Finn E. Kydland's research while affiliated with Queen Mary, University of London and other places

Publications (117)

Article
There has been much interest recently in the role of household long-term, mortgage, debt in the transmission of monetary policy. This paper offers a tractable framework that integrates the long-term debt channel with the standard New-Keynesian channel, providing a tool for monetary policy analysis that reflects the recent debates in the literature....
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This paper examines the impact of the behavioral changes and governments' responses to the spread of the COVID-19 pandemic using a unique dataset of daily private forecasters' expectations on a sample of 32 emerging and advanced economies from January 1 till April 13, 2020. We document three important lessons from the data: First, there is evidence...
Preprint
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We study why capital accumulation in Argentina was slow in the 1990s and 2000s, despite high productivity growth and low international interest rates. We show that the disappointing performance of investment over those two periods was the result of two mechanisms introduced by limited commitment constraints. First, the response of investment to a t...
Chapter
In the long run, nations prosper, in the sense of higher per-capita incomes, lower unemployment, lower poverty levels, and so on, the fewer the impediments are to steadily higher productivity, along with growing productive capacity to take advantage of the productivity growth. In large parts of the world today, however, the business environment is...
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The Journal of Political Economy was created in December 1892. In 2017, the journal celebrates the 125th anniversary. Motivated by this event, this study presents a bibliometric overview of the leading trends of the journal according to a wide range of criteria including authors, institutions, countries, papers and keywords. The work uses the Scopu...
Article
Mortgages are long-term loans with nominal payments. Consequently, in incomplete asset markets, monetary policy can affect housing investment and the economy through the cost of new mortgage borrowing and real payments on outstanding debt. These channels, distinct from the traditional real rate channel, are embedded in a general equilibrium model....
Chapter
To what extent does government economic policy affect incentives in the decision-making of people and businesses, preferably in a good way from the point of view of society, but perhaps at times in a bad way? In light of what has happened in the past few years in economies all over the world, this is an especially timely question.
Article
This paper develops a monetary model with taxes to account for the apparently asymmetric and time-varying effects of energy shocks on output and hours worked in post-World War II U.S. data. In our model, the real effects of an energy shock are amplified when the monetary authority responds to that shock by changing its inflation objective. Specific...
Data
The U.S. economy isn’t recovering from the deep Great Recession of 2008-2009 with the strength predicted by models that incorporate a variety of shocks and frictions in the basic analytical framework of the neoclassical growth model. It has been argued that the counterfactual predictions shouldn’t be attributed to inherent features of that framewor...
Article
Mortgage loans are a striking example of a persistent nominal rigidity. As a result, under incomplete markets, monetary policy affects decisions through the cost of new mortgage borrowing and the value of payments on outstanding debt. Observed debt levels and payment to income ratios suggest the role of such loans in monetary transmission may be im...
Article
This paper develops a monetary model with taxes to account for the time-varying effects of energy shocks on output and hours worked in post-World War II U.S. data. In our model, the real effects of an energy shock are amplified when the monetary authority responds to that shock by changing its inflation objective. Specifically, higher inflation rai...
Article
Over the U.S. business cycle, fluctuations in residential investment are well known to systematically lead GDP. These dynamics are documented here to be specific to the U.S. and Canada. In other developed economies residential investment is broadly coincident with GDP. Nonresidential investment has the opposite dynamics, being coincident with or la...
Article
The goal of the 2012 Copenhagen Consensus was to set priorities among a series of proposals for confronting ten of the world's most important challenges. These challenges were: Armed conflict; Biodiversity; Chronic disease; Climate change; Education; Hunger and malnutrition; Infectious disease; Natural disasters; Population growth; and Water and sa...
Chapter
The Goal of the Project The goal of Copenhagen Consensus 2008 project was to set priorities among a series of proposals for confronting ten great global challenges: Air pollution, Conflicts, Diseases, Education, Global Warming, Malnutrition and Hunger, Sanitation and Water, Subsidies and Trade Barriers, Terrorism, and Women and Development. Ranking...
Article
Cyclical fluctuations in nominal variables—aggregate price levels and nominal interest rates—are documented to be substantially more synchronized across countries than cyclical fluctuations in real output. A transparent mechanism that can account for this striking feature of the nominal environment is highlighted. It is based on (small) cross-count...
