Maintenance and Repair: Too Big to Ignore (2009)
Ellen R. Mcgrattan, Senior Economist, James A. Schmitz
Most models of aggregate economic activity, like the standard neoclassical growth model, ignore the fact that equipment and structures are maintained and repaired. Once physical capital is purchased...
Federal Reserve Bank of Minneapolis (2009)
Ravi Jagannathan, Piper Jaffray, Professor Finance, Ellen R. Mcgrattan, Senior Economist
This article describes the academic debate about the usefulness of the capital asset pricing model (the CAPM) developed by Sharpe and Lintner. First the article describes the data the model is meant...
Federal Reserve Bank of Minneapolis and Research Associate (2009)
V. V. Chari, Patrick J. Kehoe, Paul W. Frenzel, Land Grant, Ellen R. Mcgrattan, ...
Economists have offered many theories for the U.S. Great Depression, but no consensus has formed on the main forces behind it. Here we describe and demonstrate a simple methodology for determining...
Changes in Hours Worked, 1950–2000* (2009)
Ellen R. Mcgrattan, Richard Rogerson, Ellen R. Mcgrattan, Richard Rogerson
This article describes changes in the number of average weekly hours of market work per person in the United States since World War II. Overall, this number has been roughly constant; for various...
of Management of Minneapolis of Management (2009)
Ravi Jagannathan, Ellen R. Mcgrattan, Anna Scherbina
This study demonstrates that the U.S. equity premium has declined significantly during the last three decades. The study calculates the equity premium using a variation of a formula in the classic...
APPENDICES: Technology Capital and the U.S. Current Account ∗ (2009)
Ellen R. Mcgrattan, Edward C. Prescott
Appendix A provides firm-level and industry-level evidence that is consistent with several key features of our model, including the predictions that rates of return increase with a firm’s...
A Defense of AK Growth Models (2008)
Ellen R. Mcgrattan, Senior Economist
AK growth models predict that permanent changes in government policies affecting investment rates should lead to permanent changes in a country’s GDP growth. Charles Jones (1995) sees no evidence...
Changes in Hours Worked Since 1950 (2008)
Ellen R. Mcgrattan, Richard Rogerson
This article describes changes in the number of average weekly hours of market work per person in the United States since World War II. Overall, this number has been roughly constant; for various...
Technology Capital and the U.S. Current Account ∗ (2008)
Ellen R. Mcgrattan, Edward C. Prescott
The U.S. Bureau of Economic Analysis (BEA) estimates the return on investments of foreign subsidiaries of U.S. multinational companies over the period 1982–2006 averaged 9.4 percent annually after...
Federal Reserve Bank of Minneapolis (2008)
V. V. Chari, Patrick J. Kehoe, Ellen R. Mcgrattan
andUniversityofMinnesota Macroeconomists have largely converged on method, model design, reduced-form shocks, and principles of policy advice. Our main disagreements today are about implementing the...
Technology Capital and the U.S. Current Account* (2008)
Ellen R. Mcgrattan, Edward C. Prescott
ABSTRACT __________________________________________________________________________ Over the period 1982–2006, the U.S. Bureau of Economic Analysis (BEA) estimates the return on investments of...
V. V. Chari, Patrick J. Kehoe, Ellen R. Mcgrattan
In the 1970s macroeconomists often disagreed bitterly. Macroeconomists have now largely converged on method, model design, and macroeconomic policy advice. The disagreements that remain all stem from...
Federal Reserve System. (2007)
Ellen R. Mcgrattan, Lee E. Ohanian
herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the
A Defense of AK Growth Models (2007)
Ellen R. Mcgrattan, Senior Economist
AK growth models predict that permanent changes in government policies affecting investment rates should lead to permanent changes in a country's GDP growth. Charles Jones (1995) sees no...
Federal Reserve Bank of Minneapolis (2007)
V. V. Chari, Patrick J. Kehoe, Ellen R. Mcgrattan
andUniversityofMinnesota The central finding of the recent structural vector autoregression (SVAR) literature with a differenced specification of hours is that technology shocks lead to a fall in...
