Now showing 1 - 10 of 13
  • Publication
    Does the labour share of income drive inflation?
    (Central Bank of Ireland, 2002-06) ;
    Woodford (2001) has presented evidence that the new-Keynesian Phillips curve fits the empirical behavior of inflation well when the labor income share is used as a driving variable, but fits poorly when deterministically detrended output is used. He concludes that the output gap - the deviation between actual and potential output - is better captured by the labor income share, in turn implying that central banks should raise interest rates in response to increases in the labor share. We show that the empirical evidence generally suggests that the labor share version of the new-Keynesian Phillips curve is a very poor model of price inflation. We conclude that there is little reason to view the labor income share as a good measure of the output gap, or as an appropriate variable for incorporation in a monetary policy rule.
      407
  • Publication
    Empirical proxies for the consumption–wealth ratio
    (Elsevier Science, 2006) ;
    Using a log-linearized approximation to an aggregate budget constraint, it is possible to show that the ratio of consumption to total (human and non-human) wealth summarizes agents' expectations concerning both future labor income and future asset returns. In a series of recent papers, Lettau and Ludvigson construct an empirical analogue to the consumption–wealth ratio by approximating total wealth with a linear combination of labor income and observable non-human wealth. If valid, this framework suggests that consumption, assets, and labor income will be cointegrated. We demonstrate, however, that standard tests fail to reject the hypothesis of no cointegration once one employs measures of consumption, assets, and labor income that are jointly consistent with an underlying budget constraint. We also show that deviations of consumption, assets, and income from an estimated common trend are unable to predict future excess returns on stocks out of sample once theoretically consistent measures are used.
    Scopus© Citations 25  829
  • Publication
    Do Deaf Young Persons Have the Same Rate of Mental Illness as Hearing Young Persons?
    Few deaf children or adolescents currently attend the HSE Grangegorman Child and Adolescent Mental Health Service (CAMHS) despite the deaf school in Cabra being in its catchment area. Although profound deafness rates in this age group are decreasing due to the MMR vaccine, advancements in cochlear implantations and the newborn hearing screening programme, mental health difficulties in deaf children and adolescents could be going unreported. Compared to hearing populations, higher rates of mental health problems have been found in deaf people [1]. This study aimed to gather data about rates of mental health problems in deaf young persons attending a deaf school and compare the results with a general population sample of hearing young persons, using the Growing Up in Ireland data. It is hoped that the results could be used to promote access to better healthcare for the deaf community. A Strengths and Difficulties Questionnaire (SDQ) was distributed to every pupil attending a mixed school for the deaf and their parents. The SDQ covers: Hyperactivity, Emotional symptoms, Conduct problems, Peer problems and Prosocial [2]. Results were described as ‘normal’, ‘borderline’ or ‘abnormal’. Results found that compared to the 10% published cut-off, a higher rate of primary school children scored ‘abnormal’ and more secondary children scored ‘border-line’. Bullying and loneliness were issues for most children, with peer relations the highest scoring difficulty overall. The low response rate is a limitation for the study. Out of 125 children, parents of 11 primary school children and 10 secondary school children participated.
      223
  • Publication
    A note on the cointegration of consumption, income, and wealth
    (Central Bank of Ireland, 2002-11) ;
    Lettau and Ludvigson (2001) argue that a log-linearized approximation to an aggregate budget constraint predicts that log consumption, assets, and labour income will be cointegrated. They conclude that this cointegrating relationship is present in U.S. data, and that the estimated cointegrating residual forecasts future asset growth. This note examines whether the cointegrating relationship suggested by Lettau and Ludvigson's theoretical framework actually exists. We demonstrate that we cannot reject the hypothesis that cointegration is absent from the data once we employ measures of consumption, assets, and labor income that are jointly consistent with an underlying budget constraint. By contrast, Lettau and Ludvigson use a set of variables that do not belong together in an aggregate budget constraint, thereby testing a cointegrating relationship that is not implied by their theory.