Article
The Goal of the Project. The goal of the Copenhagen Consensus on Climate was to evaluate and rank feasible ways to reduce the adverse consequences from global warming. Individual proposals that would achieve this were examined under the eight solution headings of: Climate Engineering, Carbon Cuts, Forestry, Black Carbon Cuts, Methane Cuts, Adaptati...
Article
Recent empirical studies have documented important differences in the financial be-havior of small and large firms. These empirical regularities are widely interpreted as indirect evidence of frictions in financial markets. Frictions in financial markets have been cited both as a possible source of, and as an amplifier of business cycle fluctuation...
Article
We document that, at business cycle frequencies, fluctuations in nominal variables, such as aggregate price levels and nominal interest rates, are substantially more synchronized across countries than fluctuations in real output. To the extent that domestic nominal variables are determined by domestic monetary policy, and central banks generally at...
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We argue that Ireland experienced a great depression in the 1980s comparable in severity to the better known and more studied depression episodes of the interwar period. Using the business cycle accounting framework of Chari, Kehoe and McGrattan (2005), we examine the factors that led to the depression and the subsequent recovery in the 1990s. We c...
Article
Finn E. Kydland 2004-ben kapta meg a közgazdasági Nobel-díjat, Edward C. Prescott-tal megosztva, a dinamikus közgazdaságtan terén elért eredményeikért, az idõkonzisztencia problémájának felvetéséért és megoldásáért a gazdaságpolitikában és az üzleti ciklusok új elméletének kidolgozásáért. A következõkben a Nobel-díj átvétele alkalmából, 2004. decem...
Article
In this paper, we ask what role an endogenous money multiplier plays for the estimated welfare cost of inflation.1 The model is a variant of that used by Freeman and Kydland (2000), with inside and outside money in the spirit of Freeman and Huffman (1991). Unlike models in which the money-output link comes from either sticky prices or fixed money h...
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This paper analyzes the interaction of inflation with the tax code and its contribution to aggregate fluctuations. We find significant effects operating through the tax on realized nominal capital gains. A tax on nominal bond income magnifies these effects. Our innovation is to combine monetary policy shocks with non-indexed taxes in a model where...
Article
This paper addresses the classic question: what are the welfare costs of inflation. We employ a model in which the ratios of currency to deposits and currency to reserves are endogenously determined. The model distinguishes quantitatively between three sources of welfare cost of inflation, and provides further estimates for potential welfare gains...
Article
If the central bank follows an interest rate rule, then inflation is likely to be persistent, even when prices are fully flexible. Any shock, whether persistent or not, may lead to inflation persistence. In equilibrium, the dynamics of inflation are determined by the evolution of the spread between the real interest rate and the central bank's targ...
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Argentina’s GDP per working age person in 2003 was about the same as it was twenty years earlier and around fifteen percent below trend. By international standards that has been a dismal performance whose ultimate sources are important to uncover to eventually reverse that country’s seemingly secular decline. The purpose of this paper is precisely...
Article
Interview with the 2004 Laureates in Economics, Finn E. Kydland and Edward C. Prescott, December 11, 2004. Interviewers are Professor Karl-Gustaf Lofgren and Johanna Astrom, post graduate student, Umea University.
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Nobel Prize Lecture, December 8, 2004
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This article reviews the various means through which governments and central banks have sought to guarantee long-run price stability. Finn Kydland and Mark Wynne argue that monetary regimes or standards can all be viewed as more or less successful attempts to overcome the well?known time-consistency problem in monetary policy. The classical gold st...
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The views herein are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Dallas or the Federal Reserve System. The authors are grateful to Sami Alpanda, Fernando Alvarez, Pedro Amaral, Tim Kehoe, Jim MacGee, Ed Prescott, an anonymous referee and the participants at the Federal Reserve Bank of Minneapolis...
Article
If the central bank follows an interest rate rule, then inflation is likely to be persistent, even when prices are fully flexible. Any shock, whether persistent or not, may lead to inflation persistence. In equilibrium, the dynamics of inflation are determined by the evolution of the spread between the real interest rate and the central bank's targ...
Article
Full-text available
The paper examines Argentina’s economic expansion in the 1990s through the lens of a very parsimonious neoclassical growth model. The main finding is that investment remained considerably weaker than what the model would have predicted. The resulting excessive “capital shallowing” could be identified as a weakness of the rapid economic growth of th...
