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Template-Type: ReDIF-Paper 1.0
Title: Job Mobility and Earnings Growth
Author-Name: Ann P. Bartel
Note: LS
Number: 0117
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0117
File-URL: http://www.nber.org/papers/w0117.pdf
File-Format: application/pdf
Publication-Status: published as Bartel, Ann P. "Earnings Growth on the Job and Between Jobs." Economic Inquiry, Vol. XVIII, No. 1, (January 1980), pp. 123-137.
Abstract: This paper uses detailed data on the salary histories of individuals to show how an individual's observed earnings growth can be decomposed into growth occurring on the job and growth occurring between jobs. it is shown that the relative contributions of these two components to overall earnings growth differ across race and education groups. Further, as predicted by the specific training hypothesis, the more mobile individuals are found to have smaller on-the-job earnings gains in absolute terms than the less mobile.
Handle: RePEc:nbr:nberwo:0117
Template-Type: ReDIF-Paper 1.0
Title: Family Background and Optimal Schooling Decision
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: LS
Number: 0141
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0141
File-URL: http://www.nber.org/papers/w0141.pdf
File-Format: application/pdf
Publication-Status: published as Lazear, Edward. "Family Backround and Optimal Schooling Decisions." The Review of Economics and Statistics, Vol. LXII, No. 1, (February 1980), PP. 4 2-51.
Abstract: In this paper, another aspect of optimizing behavior is considered. Specifically, it asks whether variations in levels of attained schooling across groups can be explained by a model that assumes that capital markets are perfect and that individuals maximize wealth. The logic of the analysis proceeds as follows: First, a model is constructed that allows estimation of costs and returns to education for each individual, based on the assumption that all individuals face the same borrowing rates. Given costs and returns, one can obtain an optimal wealth-maximizing level of education for each individual. Differences between actually acquired and wealth-maximizing levels of education can then be calculated, and one can determine whether or not the residuals are systematically related to background variables. If, for example, low-income individuals have a consistently larger estimated wealth-maximizing level of education than actual level, one could conclude either that returns to schooling differed between groups or that capital market differences exist. The model allows these two explanations to be distinguished. Since differential returns are caused by wage differences across groups, the wealth-maximizing level can take these labor market variations into account. Any residual variation will be due to factors other than differential wage rates, presumably capital cost differences .
Handle: RePEc:nbr:nberwo:0141
Template-Type: ReDIF-Paper 1.0
Title: Investors' Portfolio Behavior Under Alternative Models of Long-Term Interest Rate Expectations: Unitary, Rational, or Autoregressive
Author-Name: Benjamin M. Friedman
Author-Name: V. Vance Roley
Note: ME
Number: 0178
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0178
File-URL: http://www.nber.org/papers/w0178.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. and Roley, V. Vance. "Investors' Portfolio Behavior Under Alternative Models of Long-Term Interest Rate Expectations; Unitary, Rational, or Autoregressive." Econometrica, Vol. 47, No . 6, (November 1979), pp. 1475-1497.
Abstract: This paper develops behavioral relationships explaining investors' demands for long-term bonds, using three alternative hypotheses about investors' expectations of future bond prices (yields). The results, based on U.S. 'data for six major categories of bond market investors, consistently support an autoregressive expectations model. The results also have implications for further aspects of investors' portfolio behavior, including expectations formation, response to inflation, and speed of adjustment.
Handle: RePEc:nbr:nberwo:0178
Template-Type: ReDIF-Paper 1.0
Title: Do Private Pensions Increase National Saving?
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0186
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0186
File-URL: http://www.nber.org/papers/w0186.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Do Private Pensions Increase National Saving?" Journal of Public Economics, Vol. 10, No. 3, (December 1978), pp. 277-293.