      554
  • Publication
    Modeling inflation dynamics : a critical review of recent research
    (Blackwell, 2007-02) ;
    In recent years, a broad academic consensus has arisen that favors using rational expectations sticky-price models to capture inflation dynamics. We review the principal conclusions of this literature concerning: (1) the ability of these models to fit the data; (2) the importance of rational forward-looking expectations in price setting; and (3) the appropriate measure of inflationary pressures. We argue that existing models fail to provide a useful empirical description of the inflation process.
      2380Scopus© Citations 132
  • Publication
    On the relationships between real consumption, income, and wealth
    (Central Bank of Ireland, 2002-11) ; ;
    The existence of durable goods implies that the welfare flow from consumption cannot be directly associated with total consumption expenditures. As a result, tests of standard theories of consumption (such as the Permanent Income Hypothesis, or PIH) typically focus on nondurable goods and services. Specifically, these studies generally relate real consumption of nondurable goods and services to measures of real income and wealth, where the latter are deflated by a price index for total consumption expenditures. This paper demonstrates that this procedure is only valid under the assumption that real consumption of nondurables and services is a constant multiple of aggregate real consumption outlays - an assumption that represents a very poor description of U.S. data. The paper develops an alternative approach that is based on the observation that the ratio of these series has historically been stable in nominal terms, and uses this approach to examine two basic predictions of the PIH. We obtain significantly different results relative to the traditional approach.
      453
  • Publication
    Can rational expectations sticky-price models explain inflation dynamics?
    (American Economic Association, 2006-03) ;
    The canonical inflation specification in sticky-price rational expectations models (the new-Keynesian Phillips curve) is often criticized for failing to account for the dependence of inflation on its own lags. In response, many studies employ a “hybrid” specification in which inflation depends on its lagged and expected future values, together with a driving variable such as the output gap. We consider some simple tests of the hybrid model that are derived from its closed form. We find that the hybrid model describes inflation dynamics poorly, and find little empirical evidence for the type of rational, forward-looking behavior that the model implies.
      1511Scopus© Citations 85
  • Publication
    Does labor's share drive inflation?
    (Blackwell - published on behalf of The Ohio State University, 2005-04) ;
    A number of researchers have recently argued that the new-Keynesian Phillips curve matches the empirical behavior of inflation well when the labor income share is used as a driving variable, but fits poorly when deterministically detrended output is used. The theoretical motivation for these results rests on the idea that the output gap-the deviation between actual and potential output-is better captured by the labor income share, in turn implying that central banks should raise interest rates in response to increases in this variable. We show that the empirical evidence generally suggests that the labor share version of the new-Keynesian Phillips curve is a very poor model of price inflation. We conclude that there is little reason to view the labor income share as a good measure of the output gap, or as an appropriate variable for incorporation in a monetary policy rule.
      741
  • Publication
    Can rational expectations sticky-price models explain inflation dynamics
    (Central Bank of Ireland, 2003-08) ;
    Recent years have seen an important trend in macroeconomic research towards analysing business cycles and stabilization policy in the context of models that incorporate both nominal rigidities and optimising agents with rational expectations. The canonical specification for the behaviour of inflation in these sticky-price rational expectations models (which is known as the new-Keynesian Phillips curve) is often criticized on the grounds that it fails to account for the dependence of inflation on its own lags. In response, many recent studies have employed a “hybrid” sticky-price specification in which inflation depends on a weighted average of lagged and expected future values of itself, in addition to a driving variable such as the output gap. In this paper, we consider some simple tests of the hybrid model that are derived from the model's closed-form solution. Our results suggest that the hybrid model provides a poor description of empirical inflation dynamics, and that there is little evidence of the type of rational forward-looking behavior implied by the model.
      1026
  • Publication
    Inflation targets, credibility, and persistence in a simple sticky-price framework
    (Federal Reserve, 2003-07-23) ;
    This paper presents a re-formulated version of a canonical sticky-price model that has been extended to account for variations over time in the central bank's inflation target. We derive a closed-form solution for the model, and analyze its properties under various parameter values. The model is used to explore topics relating to the effects of disinflationary monetary policies and inflation persistence. In particular, we employ the model to illustrate and assess the critique that standard sticky-price models generate counterfactual predictions for the effects of monetary policy.
      236