Article
Argentina suffered a depression in the 1980s that was as severe as the Great Depression experienced in the United States and Germany in the interwar period. Our paper examines this depression from the perspective of growth theory, taking total factor productivity as exogenous. The predictions of the growth model conform rather well with the observa...
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Detailed macroeconomic data to accompany the article in the Review of Economic Dynamics
Article
Este artículo examina la expansión económica Argentina en los noventa a través del prisma de un modelo parsimonioso de crecimiento neoclásico. El hallazgo más importante es una inversión bastante más débil de la que el modelo ha predicho. Este resultado de “mercado de capitales poco profundo” podría ser identificado como una debilidad del crecimien...
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An innovation in this paper is to introduce a time-to-build technology for the production of market capital into a model with home production. Our main finding is that the two anomalies that have plagued all household production modelsthe positive correlation between business and household investment, and household investment's leading business inv...
Article
There is a consensus concerning business cycle facts when the facts are about real variables. For example, Backus and Kehoe (1992) note that there is a similarity among covariance structures of real time series taken from different countries and from different sample periods within a country. This consistency across data sets is no doubt one reason...
Article
We ask whether the following observations may result from endogenously determined fluctuations in the money multiplier rather than a causal influence of money on output: (i) M1 is positively correlated with real output; (ii) the money multiplier and deposit-to-currency ratio are positively correlated with output; (iii) the price level is negatively...
Article
In this paper, Dittmar, Gavin and Kydland make two points about commonly proposed rules for inflation targeting. First, they argue that there is a great deal of uncertainty about the price level and inflation inherent in current proposals to target inflation. They show that the degree to which the central bank cares about the real economy can have...
Article
In this article, the authors describe a popular monetary policy framework based on a neoclassical Phillips Curve model. Here, the choice between an inflation target and a price-level target depends on characteristics of real output. If the output gap is relatively persistent, then targeting the price level results in a better set of policy options...
Article
This paper documents changes in the cyclical behavior of nominal data series that appear after 1979:Q3 when the Federal Reserve implemented a policy to lower the inflation rate. Such changes were not apparent in real variables. A business cycle model with impulses to technology and a role for money is used to show how alternative money supply rules...
Article
We ask whether the following observations may result from endogenously determined fluctuations in the money multiplier rather than a causal influence of money on output: (i) M1 is positively correlated with real output; (ii) the money multiplier and deposit-to-currency ratio are positively correlated with output; (iii) the price level is negatively...
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Despite the relative success of Real Business Cycle (RBC) models to replicate key moments of the business cycles of the United States and several European countries, economic research in Latin America tends to take the more traditional view that monetary factors play a predominant role in the economic fluctuations of countries in that part of the w...
Chapter
Currency crises in Europe and Mexico during the 1990s provided stark reminders of the importance and the fragility of international financial markets. These experiences led some commentators to conclude that open international capital markets are incompatible with financial stability. But the pre-1914 gold standard is an obvious challenge to the no...
Article
Changes in the demographic structure of the U.S. population will affect many aspects of the US economy as we move into the next century. Concerns about the impact of an aging population on savings and interest rates, the financing of government spending programs for the elderly, and the possibility of higher taxes for future generations to pay for...
Article
In this paper, we show that the monetary rule followed by a number of key countries, especially England and to a lesser extent the U. S., before 1914 represented a commitment technology preventing the monetary authorities from changing planned future policy. The experiences of these maj or countries suggest that the gold standard was intended as a...
Article
An economic experiment places people in an environment desired by the experimenter, who then records the time paths of their economic behavior. Performing experiments using actual people at the level of national economies is obviously impractical but constructing a model economy and computing the economic behavior of the model's people is. Such exp...
Article
In this paper, we show that the monetary rule followed by a number of key countries before 1914 represented a commitment mechanism preventing the monetary authorities from changing planned future policy. The experiences of these major countries suggest that the gold standard was intended as a contingent rule. By that we mean that the authorities co...
Article
Modern macroeconomics, with increasing frequency, is devoting attention to the fact that agents are heterogeneous, especially in their role as providers of labor input into production. These differences can take various forms: the skills for market production are different; some workers are and some are not engaged in market activity in any given p...
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The authors provide a theoretical interpretation of two features of international data: the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in terms of trade but positively correlated with past movements. They document the same properties in a two-country...