Technology Capital and the U.S. Current Accounts* (2007)
Ellen R. Mcgrattan, Edward C. Prescott
ABSTRACT __________________________________________________________________________ The rate of return on capital of U.S. foreign subsidiaries has been much higher than the rate of return on capital...
Openness, Technology Capital, and Development (2007)
Ellen R. Mcgrattan, Edward C. Prescott
A framework is developed with what we call technology capital. A country is a measure of locations. Absent policy constraints, a firm owning a unit of technology capital can produce the composite...
ABSTRACT Measurement with Minimal Theory ∗ (2006)
A central debate in applied macroeconomics is whether statistical tools that use minimal identifying assumptions are useful for isolating promising models within a broad class. In this paper, I...
V. V. Chari, Ellen R. Mcgrattan, Patrick J. Kehoe
We make three comparisons relevant for the business cycle accounting approach. We show that in theory representing the investment wedge as a tax on investment is equivalent to representing this wedge...
Why Did U.S. Market Hours Boom in the 1990s? ∗ (2006)
Ellen R. Mcgrattan, Edward C. Prescott
During the 1990s, market hours in the United States rose dramatically. The rise in hours occurred as gross domestic product (GDP) per hour was declining relative to its historical trend, an...
What Happens After A Technology Shock? A Bayesian Perspective (2005)
Ossama Mikhail A, Ellen R. Mcgrattan, To Sune, Glenn Harrison, Kyungso Im, J. Walter Milon, ...
This paper investigates the effect of a positive technology shock on per capita hours worked within the class of Bayesian Vector Auto-Regressive [BVAR] models. Such a framework avoids the current...
ABSTRACT Expensed and Sweat Equity ∗ (2005)
Ellen R. Mcgrattan, Edward C. Prescott
Expensed investments are expenditures financed by the owners of capital that increase future profits but, by national accounting rules, are treated as an operating expense rather than as a capital...
V. V. Chari, Patrick J. Kehoe, Ellen R. Mcgrattan
The main substantive finding of the recent structural vector autoregression literature with a differenced specification of hours (DSVAR) is that technology shocks lead to a fall in hours. Researchers...
Expensed and Sweat Equity and the Macroeconomy † (2005)
Ellen R. Mcgrattan, Edward C. Prescott
Expensed investments are expenditures financed by the owners of capital that increase future profits but, by national accounting rules, are treated as an operating expense rather than as a capital...
Productivity and the Post-1990 U.S. Economy † (2005)
Ellen R. Mcgrattan, Edward C. Prescott
In this paper, we show that ignoring corporate intangible investments gives a distorted picture of the post-1990 U.S. economy. In particular, ignoring intangible investments in the late 1990s leads...
Comment on Gali and Rabanal’s ‘Technology Shocks and Aggregate Fluctuations (2004)
Howwelldoestherbcmodelfitpostwaru. S. Data, Ellen R. Mcgrattan
andUniversityofMinnesota Gali and Rabanal provide statistical evidence that, in their view, puts into question the real businesscycle paradigm in favor of the sticky-price paradigm. I demonstrate...
Federal Reserve Bank of Minneapolis (2002)
V. V. Chari, Patrick J. Kehoe, Ellen R. Mcgrattan
This paper proposes a simple method for guiding researchers in developing quantitative models of economic fluctuations. We show that a large class of models, including models with various frictions,...
notice, is given to the source. The Stock Market Crash of 1929: Irving Fisher Was Right! (2001)
Ellen R. Mcgrattan, Edward C. Prescott, Ellen R. Mcgrattan, Edward C. Prescott, Jel No. E, Ellen R. Mcgrattan, ...
Prescott thanks the National Science Foundation for financial support. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research, the...
Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates (1998)
V. V. Chari, Patrick J. Kehoe, Ellen R. Mcgrattan
The central puzzle in international business cycles is that real exchange rates are volatile and persistent. The most popular story for real exchange rate fluctuations is that they are generated by...
Mechanics of Forming and Estimating Dynamic Linear Economies (1996)
Evan W. Anderson, Lars Peter Hansen, Ellen R. Mcgrattan, Ellen R. Mcgrattan, Thomas J. Sargent, Thomas J. Sargent
This paper catalogues formulas that are useful for estimating dynamic linear economic models. We describe algorithms for computing equilibria of an economic model and for recursively computing a...
Mechanics of Forming and Estimating Dynamic Linear Economies (1996)
Evan W. Anderson, Evan W. Anderson, Lars Peter Hansen, Lars Peter Hansen, Ellen R. Mcgrattan, Ellen R. Mcgrattan, ...
This paper catalogues formulas that are useful for estimating dynamic linear economic models. We describe algorithms for computing equilibria of an economic model and for recursively computing a...
A Progress Report on Business Cycle Models (1994)
The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System. Before using a specific model to analyze...
Thesis (Ph. D.)--Stanford University, 1989.
Is the Stock Market Overvalued (1985)
Ellen R. Mcgrattan, Senior Economist, Edward C. Prescott
The value of U.S. corporate equity in the first half of 2000 was close to 1.8 times U.S. gross national product (GNP). Some stockmarket analysts have argued that the market is overvalued at this...
Accounting for the Great Depression
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
Economists have offered many theories for the U.S. Great Depression, but no consensus has formed on the main forces behind it. Here we describe and demonstrate a simple methodology for determining...
Solving the stochastic growth model with a finite element method
Since it is the dominant paradigm of the business cycle and growth literatures, the stochastic growth model has been used to test the performance of alternative numerical methods. In this paper I...
Mechanics of forming and estimating dynamic linear economies
Lars Peter Hansen, Ellen R. McGrattan, Thomas J. Sargent
This paper catalogues formulas that are useful for estimating dynamic linear economic models. We describe algorithms for computing equilibria of an economic model and for recursively computing a...
On the mechanics of forming and estimating dynamic linear economies
Evan W. Anderson, Lars Peter Hansen, Ellen R. McGrattan, Thomas J. Sargent
This paper catalogues formulas that are useful for estimating dynamic linear economic models. We describe algorithms for computing equilibria of an economic model and for recursively computing a...
S. Rao Aiyagari, Ellen R. McGrattan
We find that the welfare gains to being at the optimum quantity of debt rather than the current U.S. level are small, and, therefore, concerns regarding the high level of debt in the U.S. economy may...
The poverty of nations: a quantitative exploration
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
We ask what fraction of the variation in incomes across countries can be accounted for by investment distortions. In our neoclassical growth model the relative price of investment to consumption is a...
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
We construct a quantitative equilibrium model with price setting and use it to ask whether with staggered price setting monetary shocks can generate business cycle fluctuations. These fluctuations...
Mechanics of forming and estimating dynamic linear economies
Anderson, Evan W., McGrattan, Ellen R., Hansen, Lars Peter, Sargent, Thomas J., H. M. Amman, D. A. Kendrick, ...
V.V. Chari, Patrick Kehoe, Ellen R. McGrattan
In recent financial crises and in recent theoretical studies of them, abrupt declines in capital inflows, or sudden stops, have been linked with large drops in output. Do sudden stops cause output...
Chapter 4 Mechanics of forming and estimating dynamic linear economies
Anderson, Evan W., McGrattan, Ellen R., Hansen, Lars Peter, Sargent, Thomas J.
Does neoclassical theory account for the effects of big fiscal shocks? Evidence from World War II
Ellen R. McGrattan, Lee E. Ohanian
There is much debate about the usefulness of the neoclassical growth model for assessing the macroeconomic impact of fiscal shocks. We test the theory using data from World War II, which is by far...