Abstract: This paper discusses how private pension programs differ from public social security in their likely impact on aggregate saving. Although private pensions are likely to reduce direct saving by employees, this should be offset by the combination of companies' partial funding and the shareholders response to unfunded liabilities. In contrast to several earlier empirical studies that implied that social security does depress national saving, the current time series evidence suggests that the growth of private pensions has not had an adverse effect on saving and may have increased saving by a small amount.
Handle: RePEc:nbr:nberwo:0186
Template-Type: ReDIF-Paper 1.0
Title: The Optimal Taxation of Foreign Source Investment Income
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: David G. Hartman
Note: PE
Number: 0193
Creation-Date: 1980-11
Order-URL: http://www.nber.org/papers/w0193
File-URL: http://www.nber.org/papers/w0193.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin and Hartman, David. "The Optimal Taxation of Foreign Source Investment Income." Quarterly Journal of Economics, Vol. XCIII, No. 4, ( November 1979), pp. 613-629.
Abstract: Our paper begins with the relatively simple problem of optimal taxation as viewed by the capital-exporting ("home") country when it can assume that its actions do not alter the tax rate in the host country. Section I also shows that when foreign investment accounts for a significant fraction of production in the host country, the capital-exporting country should tax foreign source investment income more heavily than is implied by the "full taxation after deduction" rule. The important question of tax rate interdependence is developed in Section II. In the third section we replace the assumption that all foreign investment is financed by a transfer of equity capital from the home country with the more realistic description that subsidiary firms borrow in the host country. Although this raises the profitability to the home country of investment by its foreign subsidiaries, we show that this need not alter the conclusions of the previous sections. We regard the present paper as only a first step in a proper analysis of the complex issue of optimal taxation of foreign source investment income. . The static analysis of the present paper should be extended to consider investment paths in growing economics. Finally, the purely nationalistic optimality criterion could be generalized to give some weight to the real income of the rest of the world.
Handle: RePEc:nbr:nberwo:0193
Template-Type: ReDIF-Paper 1.0
Title: The Economics of Migration: An Empirical Analysis with Special Referenceto the Role of Job Mobility
Author-Name: Ann P. Bartel
Note: LS
Number: 0198
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0198
File-URL: http://www.nber.org/papers/w0198.pdf
File-Format: application/pdf
Publication-Status: published as Bartel, Ann P. "The Migration Decision: What Role Does Job Mobility Play?" The American Economic Review, Vol. 69, No. 5, (December 1979), pp. 775-786 .
Abstract: This article continues the work on the analysis of the individual's decision to migrate, but differs from the previous studies by focusing on the relationship between job mobility and migration. First, the proportion of geographic mobility that occurs in conjunction with a job change is calculated. Second, it is shown that the true effects of human capital variables, job characteristics, and family variables on the decision to migrate are best measured when one takes account of the relationship between migration and job mobility. Third, the effect of migration on the wage gains of individuals is studied and again the need for distinguishing among moves that were associated with quits, layoffs, and transfers is clearly shown. Finally, by using three data sets that encompass different age groups (the National Longitudinal Surveys [NLS] of Young and Mature Men and the Coleman-Rossi Retrospective Life History Study), the importance of the relationship between migration and job mobility is demonstrated at different points in the life cycle.
Handle: RePEc:nbr:nberwo:0198
Template-Type: ReDIF-Paper 1.0
Title: Social Security and Household Wealth Accumulation: New Microeconomic Evidence
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Anthony J. Pellechio
Note: PE
Number: 0206
Creation-Date: 1980-05
Order-URL: http://www.nber.org/papers/w0206
File-URL: http://www.nber.org/papers/w0206.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin S. and Pellechio, Anthony. "Social Security and Household Wealth Accumulation: New Microeconomic Evidence." The Review of Economics and Statistics, Vol. LXI, No. 3, (August 1979), pp. 361-368.
Abstract: The social security program will pay benefits of more than $100 billion in 1978. Public transfers on this scale are large enough to have profound effects on the behavior of the U.S. economy. The most important effect, although not the only one, is likely to be the impact of social security on private saving and aggregate capital accumulation. The present paper contributes to the analysis of this issue by providing new evidence on the extent to which the accumulation of wealth by individual households responds to differences in social security benefits.