Article
We review recent work comparing properties of international business cycles with those of dynamic general equilibrium models, emphasizing two discrepancies between theory and data that we refer to as anomalies. The first is the consumption/output/productivity anomaly: in the data we generally find that the correlation across countries of output flu...
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This article reviews recent work comparing properties of international business cycles with those of dynamic general equilibrium models. Two discrepancies between theory and data are described. One concerns the correlation across countries of fluctuations in consumption, output, and productivity: in the data, the output correlation is generally the...
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An examination of whether a different specification for labor input and real wages leads to a reconsideration of labor force volatility during business cycles.
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In this paper we examine Australian data on national and regional employment numbers, focusing in particular on whether there have been common national and regional changes in the volatility of employment. A subsidiary objective is to assess whether the results derived from traditional growth rate models are sustained when alternative filtering met...
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We examine the behavior of international relative prices from the perspective of dynamic general equilibrium theory, with particular emphasis on the variability of the terms of trade and the relation between the terms of trade and net exports. We highlight aspects of the theory that are critical in determining these properties, contrast our perspec...
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A description of the method used in dynamic general equilibrium business-cycle research as applied in some recent work on open economies. (This abstract was borrowed from another version of this item.)
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We provide a new interpretation of the statistical relation between the trade balance and the terms of trade. This relation includes the J-curve, the tendency for trade balances to be negatively correlated with contemporaneous movements in the terms of trade, positively correlated with lagged movements. We document this property in international da...
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Full-text available
We provide a theoretical interpretation of two features of international data: the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in the terms of trade, but positively correlated with past movements. We document these same properties in a two-country stoc...
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Full-text available
The authors ask whether a two-country business cycle model can account simultaneously for domestic and international aspects of business cycles. With this question in mind, the authors document a number of discrepancies between theory and data. The most striking discrepancy concerns the correlations of consumption and output across countries. In th...
Article
This is a version of the program used in David Backus, Patrick Kehoe and Finn Kydland, "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, vol. 84, pp. 84-103, Mar. 1994 The parameter values have to be specified in a separate file.
Article
This is a version of the program used in David Backus, Patrick Kehoe and Finn Kydland, "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, vol. 84, pp. 84-103, Mar. 1994 The parameter values have to be specified in a separate file.
Article
In previous studies (Kydland and Prescott, 1982 and 1988a) we estimate the importance of variations in the Solow technology parameter as a source of aggregate fluctuations. We find that they were a major source accounting for over half of the fluctuations in the output of the American economy in the period immediately after the Korean War. These co...
Article
The founding fathers of the Econometric Society defined econometrics to be quantitative economic theory. A vision of theirs was the use of econometrics to provide quantitative answers to business cycle questions. The realization of this dream required a number of advances in pure theory--in particular, the development of modern general equilibrium...
Article
This paper argues that the reporting of facts in light of theory fosters the development of theory. Dynamic neoclassical macro theory guided the selection of facts to report. The hope is that these facts will foster the further development of this theory. A finding is that the price level is countercyclical in the post-Korean War period. This findi...
Article
Two mechanisms are considered through which money can play a role in a real business cycle model. One is in the form of aggregate price surprises when there is heterogeneity across individuals or groups of individuals (“islands”). These shocks affect the accuracy of information about real compensation that can be extracted from observed wage rates....
Article
The neoclassical growth model studied in the Kydland and Prescott ‘Time to Build’ paper is modified to permit the capital utilization rate to vary. The effect of this modification is to increase the amplitude of the aggregate fluctuations predicted by theory as the equilibrium response to technological shocks. If, following Solow, the changes in ou...
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In this paper, the authors examine whether nonseparable preference structures ar e important in characterizing life-cycle labor supply. Using longitud inal data on prime-age males from the Panel Study of Income Dynamics, they estimate a model of life-cycle leisure and consumption under un certainty in which intertemporal preferences are allowed to...

Citations

... Garriga and Hedlund (2020) analyze the joint exposure of individual real asset cash flows and labor income cash flows in an infinite horizon real economy with illiquid assets and leverage. Finally, Wong (2019) and Garriga et al. (2021) analyze nominal and real asset cash flow exposures to monetary policy. A merit of our framework is that all four exposures are active. ...