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
We propose a simple method to help researchers develop quantitative models of economic fluctuations. The method rests on the insight that many models are equivalent to a prototype growth model with...
Real business cycles are recurrent fluctuations in an economy?s incomes, products, and factor inputs?especially labor?that are due to nonmonetary sources. These sources include changes in technology,...
Can sticky price models generate volatile and persistent real exchange rates?
V.V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
The conventional wisdom is that monetary shocks interact with sticky goods prices to generate the observed volatility and persistence in real exchange rates. We investigate this conventional wisdom...
Application of weighted residual methods to dynamic economic models
Econometric models
A progress report on business cycle models
This article reports the recent progress made by researchers trying to build business cycle models that can reliably reproduce aggregate U.S. time series. The article first describes some features of...
Ravi Jagnnathan, Ellen R. McGrattan
This article describes the academic debate about the usefulness of the capital asset pricing model (the CAPM) developed by Sharpe and Lintner. First the article describes the data the model is meant...
Changes in hours worked since 1950
Ellen R. McGrattan, Richard Rogerson
Changes in hours worked since 1950; This article describes changes in the number of average weekly hours of market work per person in the United States since World War II. Overall, this number has...
AK growth models predict that permanent changes in government policies affecting investment rates should lead to permanent changes in a country’s GDP growth. Charles Jones (1995) sees no evidence...
Is the stock market overvalued?
Ellen R. McGrattan, Edward C. Prescott
The value of U.S. corporate equity in the first half of 2000 was close to 1.8 times U.S. gross national product (GNP). Some stock market analysts have argued that the market is overvalued at this...
The declining U.S. equity premium
Ravi Jagannathan, Ellen R. McGrattan, Anna Scherbina.
This study demonstrates that the U.S. equity premium has declined significantly during the last three decades. The study calculates the equity premium using a variation of a formula in the classic...
Accounting for the Great Depression
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
Economists have offered many theories for the U.S. Great Depression, but no consensus has formed on the main forces behind it. Here we describe and demonstrate a simple methodology for determining...
Changes in hours worked, 1950?2000
Ellen R. McGrattan, Richard Rogerson
This article describes changes in the number of average weekly hours of market work per person in the United States since World War II. Overall, this number has been roughly constant; for various...
Openness, technology capital, and development
Ellen R. McGrattan, Edward C. Prescott
A framework is developed with what we call technology capital. A country is a measure of locations. Absent policy constraints, a firm owning a unit of technology capital can produce the composite...
Comparing alternative representations and alternative methodologies in business cycle accounting
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
We make three comparisons relevant for the business cycle accounting approach. We show that in theory, representing the investment wedge as a tax on investment is equivalent to representing this...
Are structural VARs with long-run restrictions useful in developing business cycle theory?
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
The central finding of the recent structural vector autoregression (SVAR) literature with a differenced specification of hours is that technology shocks lead to a fall in hours. Researchers have used...
Technology capital and the U.S. current account
Ellen R. McGrattan, Edward C. Prescott
The rate of return on capital of U.S. foreign subsidiaries has been much higher than the rate of return on capital of U.S. affliates of foreign companies. Over the period 1982?2005, the U.S. Bureau...
Maintenance and repair: too big to ignore
Most models of aggregate economic activity, like the standard neoclassical growth model, ignore the fact that equipment and structures are maintained and repaired. Once physical capital is purchased...
THE 1929 STOCK MARKET: IRVING FISHER WAS RIGHT
Ellen R. McGrattan, Edward C. Prescott
Many stock market analysts think that in 1929, at the time of the crash, stocks were overvalued. Irving Fisher argued just before the crash that fundamentals were strong and the stock market was...
An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy.
McGrattan, Ellen R, Rogerson, Richard, Wright, Randall
The authors estimate a dynamic general equilibrium model of the U.S. economy that includes an explicit household production sector and stochastic fiscal variables. They use their estimates to...