Handle: RePEc:nbr:nberwo:0206
Template-Type: ReDIF-Paper 1.0
Title: The Relationship Between Children's Health and Intellectual Development
Author-Name: Linda N. Edwards
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 0213
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0213
File-URL: http://www.nber.org/papers/w0213.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Linda N. and Grossman, Michael. "The Relationship Between Children's Health and Intellectual Development." Health: What is it Worth?, editedby Selma Mushkin and David Dunlop, pp. 273-314. Elmsford, NY: Pergamon Press, 1979.
Abstract: The focus of this paper is on functional health status of children in the population. More specifically, we examine a single aspect of functional health status -- intellectual development of children. In a multivariate context, we examine the relationships between the health indexes and cognitive development of children from six to 11 years of age in Cycle II of the U.S. Health Examination Survey (HES). We present the first set of such estimates for a representative sample of non-institutionalized white children in the United States. We compare them with existing findings for underdeveloped countries, Great Britain, and low income families in the United States.
Handle: RePEc:nbr:nberwo:0213
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Shifting Wealth Ownership on the Term Structure of Interest Rates
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0239
Creation-Date: 1980-05
Order-URL: http://www.nber.org/papers/w0239
File-URL: http://www.nber.org/papers/w0239.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "The Effect of Shifting Wealth Ownership on the Term Structure of Interest Rates: The Case of Pensions." Quarterly Journal of Economics, Vol. XCIV, No. 3, (May 1980), pp. 567-588.
Abstract: Substantial shifts in wealth ownership from individuals to pension funds are currently taking place in the United States and also are in prospect for the foreseeable future. Moreover, pension funds typically exhibit portfolio preferences that are markedly different from those of individuals. In a world of heterogeneous investors, redistributions among wealth holders with different portfolio preferences will in general alter the structure of asset yields. Partial-equilibrium simulation experiments based on a model of the U. S. long-term bond market indicate that redistributions of saving flows from individuals to pension funds, in plausible magnitudes, can have major effects on the term structure of interest rates.
Handle: RePEc:nbr:nberwo:0239
Template-Type: ReDIF-Paper 1.0
Title: Personal Taxation, Portfolio Choice and The Effect of the Corporation Income Tax
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 0241
Creation-Date: 1980-11
Order-URL: http://www.nber.org/papers/w0241
File-URL: http://www.nber.org/papers/w0241.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin S. and Slemrod, Joel. "Personal Taxation, Portfolio Choice, and the Effect of the Corporation Income Tax." Journal of Political Economy, Vol. 88, No. 5, (Oct. 1980), pp. 854-866.
Abstract: Extending the traditional treatment of the corporate tax to an economy with a progressive personal tax fundamentally changes the analysis. While the corporate tax system (CTS) does increase the total tax rate on corporate source income for some investors, the exclusion of retained earnings implies that the CTS lowers the tax rate for high-income investors. Analyzing such an economy requires replacing the traditional "equal-yield" equilibrium condition with a more general portfolio balance model. In this model, introducing a CTS can actually increase the corporate share of the capital stock even though the relative tax rate on corporate income rises.
Handle: RePEc:nbr:nberwo:0241
Template-Type: ReDIF-Paper 1.0
Title: The Exit-Voice Tradeoff in the Labor Market: Unionism, Job Tenure, Quits
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0242
Creation-Date: 1980-11
Order-URL: http://www.nber.org/papers/w0242
File-URL: http://www.nber.org/papers/w0242.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B. "The Exit-Voice Tradeoff in the Labor Market: Unionism, Job Tenure, Quits, and Separations." The Quarterly Journal of Economics, Vol XCIV, No. 4, (June 1980), pp. 643- 673.
