Essays on unemployment, productivity and consumption

This dissertation investigates the time series behavior of unemployment, productivity and consumption. Chapter 1 provides a detailed summary of results. Chapter 2 examines the relationship between the trends in unemployment and productivity growth. I propose an econometric model that improves upon existing methods of estimating the natural rate of unemployment (NAIRU) by using information contained in the trend of productivity growth. My approach enhances the recently proposed model of Staiger, Stock and Watson (1997) in several respects. Statistically speaking, the method substantially shrinks the width of the 95% confidence interval, performs better in an out-of-sample inflation forecasting exercise, and is more robust to alternative statistical assumptions. In economic terms, the productivity-augmented model generates a more realistic time profile of the NAIRU, and implies estimates of the Phillips curve slope and the sacrifice ratio that are more in line with conventional wisdom. I also test whether the natural rate is correlated with the level or with the change of the productivity growth trend. I find support for the "level" hypothesis in both the US and international data.; Chapter 3 evaluates the forecasting power of indexes of consumer sentiment for consumption growth. Several recent papers have demonstrated that the consumer sentiment has predictive power for consumption growth beyond what could be expected from the usual models of consumption dynamics. I simulate real-time out-of-sample forecasting and evaluate the accuracy of several forecasting models using various statistical procedures. They confirm that sentiment indexes can significantly improve the forecasts of various consumption series.; Chapter 4 investigates the evidence for the existence of cointegration among consumption, income and wealth. The chapter applies a consistent and uniform methodology of testing for cointegration to as many countries as possible, to see whether cointegration analysis is a reliable method for studying macroeconomic consumption behavior. I find little evidence for a stable cointegrating vector among consumption, labor income and wealth. The evidence for a stable consumption-disposable income relationship is more ambiguous. Of 26 countries investigated a stable cointegration probably exists in four and is not likely to exist in ten. Finally, cointegration between consumption and disposable income tends to exist in countries with stationary saving rates.