Explaining cross-country income differences
McGrattan, Ellen R., Schmitz, James Jr., J. B. Taylor, M. Woodford
This chapter reviews the literature that tries to explain the disparity and variation of GDP per worker and GDP per capita across countries and across time. There are many potential explanations for...
Technology capital and the U.S. current account
Ellen R. McGrattan, Edward C. Prescott
The U.S. Bureau of Economic Analysis (BEA) estimates the return on investments of foreign subsidiaries of U.S. multinational companies over the period 1982?2006 averaged 9.4 percent annually after...
Technology capital and the U.S. current account (appendices)
Ellen R. McGrattan, Edward C. Prescott
Appendix A provides details for the computation of our model?s equilibrium paths, the construction of model national and international accounts, and the sensitivity of our main findings to...
Unmeasured investment and the 1990s U.S. hours boom
Ellen R. McGrattan, Edward C. Prescott
The basic neoclassical growth model accounts well for the postwar cyclical behavior of the U.S. economy prior to the 1990s, provided that variations in population growth, depreciation rates, total...
Changes in the distribution of family hours worked since 1950
Ellen R. McGrattan, Richard Rogerson
This paper describes trends in average weekly hours of market work per person and per family in the United States between 1950 and 2005. We disaggregate married couple households by skill level to...
Openness, technology capital, and development
Ellen R. McGrattan, Edward C. Prescott
In this paper, we extend the growth model to include firm-specific technology capital and use it to assess the gains from opening to foreign direct investment. A firm?s technology capital is its...
Unmeasured investment and the puzzling U.S. boom in the 1990s (technical appendix)
Ellen R. McGrattan, Edward C. Prescott
Productivity ; Economic conditions
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
We propose a simple method to help researchers develop quantitative models of economic fluctuations. The method rests on the insight that many models are equivalent to a prototype growth model with...
Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?
Chari, V V, Kehoe, Patrick J, McGrattan, Ellen R
The central puzzle in international business cycles is that fluctuations in real exchange rates are volatile and persistent. We quantify the popular story for real exchange rate fluctuations: they...
Taxes, Regulations, and the Value of U.S. and U.K. Corporations
Ellen R. McGrattan, Edward C. Prescott
We derive the quantitative implications of growth theory for U.S. corporate equity plus net debt over the period 1960-2001. There were large secular movements in corporate equity values relative to...
Solving the Stochastic Growth Model by Linear-Quadratic Approximation.
I describe a method that can be used to approximate the solution of the stochastic growth model. The method relies on approximating the return and transition functions of the original problem by...
Explaining cross-country income differences
This chapter reviews the literature that tries to explain the disparity and variation of GDP per worker and GDP per capita across countries and across time. There are many potential explanations for...
Comments on Gordon, Leeper, and Zha's trends in velocity and policy expectations
I argue that low-frequency movements in U.S. base velocity are well explained by standard models of money demand. The model of Gordon, Leeper, and Zha is not standard because they assume a very high...
Can sticky price models generate volatile and persistent real exchange rates?
V.V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
The central puzzle in international business cycles is that fluctuations in real exchange rates are volatile and persistent. We quantity the popular story for real exchange rate fluctuations: they...
Average debt and equity returns: puzzling?
Ellen R. McGrattan, Edward C. Prescott
Mehra and Prescott (1985) found the difference between average equity and debt returns puzzling because it was too large to be a premium for bearing nondiversifiable aggregate risk. Here, we...
Why are married women working so much?
Larry E. Jones, Rodolfo E. Manuelli, Ellen R. McGrattan
We study the large observed changes in labor supply by married women in the United States over 1950-1990, a period when labor supply by single women has hardly changed at all. We investigate the...
The 1929 stock market: Irving Fisher was right
Ellen R. McGrattan, Edward C. Prescott
Many stock market analysts think that in 1929, at the time of the crash, stocks were overvalued. Irving Fisher argued just before the crash that fundamentals were strong and the stock market was...