Abstract: This paper examines the effect of trade unionism on the exit behavior of workers in the context of Hirschman's exit-voice dichotomy. Unionism is expected to reduce quits and permanent separations and raise job tenure by providing a "voice" alternative to exit when workers are dissatisfied with conditions. Empirical evidence supports this contention, showing significantly lower exit for unionists in several large data tapes. It is argued that the grievance system plays a major role in the reduction in exit and that the reduction lowers cost and raises productivity.
Handle: RePEc:nbr:nberwo:0242
Template-Type: ReDIF-Paper 1.0
Title: Taxation and Corporate Financial Policy
Author-Name: J. Gregory Ballentine
Author-Name: Charles E. McLure, Jr.
Author-Person: pmc33
Note: PE
Number: 0243
Creation-Date: 1980-05
Order-URL: http://www.nber.org/papers/w0243
File-URL: http://www.nber.org/papers/w0243.pdf
File-Format: application/pdf
Publication-Status: published as Ballentine, J. Gregory and McLure, Jr., Charles E. "Taxation and Corporate Financial Policy." The Quarterly Journal of Economics, Vol. XCIV, No. 2, (March 1980), pp. 351-372.
Abstract: A model of corporate financial policy (debt-equity ratios and dividend payout rates) is included in the Harberger general equilibrium model of incidence of the corporate income tax. Illustrative calculations of the distortions of financial policy and increases in risk premiums induced by the corporate tax are provided. Because risk premiums on corporate securities would be reduced, eliminating the corporate tax or integrating it into the personal tax would increase the income of non-corporate investors relatively more than that of investors in corporate securities, and is therefore less regressive than is commonly thought.
Handle: RePEc:nbr:nberwo:0243
Template-Type: ReDIF-Paper 1.0
Title: Wealth Maximization and the Cost of Capital
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 0254
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0254
File-URL: http://www.nber.org/papers/w0254.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "Wealth Maximization and the Cost of Capital." The Quarterly Journal of Economics, Vol. XCIII, No. 3, (August 1979), pp. 433-446.
Abstract: In this paper we explore the issue of wealth maximization and the implied behavior of the firm, paying particular attention to the results discussed above and how they are affected by the existence of capital income taxes. Our results indicate that a tax structure similar to that in existence in the United States influences the cost of capital in a very different way than has been assumed previously and that the relative advantages of debt over equity as a method of finance, and capital gains over dividends as a vehicle for personal realization of corporate profits, may have been greatly overstated. These findings may help to explain certain aspects of corporate financial behavior that have seemed puzzling.
Handle: RePEc:nbr:nberwo:0254
Template-Type: ReDIF-Paper 1.0
Title: Share Valuation and Corporate Equity Policy
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 0255
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0255
File-URL: http://www.nber.org/papers/w0255.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "Share Valuation and Corporate Equity Policy." Journal of Public Economics, Vol. II, (1979), pp. 291-305.
Abstract: In recent years many contributions have appeared which examine the effects of corporate and personal taxation on firm financial policy. However, there has yet to appear an adequate explanation of why corporations continue to distribute dividends despite their disadvantageous tax treatment. We study this problem anew, in the context of an overlapping generations growth model with corporations financed by equity. Among our findings are: (1) capital owned by corporations may well be undervalued, even in the long run; (2) as a result of such undervaluation, firms may find it in the best interest of their stockholders to distribute dividends; and (3) an increase in the tax on distributions, while depressing the return to personal saving, may lead to an increase in the capital intensity of the economy. We also consider the criterion firms will use in evaluating new investment projects.
Handle: RePEc:nbr:nberwo:0255
Template-Type: ReDIF-Paper 1.0
Title: Survey Evidence on The Rationality of Interest Rate Expectations
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0261
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0261
File-URL: http://www.nber.org/papers/w0261.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Survey Evidence on the Rationality of Interest Rate Expectations." Journal of Monetary Economics, Vol. 6, No. 4, (October 1980) , pp. 453-465.
