Essays in empirical macroeconomics

Michael Binder, University of Pennsylvania


In this dissertation, we try to gain a further understanding of the working mechanisms of aggregate and industry-specific cyclical fluctuations, and in this context particularly examine the role of decision makers' uncertainty about other decision makers' behavior for the propagation of demand- and supply shocks. The models studied fall within the class of rational expectations models under heterogeneous information, and for their analysis the dissertation develops new solution methods. Chapter 1 proposes a new solution method for multivariate linear rational expectations models under homogeneous information. The method is straightforward to apply and requires solution of a quadratic determinantal equation, the roots of which provide a complete characterization of all possible classes of solutions to these models. Of important practical consideration is that the method is applicable for many forms of non-stationarity and non-linearity in the forcing variables of the model analyzed. Chapter 2 addresses the question of how strong a propagation mechanism in an equilibrium business cycle model expectational uncertainty of decision makers can be. We find that a model allowing for expectational uncertainty for plausible parameterizations propagates demand- and supply shocks substantially stronger than the same model under homogeneous information, but does not fully match the dynamics observed in aggregate U.S. data. Chapter 3 introduces a new solution method for multivariate linear rational expectations models exhibiting expectational uncertainty. This solution method can be readily used to obtain data-based estimates of the importance of informational disparities, as it allows for information heterogeneity as well as parameter heterogeneity across decision makers. The chapter also shows how the parameters of this class of models can be estimated using GMM-techniques. Chapter 4 investigates industry-specific cyclical fluctuations in four-digit-SIC level U.S. manufacturing industries. Constructing a structural model of industry cycles, we find that these industries do have a common cyclical structure, but that industry cycles cannot be attributed to a common factor such as changes in firms' real cost of production or firms' markup-behavior alone. Rather, factors such as firms' uncertainty about other firms' pricing and output decisions, as well as relative price movements across industries play an important quantitative role for industry cycles.

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Recommended Citation

Binder, Michael, "Essays in empirical macroeconomics" (1995). Dissertations available from ProQuest. AAI9543051.