... No modern central bank currently targets the gold price in domestic currency, or issues a commodity money, despite that economic historians report that metal currency regimes provided a high degree of nominal stability and firmly anchored inflation expectations. On the one hand, metal currency regimes may have fallen out of favor because they limit discretionary stabilization policies in favor of long-term price stability (Bordo and Kydland 1996). On the other hand, recent research for the USA suggests that the price level was less stable and less predictable under the nineteenth century metal currency regimes than under twentieth century fiat currency regimes (see ). ...
... Spillover between countries also has positive effects on outputs comovements, both significant in statistics and in economics (except the grouping of ASEAN+3). This result confirms the prediction by Backus et al. (1992Backus et al. ( , 1995 that business cycles synchronisation increases with the level of spillover between countries. Moreover, as suggested by Coe and Helpman (1995) that this type of international spillovers cause a rapid spread of productivity shocks, hence the symmetric business cycles between countries are indirectly attributed to supply linkages. ...
... The recent literature on GMI and COVID-19 clearly evidence the fact that financial and economic movement are highly volatile and significantly subject to the mobility of an individual. This demands a better policy decision by considering the mobility factor of an individual during the pandemic (Kydland & Martínez-García, 2020). ...
... We examine this mechanism in a simple special case that permits Our quantitative exploration calibrates a deterministic growth model with enforcement frictions to Argentina's data. 2 The key requirement for a successful quantitative exploration are reliable data about Argentina's capital stock. Since Argentina's capital stock is not regularly produced by the country's official statistical agencies, we extend the capital stock series constructed by Kydland and Zarazaga (2007) for the 1980-1997 period to the year 2008 with investment data by applying their same perpetual inventory method approach. For comparison, we use also the capital stock series from the Penn-World Tables 9.1. ...
... 5 Suitable data is available for the period 1964:03 to 2005:04. As discussed in Gavin and Kydland (1999) and Johnson (1997) there is a break in the data around 1980. They find that the correlations of real variables do not change much, but the statistics for nominal variables may change in an important way. ...
... When separating the effects between developed and developing countries, the dispersion of inflation expectations after inflation targeting is smaller and statistically significant only in developing countries. Using monthly inflation data from 1957 to 1997, Dittmar et al. (1999) argue that inflation variability (as the standard deviation of inflation) decreases after the adoption of inflation-targeting programs giving evidence from G-10 countries. The authors have found that the magnitudes of uncertainty about inflation are the expected consequence of commonly proposed inflation-targeting regimes. ...
... Under an IT regime, a target inflation rate is clearly announced, then the monetary authority implements the necessary tools to contain the gap between actual inflation and the target, and bringing inflation back to target in case it was missed so that the central bank does not lose credibility (Hale & Philippov, 2015). IT regime has been implemented in different ways by countries: price-level targeting, (Dittmar Gavin, & Kydland [1999]), price-level-inflation (Batini & Yates [2003]), and that of average inflation, regimes (Nessen & Vestin [2005]). ...
... Over the past decade, bibliometric studies with systematic literature review have helped scholars to better explore research trends within a specific field of study and identify future lines of research in areas such as business models (Coombes and Nicholson, 2013), economics (Bonilla et al., 2015), entrepreneurship (López-Fernández et al., 2016), political economy (Amiguet et al., 2017), operations research and management science (Merigó and Yang, 2017), international business (Rialp et al., 2019), and industrial marketing (Valenzuela-Fernandez et al., 2019). Despite the various methods for bibliographic data analysis (Ding et al., 2014), this study focuses on the total number of documents and citations as these indicators are useful for measuring productivity and its influence (Merigó and Yang, 2017). ...
... Our paper extends previous studies that argue that fiscal shocks and, in particular, capital taxation, are important for a better understanding of economic fluctuations. There are many studies that focus on the role of distortionary capital taxation: Braun (1994) and McGrattan (1994b) argue that distortionary taxation significantly explain postwar cyclical activity; McGrattan (2012) argues that capital taxation shocks had an important role in explaining the path of economic variables in the 1930s; Kydland and Zarazaga (2016) analyse the slow recovery of the US economy from the 2008-2009 great recession and argue that the expectations of higher taxes account for two-thirds of the investment gap. However, while there are many papers that study the role of capital taxation during recessions in the US, the impact of capital taxation shocks has not been studied extensively for recession episodes in developing economies like Chile. ...