Abstract: An analysis of predictions of six interest rates over 3-months-ahead and 6-months-aheadhorizons, surveyed regularly over eight years, casts doubt on the hypothesis that market participants' expectations are 'rational' in Muth's sense. Tests show that the survey respondents did not make unbiased predictions, that (especially for the 6-months-ahead predictions) they did not efficiently exploit the information contained in past interest rate movements, that their respective 3-months-ahead and 6-months-ahead predictions failed to be consistent in the sense required for 'rationality', and that (for long-term but not short-term interest rates) their predictions failed to exploit efficiently the information contained in common macroeconomic and macro-policy variables other than the money stock.
Handle: RePEc:nbr:nberwo:0261
Template-Type: ReDIF-Paper 1.0
Title: Changes in Household Living Arrangements 1950-76
Author-Name: Robert T. Michael
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Author-Name: Sharon R. Scott
Note: CH
Number: 0262
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0262
File-URL: http://www.nber.org/papers/w0262.pdf
File-Format: application/pdf
Publication-Status: published as Michael, Robert T.; Victor R. Fuchs ; and Sharon R. Scott "Changes in the Propensity to Live Alone: 1950-1976." Demography, Vol. 17, No. 1, (February 1980), pp. 39-56.
Abstract: The growth in single-person households is a pervasive behavioral phenomenon in the United States in the post-war period. In this paper we investigate determinants of the propensity to live alone, using 1970 data across states for single men and women ages 25 to 34 and for elderly widows. Income level appears to be a major determinant of the propensity to live alone. The estimated cross-state equations track about three-quarters of the increase in the propensity to live alone between 1950-1976 and suggest that income growth has been the principal identified influence. Other variables found to affect (positively) the propensity to live alone include mobility, schooling level, and for young people a measure of social climate; non-whites appear to have a somewhat lower propensity to live alone.
Handle: RePEc:nbr:nberwo:0262
Template-Type: ReDIF-Paper 1.0
Title: Experience, Performance, and Earnings
Author-Name: James L. Medoff
Author-Name: Katharine G. Abraham
Author-Person: pab32
Note: LS
Number: 0278
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0278
File-URL: http://www.nber.org/papers/w0278.pdf
File-Format: application/pdf
Publication-Status: published as Medoff, James L. and Abraham, Katharine G. "Experience, Performance, and Earnings." The Quarterly Journal of Economics, Vol. XCV, No. 4, (December 1980), pp. 703-736.
Abstract: This study provides direct evidence concerning the relationship between experience and performance among managerial and professional employees doing similar work in two major U. S. corporations. The facts presented indicate that while, within grade levels, there is a strong positive association between experience and relative earnings, there is either no association or a negative association between experience and relative rated performance. If we are correct that the performance ratings given to managerial and professional employees in any grade level adequately reflect those employees' relative productivity in the year of assessment, the results imply that the human capital on-the-job training model cannot explain a substantial part of the ob-served return to labor market experience.
Handle: RePEc:nbr:nberwo:0278
Template-Type: ReDIF-Paper 1.0
Title: Static and Dynamic Resource Allocation Effects of Corporate and PersonalTax Integration in the U.S.: A General Equilibrium Approach(Rev)
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: A. Thomas King
Author-Name: John B. Shoven
Author-Name: John Whalley
Author-Person: pwh8
Note: PE
Number: 0337
Creation-Date: 1980-03
Order-URL: http://www.nber.org/papers/w0337
File-URL: http://www.nber.org/papers/w0337.pdf
File-Format: application/pdf
Publication-Status: published as Fullerton, Don; King, A. Thomas; Shoven, John B.; and Whalley, John. "Corporate Tax Integration in the United States: A General Equilibrium Approach, The American Economic Review, Vol. 71, No. 4, (September 1981), pp. 677-691.