Gali and Rabanal provide statistical evidence that, in their view, puts into question the real business cycle paradigm in favor of the sticky-price paradigm. I demonstrate that their statistical...
With a monetary union in place, many European countries are now debating if and how to coordinate their tax policies. Of particular interest to EU ministers is taxation of mobile factors like...
Taxes, regulations, and the value of U.S. and U.K. corporations
Ellen R. McGrattan, Edward C. Prescott
We derive the quantitative implications of growth theory for U.S. corporate equity plus net debt over the period 1960–2001. There were large secular movements in corporate equity values relative to...
Productivity and the post-1990 U.S. economy
Ellen R. McGrattan, Edward C. Prescott
In this paper, we show that ignoring corporate intangible investments gives a distorted picture of the post-1990 U.S. economy. In particular, ignoring intangible investments in the late 1990s leads...
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
We develop a positive theory of the adoption of child labor laws. Workers who compete with children in the labor market support the introduction of a child labor ban, unless their own working...
Appendices: Business cycle accounting
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
Business cycles - Econometric models
Productivity and the post-1990 U.S. economy
Ellen R. McGrattan, Edward C. Prescott
In this paper, the authors show that ignoring corporate intangible investments gives a distorted picture of the post-1990 U.S. economy. In particular, ignoring intangible investments in the late...
S. Rao Aiyagari, Ellen R. McGrattan
We describe a model for calculating the optimal quantity of debt and then apply it to the U.S. economy. The model consists of a large number of infinitely-lived households whose saving behavior is...
Predicting the effects of Federal Reserve policy in a sticky-price model: an analytical approach
In this paper, I characterize equilibria for a sticky-price model in which Federal Reserve policy is an interest-rate rule similar to that described in Taylor (1993). For standard preferences and...
The macroeconomic effects of big fiscal shocks: the case of World War II
Ellen R. McGrattan, Lee E. Ohanian
Macroeconomics - Econometric models
Taxes, regulations, and asset prices
Ellen R. McGrattan, Edward C. Prescott
U.S. stock prices have increased much faster than gross domestic product GDP) in the postwar period. Between 1962 and 2000, corporate equity value relative to GDP nearly doubled. In this paper, we...
Accounting for the Great Depression (technical appendix)
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
Depressions
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
This paper proposes a simple method for guiding researchers in developing quantitative models of economic fluctuations. We show that a large class of models, including models with various frictions,...
Ellen R. McGrattan, Edward C. Prescott
Expensed investments are expenditures financed by the owners of capital that increase future profits but, by national accounting rules, are treated as an operating expense rather than as a capital...
A critique of structural VARs using real business cycle theory
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
The main substantive finding of the recent structural vector autoregression literature with a differenced specification of hours (DSVAR) is that technology shocks lead to a fall in hours. Researchers...
Measurement with minimal theory
A central debate in applied macroeconomics is whether statistical tools that use minimal identifying assumptions are useful for isolating promising models within a broad class. In this paper, I...
Comparing alternative representations and alternative methodologies in business cycle accounting
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
We make two comparisons relevant for the business cycle accounting approach. We show that in theory representing the investment wedge as a tax on investment is equivalent to representing this wedge...
Why Did U.S. Market Hours Boom in the 1990s?
Ellen R. McGrattan, Eduard C. Prescott
During the 1990s, market hours in the United States rose dramatically. The rise in hours occurred as gross domestic product (GDP) per hour was declining relative to its historical trend, an...
Technology Capital and the U.S. Current Account
Ellen R. McGrattan, Edward C. Prescott
The U.S. Bureau of Economic Analysis (BEA) estimates the return on investments of foreign subsidiaries of U.S. multinational companies over the period 1982--2006 averaged 9.4 percent annually after...
New Keynesian Models: Not Yet Useful for Policy Analysis
V.V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
Macroeconomists have largely converged on method, model design, reduced-form shocks, and principles of policy advice. Our main disagreements today are about implementing the methodology. Some think...
