated [26]; the most resilient regions also tend to do better in industrial specialization and productivity [27]. The better the productivity of a region is, the higher the upper limit of its economic resilience is, indicating that a region of high productivity is more likely to exhibit resilient behaviors [28]. ...
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By constructing an index system, this study analyzed the temporal and spatial characteristics of the economic resilience of 20 resource-based cities in northeast China after the financial crisis in 2008. On this basis, a mediation model was introduced to explore the mechanism of population shrinkage affecting economic resilience. The results show that: (a) from 2009 to 2019, the trend of the economic resilience of resource-based cities in northeast China was “ascending–descending–stable”. As time went by, the spatial difference of the economic resilience of resource-based cities gradually became obvious, indicating that the number of medium- and high-class cities was increasing. (b) By applying a correlation analysis, it was found that both a significant weak correlation and medium correlation existed between population shrinkage and economic resilience during the periods of 2011–2019 and 2013–2019. (c) Six mediation factors, namely industrial output, population consumption, resource dependence, urban innovation, cultural construction and environment quality, were chosen to apply the mediation model of population shrinkage affecting economic resilience. Among them, industrial output, population consumption, urban innovation, and cultural construction exerted a partial mediation effect on the process of population shrinkage affecting economic resilience, while the meditation effects of resource dependence and environment quality were not significant.
... In these works, skewness appears as a general phenomenon and not just as a disaster pattern. 4 Our analysis also meshes with inherently asymmetric macro frameworks, such as de Long and Summers (1988) or the Friedman "plucking" model which has periodically attracted attention (Dupraz, Nakamura, and Steinsson, 2019;Kim and Nelson, 1999). Fatás and Mihov (2013) echo this idea when noting that even in the U.S., as postwar growth volatility fell in the Great Moderation, nonetheless negative skewness increased. ...
... for example, see Chang-Jin Kim and Charles Nelson (1999). We now consider an analytically tractable implementation of this idea. ...
Thesis
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Markov-Switching Model, Financial Conditions Index, New Monetarism, Phillips Curve
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