Abstract: This paper presents estimates of static and dynamic general equilibrium resource allocation effects for four alternative plans for corporate and personal income tax integration in the U.S. A medium-scale numerical general equilibrium model is used which integrates the U.S. tax system with consumer demand behavior by household and producer behavior by industry. Results indicate that total integration of personal and corporate taxes would yield an annual static efficiency gain of around $4 billion (1973 dollars). Partial integration plans yield less. Dynamic effects are larger, and our analysis indicates that full integration may yield gains whose present value is as large as $400 billion or 0.8% of the discounted present value of the GNP stream to the U.S. economy after correction for population growth. Plans differ in their distributional impacts, although these findings depend on the nature of replacement taxes used to preserve government revenues. The size of dynamic resource allocation effects are sensitive to the choice of the replacement tax, while static gains are reasonably robust.
Handle: RePEc:nbr:nberwo:0337
Template-Type: ReDIF-Paper 1.0
Title: Public Policy Toward Life Saving: Maximize Lives Saved vs. Consumer Sovereignty
Author-Name: William Gould
Author-Name: Richard Thaler
Note: EH
Number: 0419
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0419
File-URL: http://www.nber.org/papers/w0419.pdf
File-Format: application/pdf
Publication-Status: published as Gould, William and Richard H. Thaler. "Public Policy Toward Life Saving: Should Consumer Preferences Rule?" Journal of Policy Analysis and Management (1982).
Abstract: This paper is a theoretical analysis of individual and societal demands for life saving. We begin by demonstrating that the allocation of health expenditures to maximize lives saved may be inconsistent with the willingness-to-pay criterion and consumer sovereignty. We further investigate the effects of information on aggregate willingness to pay. This discussion is related to the concepts of statistical and identified lives. Methods of financing health expenditures are considered. We show that risk averse individuals may reject actuarially fair insurance for treatments of fatal diseases even if they plan to pay for the treatment if they get sick. This result has implications regarding the choice of treatment or prevention. Finally, we examine the importance of the timing of life-saving decisions. A conflict arises between society's preferences before it is known who will be sick and after, even if it is known in advance how many people will be sick.
Handle: RePEc:nbr:nberwo:0419
Template-Type: ReDIF-Paper 1.0
Title: Strict Liability versus Negligence in a Market Setting
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Note: LE
Number: 0420
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0420
File-URL: http://www.nber.org/papers/w0420.pdf
File-Format: application/pdf
Publication-Status: published as Polinsky, A. Mitchell. "Strict Liability vs. Negligence in a Market Setting ." The American Economic Review, Vol. 70, No. 2, (May 1980), pp. 363-367.
Abstract: This paper formally analyzes strict liability and negligence in a market setting. The discussion emphasizes the impact of the rules on the market price and on the number of firms in the industry. For simplicity, the damage caused by each firm is assumed to be determined only by that firm's "care" (and not also by the firm's output or the victim's behavior).
Handle: RePEc:nbr:nberwo:0420
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Model of Labor Supply in a Life Cycle Setting
Author-Name: Thomas E. MaCurdy
Note: LS
Number: 0421
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0421
File-URL: http://www.nber.org/papers/w0421.pdf
File-Format: application/pdf
Publication-Status: published as Thomas E. MaCurdy, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, vol 89(6), pages 1059-1085.
Abstract: This paper formulates and estimates a structural life cycle model of labor supply. Using theoretical characterizations derived from an economic model of life cycle behavior, a two-stage empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provides the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path. The empirical model developed here provides a natural framework for interpreting estimates found in other work on this topic. It also indicates how cross section specifications of hours of work can be modified to estimate parameters relevant for describing labor supply behavior in a lifetime setting.
Handle: RePEc:nbr:nberwo:0421
Template-Type: ReDIF-Paper 1.0
Title: Tax Rules and the Mismanagement of Monetary Policy
Author-Name: Martin Feldstean
Author-Person: pfe112
Note: PE
Number: 0422
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0422
File-URL: http://www.nber.org/papers/w0422.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Tax Rules and the Mismanagement of Monetary Policy." The American Economic Review, Vol. 70, No. 2, (May 1980), pp. 182-186.