New Keynesian models: not yet useful for policy analysis
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
Macroeconomists have largely converged on method, model design, reduced-form shocks, and principles of policy advice. Our main disagreements today are about implementing the methodology. Some think...
The Poverty of Nations: A Quantitative Exploration
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
We document regularities in the distribution of relative incomes and patterns of investment in countries and over time. We develop a quantitative version of the neoclassical growth model with a broad...
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
The purpose of this paper is to construct a quantitative equilibrium model with price setting and use it to ask whether staggered price setting can generate persistent output fluctuations following...
Monetary Shocks and Real Exchange Rates in Sticky Price Models of International Business Cycles
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
The data show large and persistent deviations of real exchange rates from purchasing power parity. Recent work has shown that to a large extent these movements are driven by deviations from the law...
Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?
V.V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
The central puzzle in international business cycles is that real exchange rates are volatile and persistent. The most popular story for real exchange rate fluctuations is that they are generated by...
Is the Stock Market Overvalued?
Ellen R. McGrattan, Edward C. Prescott
The value of U.S. corporate equities in the first half of 2000 was close to 1.8 times U.S. gross national income. Some stock market analysts have argued that the market is overvalued at this level....
The Declining U.S. Equity Premium
Ravi Jagannathan, Ellen R. McGrattan, Anna Scherbina
This study demonstrates that the U.S. equity premium has declined significantly during the last three decades. The study calculates the equity premium using a variation of a formula in the classic...
The Stock Market Crash of 1929: Irving Fisher Was Right!
Ellen R. McGrattan, Edward C. Prescott
In the fall of 1929, the market value of all shares listed on the New York Stock Exchange fell by 30 percent. Many analysts then and now take the view that stocks were then overvalued and the stock...
Taxes, Regulations, and Asset Prices
Ellen R. McGrattan, Edward C. Prescott
U.S. stock prices have increased much faster than gross domestic product (GDP) in the postwar period. Between 1962 and 2000, corporate equity value relative to GDP nearly doubled. In this paper, we...
Does Neoclassical Theory Account for the Effects of Big Fiscal Shocks? Evidence From World War II
Ellen R. McGrattan, Lee E. Ohanian
There is much debate about the usefulness of the neoclassical growth model for assessing the macro- economic impact of fiscal shocks. We test the theory using data from World War II, which is by far...
Unmeasured Investment and the Puzzling U.S. Boom in the 1990s
Ellen R. McGrattan, Edward C. Prescott
The basic neoclassical growth model accounts well for the postwar cyclical behavior of the U.S. economy prior to the 1990s, provided that variations in population growth, depreciation rates, total...
Are Structural VARs with Long-Run Restrictions Useful in Developing Business Cycle Theory?
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
The central finding of the recent structural vector autoregression (SVAR) literature with a differenced specification of hours is that technology shocks lead to a fall in hours. Researchers have used...
Are structural VARs with long-run restrictions useful in developing business cycle theory?
Chari, V.V., Kehoe, Patrick J., McGrattan, Ellen R.
No, unless technology shocks account for virtually all of the fluctuations in output.
New Keynesian Models: Not Yet Useful for Policy Analysis
V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan
Macroeconomists have largely converged on method, model design, reduced-form shocks, and principles of policy advice. Our main disagreements today are about implementing the methodology. Some think...
New Keynesian models: not yet useful for policy analysis
Ellen R. McGrattan, Patrick J. Kehoe, V. V. Chari
In the 1970s macroeconomists often disagreed bitterly. Macroeconomists have now largely converged on method, model design, and macroeconomic policy advice. The disagreements that remain all stem from...
Empirical studies quantifying the benefits of increased foreign direct investment (FDI) have been unable to provide conclusive evidence of a positive impact on host country’s economic performance....
Capital taxation during the U.S. Great Depression
Previous studies quantifying the effects of increased capital taxation during the U.S. Great Depression find that its contribution is small, both in accounting for the downturn in the early 1930s and...