The assessment: the New Economy

Temple, Jonathan (2002). The assessment: the New Economy. Oxford Review of Economic Policy, Autumn, 18(3), 241-264.

The remarkable economic success of the United States in the 1990s led many observers to talk about a “New Economy”. This paper provides an overview of the main issues, including faster productivity growth, the stability of inflation despite very low unemployment, the reduction in output volatility, the role of monetary policy, and the boom in the stock market. The paper also considers whether or not the acceleration in productivity growth can be sustained, and the possible implications for the rest of the world.

Balanced growth and the great ratios: new evidence for the US and UK

with Cliff Attfield
Cliff Attfield and Jonathan Temple (2010). Balanced growth and the great ratios: new evidence for the US and UK. Journal of Macroeconomics, 32(4), December, 937-956.

Standard macroeconomic models suggest that the ‘great ratios’ of consumption to output and investment to output should be stable functions of structural parameters. We examine whether the ratios are stationary for the US and UK, allowing for structural breaks that could reflect time-varying parameters. We find stronger evidence for stationarity than previous work. We then use the long-run restrictions associated with the stationarity of the great ratios to extract measures of trend output from the joint behaviour of consumption, investment and output. This approach is attractive because it uses information from several series without requiring restrictive assumptions.

A previous version of this paper circulated under the title Measuring trend output: how useful are the great ratios? This research was funded by ESRC award no. R000223760.
See also Cliff Attfield (2003). Structural breaks and permanent trends. University of Bristol discussion paper no. 03/545.

The calibration of CES production functions

Temple, Jonathan (2012). The calibration of CES production functions. Journal of Macroeconomics, 34(2), June, 294–303.

The CES production function is increasingly prominent in macroeconomics and growth economics. This paper distinguishes between different uses of “normalized” CES functions, an approach that has become popular in the literature. The results of Klump and La Grandville (2000) provide a simple way to calibrate the parameters of the CES production function when the necessary data are available. But some of the other applications of normalized CES production functions are problematic, especially when the approach is said to isolate the theoretical effects of varying the elasticity of substitution.

This is a revised version of Temple, Jonathan R. W. (2008). The calibration of CES production functions. Department of Economics, University of Bristol, working paper no. 08/606.

Central Bank independence and inflation: good news and bad news

Economics Letters, November 1998, 61(2), 215-219.

The bad news is that the findings of recent studies of central bank independence and inflation are very sensitive to outliers. The good news is that evidence presented here reinforces the existing case for bank independence in high income economies.


Does external trade promote financial development?

with Yongfu Huang

Several recent papers have argued that trade and financial development may be linked, either for political economy reasons, or because openness influences the demand for external finance. In this paper we use the cross-country and time-series variation in openness to study the relationship between trade and finance in more detail. Our results suggest that increases in goods market openness are typically followed by sustained increases in financial depth.

The geography of output volatility

Malik, Adeel and Temple, Jonathan R. W. (2009). The geography of output volatility. Journal of Development Economics, 90(2), 163-178.

This paper examines the structural determinants of output volatility in
developing countries, and especially the roles of geography and
institutions. We investigate the volatility effects of market access,
climate variability, the geographic predisposition to trade, and various
measures of institutional quality. We find an especially important role for
market access: remote countries are more likely to have undiversified
exports and to experience greater volatility in output growth. Our results
are based on Bayesian methods that allow us to address formally the problem
of model uncertainty and to examine robustness across a wide range of

This is a revised version of University of Bristol discussion paper no. 05/568. The working paper version contains more details on our use of Bayesian methods in the paper.

Implementation cycles and the New Economy in retrospect

Scaramozzino, Pasquale, Temple, Jonathan and Vulkan, Nir (2012). Implementation cycles and the New Economy in retrospect. In Piergiuseppe Morone (ed.) Knowledge, Innovation and Internationalization: Essays in Honour of Cesare Imbriani, Routledge, forthcoming September 2012.

The economic boom of the USA in the 1990s was remarkable in its duration, the sustained rise in equipment investment, the reduced volatility of productivity growth, and continued uncertainty about the trend growth rate. In this paper we link these phenomena using an extension of the classic model of implementation cycles due to Shleifer (1986). The key idea is that uncertainty about the trend growth rate can lead firms to bring forward the implementation of innovations, temporarily eliminating expectations-driven business cycles, because delay is risky when beliefs are not common knowledge.

Download prepublication version: impcycles26sep08v2.pdf

Inflation and growth: stories short and tall

Temple, Jonathan (2000). Inflation and growth: stories short and tall. Journal of Economic Surveys, September, 14(4), 395-426.

This paper reviews the stories that economists tell about the growth effects of inflation. Informal accounts of inflation’s effects are common, but there are few models which get to grips with the effects that are probably central. Partly as a result of this, and partly as a result of many econometric problems, much of the empirical evidence remains unconvincing. The paper assesses the various contributions, and suggests possible improvements.

Macroeconomic stability and the distribution of growth rates

with Vatcharin Sirimaneetham

Sirimaneetham, Vatcharin and Temple, Jonathan R. W. (2009). Macroeconomic stability and the distribution of growth rates. World Bank Economic Review, December 2009, 23(3), 443-479.

It is often argued that macroeconomic instability can form a binding constraint on economic growth. Drawing on a new index of stability, threshold estimation is used to show that developing countries can be divided into two distinct growth regimes, depending on a threshold level of stability. For the relatively stable group of countries, the output benefits of investment are greater, conditional convergence is faster, and measures of institutional quality have more explanatory power, suggesting that instability forms a binding constraint for the less stable group. It is also shown that macroeconomic stability dominates several other candidates for identifying distinct growth regimes.

An earlier version circulated as “Macroeconomic policy and the distribution of growth rates”.

Openness, inflation and the Phillips curve: a puzzle

Temple, J. (2002). Openness, inflation and the Phillips curve: a puzzle. Journal of Money, Credit, and Banking, 34(2), May, 450-468.

Models of open economies with nominal rigidities are often thought to
predict a correlation between openness to trade and the slope of the
output-inflation trade-off, or Phillips curve. Using a variety of measures of the trade-off and a standard measure of openness, this paper argues that the direct evidence for a correlation is not strong. In turn, this calls into question the usual explanation for the negative correlation between openness and inflation that was documented by Romer (1993). The paper considers some alternative explanations for the Romer evidence.


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