Abstract: This paper emphasizes the importance of the interaction between tax rules and the management of monetary policy. The monetary authorities' failure to recognize the implications of the tax structure has caused them to underestimate just how expansionary monetary policy has been. Moreover, because of our fiscal structure, attempts to encourage investment by an easy-money policy have actually had an adverse impact on investment in plant and equipment. The paper discusses the desirability of substituting a policy of tight-money and positive fiscal incentives for the traditional goals of easy money and fiscal restraint. More generally, the paper stresses the significance of the fiscal structure as a determinant of macroeconomic equilibrium.
Handle: RePEc:nbr:nberwo:0422
Template-Type: ReDIF-Paper 1.0
Title: Sectoral Productivity Slowdown
Author-Name: M. Ishaq Nadiri
Note: PR
Number: 0423
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0423
File-URL: http://www.nber.org/papers/w0423.pdf
File-Format: application/pdf
Publication-Status: published as Nadiri, N. Ishaq. "Sectoral Productivity Slowdown," Papers and Proceedings of the 92nd Annual Meeting of the American Economic Association. The American Economic Review, Vol. 70, No. 2, May 1980.
Abstract: In this paper an attempt is made to answer two questions:1) What set of factors explains the recent slowdown of the U.S. aggregate labor productivity, and 2) whether the same set of forces account for the slowdown of sectoral productivity growth as well. We specify a model which relates measured labor productivity growth to capital/labor ratio, level and rate of change of utilization, stock of R & D, and the rate of disembodied technical change. The model is estimated using sectoral and aggregate data for the period 1949-1978.The results of the estimation suggest that the pattern of aggregate productivity growth can be explained by the growth of capital/labor ratio the gap between potential and actual output growth paths, the change in degree of utilization, the growth of stock of total R & D, and the time trend. In fact, both at the aggregate and sectoral levels, these factors account fairly well, first for the growth and then for the subsequent slowdown of labor productivity in the postwar period. To be sure, in some specific industries, the performance of the model could be improved. However, the overall conclusion reached is that the slowdown in growth of capital formation, the inability of the economy and various sectors to grow at their normal growth rates, and the slowdown in rate of technological change are some of the main reasons for the observed productivity slowdown of the recent years.
Handle: RePEc:nbr:nberwo:0423
Template-Type: ReDIF-Paper 1.0
Title: Risk Shifting, Unemployment Insurance, and Layoffs
Author-Name: Herschel I. Grossman
Note: LS EFG
Number: 0424
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0424
File-URL: http://www.nber.org/papers/w0424.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Herschel I, 1981. "Incomplete Information, Risk Shifting, and Employment Fluctuations," Review of Economic Studies, Blackwell Publishing, vol. 48(2), pages 189-97, April.
Publication-Status: published as Grossman, Herschel. "Risk Shifting, Unemployment Insurance and Layoffs." The Economics of the Labour Market, edited by Hornstein, Grice, and Webb, pp. 259-277. London: Her Majesty's Stationery Office, 1981.
Abstract: This paper develops an analysis of labor markets in which the use of layoffs to effect employment separations does not imply that markets fail to clear or that the amount of employment is suboptimal relative to current perceptions. This analysis focuses on the interaction between contractual arrangements for shifting risk from workers to employers and tax-financed unemployment insurance. The key element in the analysis is that unemployment insurance is more attractive than risk shifting as a way for workers to obtain income during unemployment. The paper also analyses the effects of risk shifting and unemployment insurance on the magnitude of employment fluctuations. The analysis implies that, given the existence of unemployment insurance, the existence of risk-shifting arrangements makes employment less variable.
