Zvi Hercowitz - Influential Publications

Influential Publications

1. "Money and the Dispersion of Relative Prices", Journal of Political Economy, April 1981. Variability over time in aggregate indices of price level, such as the CPI, is often associated with a greater dispersion in relative prices at a point in time. To model this phenomenon, Zvi Hercowitz uses a variant of the celebrated Lucas-Barro island model. In a world where people have incomplete information, individuals are confronted with the problem of determining whether price changes in specific goods are caused by general price inflation or by shifts in the supply and demand for this good. In the Lucas-Barro island model perfectly perceived money growth should not affect relative prices. Money growth has to be unperceived to have real effects. Using data from the German hyperinflation, an equation that relates price change dispersion to exogenous unperceived money shocks is estimated. Zvi finds that unperceived money growth does affect price dispersion, as the model predicts, while perceived money has no effect. This paper derives from Zvi's thesis at the University of Rochester.

2. "Output Growth, the Real Wage, and Employment Fluctuations", American Economic Review, December 1991, (with Michael Sampson). In this work Zvi Hercowitz and Michael Sampson develop and estimate one of the first models of economic growth and cycles. Endogenous long-run growth is formulated along the lines of Romer (1986). This engine for growth is dropped into a business cycle model in the spirit of Kydland and Prescott (1982) and Long and Plosser (1983). Shocks come about from both neutral and capital-embodied technological change. Unlike standard real business cycle models, temporary shocks have permanent effects on output and wages in this framework.

3. "Long-Run Implications of Investment-Specific Technological Progress", American Economic Review, June 1997, (with Jeremy Greenwood and Per Krusell). Casual empiricism suggests that technological progress is often embodied in the form of new and improved capital goods. Many examples come to mind: computers, robots, cell phones and the like. The paper analyzes the role of this type of technological change in U.S. economic growth. The results suggest that investment-specific technological progress accounts for the major part of U.S. economic growth over the postwar period.

4. "Investment, Capacity Utilization, and the Real Business Cycle", American Economic Review, June 1988, (with Jeremy Greenwood and Gregory W. Huffman). This paper contains the utility function commonly referred to as Greenwood-Hercowitz-Huffman Preferences.