Replaced Papers

The papers below have been replaced by newer papers taking different approaches to the same topic. There may still be something of interest in them.

Aggregation bias in investment and capital

Latest working paper, 2020

In the US BEA Fixed Asset tables, the relative price of capital is increasing (in units of consumption), while the relative price of investment (in the same units) is falling. We build a vintage capital model to explain these surprising facts. The model predicts that the BEA will mismeasure the true growth rates of both relative prices, with a bias driving a wedge between the two. The calibrated model implies that real growth in US GDP per capita is overstated by about 0.1 percentage points per year.


Reconciling near trend-stationary growth with medium-frequency cycles

Latest working paper, 2013

Existing models of dynamic endogenous growth generate implausibly large trend breaks in output when augmented with standard business cycle shocks. This paper presents a model without this deficiency, yet still capable of generating large medium-frequency fluctuations around the trend. Ensuring the robustness of the trend requires that we eliminate the scale effects and knife edge assumptions that plague most growth models. In our model, medium-frequency fluctuations arise from changes in the proportion of industries producing patent protected products. However, variations in the number of firms within each industry ensure that process improvement incentives remain roughly constant.

Working paper PDF

Data consistent modelling of medium-frequency cycles and their origins

Latest working paper, 2013

This paper presents four stylized facts on medium-frequency cycles, then builds and estimates a model capable of replicating both these facts and standard business-cycle ones. We show that GDP returns to trend at long lags, that aggregate mark-ups always lead output, and are only counter-cyclical at low frequencies, and that medium-frequency cycles are larger in countries with longer patent protection. Since traditional dynamic endogenous growth models generate large trend-breaks following business-cycle shocks, our model is based on that of Holden (2013a). After estimation, a financial-type shock to the stock of ideas emerges as the key driver of the medium-frequency cycle.

Working paper PDF

Online appendices to “Reconciling near trend-stationary growth with medium-frequency cycles” and “Data consistent modelling of medium-frequency cycles and their origins”

Latest working paper, 2013

This paper presents the online appendices to Holden (2013a) and Holden (2013b). We discuss the derivation of the first order and free-entry conditions, the steady state level of relative productivity of non-protected industries, and the nature of the inventor-firm bargaining procedure. We go on to present the full equations of both models considered, details of the data used for estimation, and the results of this estimation procedure.

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Efficient simulation of DSGE models with inequality constraints

Revise & resubmit, Journal of Economic Dynamics and Control, lapsed

Latest working paper, 2012

This paper presents a fast, simple and intuitive algorithm for simulation of linear dynamic stochastic general equilibrium models with inequality constraints. The algorithm handles both the computation of impulse responses, and stochastic simulation, and can deal with arbitrarily many bounded variables. Furthermore, the algorithm is able to capture the precautionary motive associated with the risk of hitting such a bound. To illustrate the usefulness and efficiency of this algorithm we provide a variety of applications including to models incorporating a zero lower bound (ZLB) on nominal interest rates. Our procedure is much faster than comparable methods and can readily handle large models. We therefore expect this algorithm to be useful in a wide variety of applications.

Co-author: Michael Paetz

Working paper PDF Working paper on RePEc

Rough or Dormant Papers

The papers below are either extremely rough, or are dormant (for now). There may still be something of interest in them.

Tractable estimation and smoothing of highly non-linear dynamic state-space models

Latest working paper, 2017

We present an algorithm for tractably estimating non-linear dynamic models, such as DSGE models with occasionally binding constraints, or stochastic volatility models. The algorithm presents an extended skew-t, augmented-state, version of the Cubature Kalman Filter of Arasaratnam and Haykin (2009) with dynamic state space reduction, to give adequate speed, and to ensure that it can handle the large state spaces generated, for example, by pruned perturbation solutions to medium-scale DSGE models. The use of an extended skew-t approximation to the state’s distribution allows the filter to also track the distribution’s third and fourth moments. We extend the base algorithm to allow for alternative cubature procedures to further improve the tracking of non-linearities. We illustrate that the method can solve some of the identification problems that plague linearized DSGE models, and show that the method can readily handle the estimation of stochastic volatility models with time varying correlation between level and volatility innovations. We go on to extend the algorithm to produce smoothed estimates of states, and we use this to assess which shocks caused the great recession in the model of Christiano, Motto, and Rostagno (2014).

Working paper PDF

Learning from learners

Latest working paper, 2013

Traditional macroeconomic learning algorithms are misspecified when all agents are learning simultaneously. In this paper, we produce a number of learning algorithms that do not share this failing, and show that this enables them to learn almost any solution, for any parameters, implying learning cannot be used for equilibrium selection. As a by-product, we are able to show that when all agents are learning by traditional methods, all deep structural parameters of standard new-Keynesian models are identified, overturning a key result of Cochrane (2009; 2011). This holds irrespective of whether the central bank is following the Taylor principle, irrespective of whether the implied path is or is not explosive, and irrespective of whether agents’ beliefs converge. If shocks are observed then this result is trivial, so following Cochrane (2009) our analysis is carried out in the more plausible case in which agents do not observe shocks.

Working paper PDF Working paper on RePEc


Further (sometimes rough!) papers can be seen in the following links:

My thesis My SSRN page My Google Scholar page My RePEc page

Policy / Non-academic Papers

Universal basic income as a tool for tax and benefit reform

Social Liberal Forum Publication Number 8 (2017)

“Also published in: “Four go in search of big ideas”, Edited by Helen Flynn (2018)

Universal basic income (UBI) is often presented as a way of supporting an increase in the fraction of population not in full time employment. Here, I wish to outline an alternative vision based upon using UBI to simplify the tax and benefit system and enhance work incentives. Rather than funding an increase in the number of people without jobs, my proposed system is designed to produce higher levels of employment. By replacing many existing benefits with a UBI, families will no longer need to worry about their benefits being withdrawn as they start earning more, giving them stronger incentives to work, and pulling thousands out of the poverty trap created by the existing benefits system. Furthermore, while the poorest will obtain the largest direct benefit from the proposed system, its wider benefits will be shared by people of all incomes due to reduced economic distortions.

Publisher’s version Published book Working paper PDF