The Great Moderation and the Relationship between Output Growth and Its Volatility

This study examines the effect of the Great Moderation on the relationship between U.S. output growth and its volatility over the period 1947 to 2006. First, we consider the possible effects of structural change in the volatility process. In so doing, we employ GARCH-M and ARCH-M specifications of the process describing output growth rate and its volatility with and without a one-time structural break in volatility. Second, our data analyses and empirical results suggest no significant relationship between the output growth rate and its volatility, favoring the traditional wisdom of dichotomy in macroeconomics. Moreover, the evidence shows that the time-varying variance falls sharply or even disappears once we incorporate a one-time structural break in the unconditional variance of output starting 1982 or 1984. That is, the integrated GARCH effect proves spurious. Finally, a joint test of a trend change and a one-time shift in the volatility process finds that the one-time shift dominates.

Isotone Recursive Methods for Overlapping Generation Models with Stochastic Nonclassical Production

Based on an order-theoretic approach, we derive sufficient conditions for the existence, characterization, and computation of Markovian equilibrium decision processes and stationary Markov equilibrium on minimal state spaces for a large class of stochastic overlapping generations models. In contrast to all previous work, we consider reduced-form stochastic production technologies that allow for a broad set of equilibrium distortions such as public policy distortions, social security, monetary equilibrium, and production nonconvexities. Our order-based methods are constructive, and we provide monotone iterative algorithms for computing extremal stationary Markov equilibrium decision processes and equilibrium invariant distributions, while avoiding many of the problems associated with the existence of indeterminacies that have been well-documented in previous work. We provide important results for existence of Markov equilibria for the case where capital income is not increasing in the aggregate stock. Finally, we conclude with examples common in macroeconomics such as models with fiat money and social security. We also show how some of our results extend to settings with unbounded state spaces.

Online Format vs. Live Mode of Instruction: Do Human Capital Differences or Differences in Returns to Human Capital Explain the Differences in Outcomes?

Our paper asks the question: Does mode of instruction format (live or online format) effect test scores in the principles of macroeconomics classes? Our data are from several sections of principles of macroeconomics, some in live format, some in online format, and all taught by the same instructor. We find that test scores for the online format, when corrected for sample selection bias, are four points higher than for the live format, and the difference is statistically significant. One possible explanation for this is that there was slightly higher human capital in the classes that had the online format. A Oaxaca decomposition of this difference in grades was conducted to see how much was due to human capital and how much was due to the differences in the rates of return to human capital. This analysis reveals that 25% of the difference was due to the higher human capital with the remaining 75% due to differences in the returns to human capital. It is possible that for the relatively older student with the appropriate online learning skill set, and with schedule constrains created by family and job, the online format provides them with a more productive learning environment than does the alternative traditional live class format. Also, because our data are limited to the student s academic transcript, we recommend future research include data on learning style characteristics, and the constraints formed by family and job choices.

Existence and Uniqueness of Equilibrium in Nonoptimal Unbounded Infinite Horizon Economies

In applied work in macroeconomics and finance, nonoptimal infinite horizon economies are often studied in the the state space is unbounded. Important examples of such economies are single vector growth models with production externalities, valued fiat money, monopolistic competition, and/or distortionary government taxation. Although sufficient conditions for existence and uniqueness of Markovian equilibrium are well known for the compact state space case, no similar sufficient conditions exist for unbounded growth. This paper provides such a set of sufficient conditions, and also present a computational algorithm that will prove asymptotically consistent when computing Markovian equilibrium.