Handle: RePEc:nbr:nberwo:0424
Template-Type: ReDIF-Paper 1.0
Title: Planning and Market Structure
Author-Name: Dennis W. Carlton
Author-Person: pca14
Note: EFG
Number: 0425
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0425
File-URL: http://www.nber.org/papers/w0425.pdf
File-Format: application/pdf
Publication-Status: published as Carlton, Dennis W. "Planning and Market Structure." The Economics of Information and Uncertainty, edited by John J. McCall, pp. 47-72. Chicago: University of Chicago Press, 1982.
Publication-Status: published as Planning and Market Structure, Dennis W. Canton. in The Economics of Information and Uncertainty, McCall. 1982
Abstract: This paper examines a model in which demand is uncertain and production must occur before demand is known for sure. By investing resources in information gathering activity, demand can be forecast. The paper investigates the relationship between the incentive to plan and market structure and conduct. Competition leads to too little planning, while monopoly leads to too high a price relative to the social optimum. A dominant firm with a competitive fringe turns out to be better. than either pure competition or monopoly. One interesting result is that the optimal production strategy of the dominant firm is to produce even when price is below marginal cost. Although such a production policy resembles that associated with "predatory pricing" (a practice which is thought to be socially undesirable), society would be harmed by prohibition of such a policy.
Handle: RePEc:nbr:nberwo:0425
Template-Type: ReDIF-Paper 1.0
Title: The Term Structure of the Forward Premium
Author-Name: Craig S. Hakkio
Author-Person: pha431
Note: ITI IFM
Number: 0426
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0426
File-URL: http://www.nber.org/papers/w0426.pdf
File-Format: application/pdf
Publication-Status: published as Hakkio, Craig S. "The Term Structure of the Forward Premium." Journal of Monetary Economics, Vol. 8, No. 1, (July 1981), pp. 41-58.
Abstract: Most studies of the efficiency of the foreign exchange market focus on a single maturity -- usually a one month exchange rate. However, one observes that forward contracts of many maturities are simultaneously traded in the foreign exchange market. The hypothesis that the foreign. exchange market uses all available information has implications for the joint behavior of forward exchange rates of various maturities. This paper theoretically and empirically examines these implications. The paper proposes an equilibrium theory of the term structure of the forward premium. By combining the theory of the term structure of (domestic and foreign)interest rates with the hypothesis of interest rate parity, a simple expression relating the six month forward premium to a geometric average of expected future one month forward premiums can be developed. By assuming that the one and six month forward premiums can be expressed as a bivariate stochastic process, one can derive an expression for the expected one month forward premium. The theory will then impose highly non-linear cross equation restrictions on the parameters of the model. Two methods of testing the validity of the restrictions are presented. The results indicate that the data are consistent with the theory for Germany and inconsistent with the theory for Canada.
Handle: RePEc:nbr:nberwo:0426
Template-Type: ReDIF-Paper 1.0
Title: The "End-of-Expansion" Phenomenon in Short-run Productivity Behavior
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG PR
Number: 0427
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0427
File-URL: http://www.nber.org/papers/w0427.pdf
File-Format: application/pdf
Publication-Status: published as Robert J. Gordon & William Poole & Robert Hall & Charles Holt, 1979. "The "End-of-Expansion" Phenomenon in Short-Run Productivity Behavior," Brookings Papers on Economic Activity, vol 1979(2).
Abstract: This paper makes no contribution to an understanding of the secular slowdown in productivity, except to add a new cyclical correction of the long-run trend. Its main objective is to examine the short-run behavior of aggregate labor productivity in isolation. In addition to the phenomenon of short-run "increasing returns to labor" identified in previous studies, it isolates an often overlooked but consistent tendency for productivity to perform poorly in the last stages of a business expansion. In 1956, 1960, 1969,1973, and now again in 1979, a productivity shortfall has developed, with absolute declines in the level of productivity occurring in every episode except the first, and in every episode before 1979 the shortfall has subsequently been made up. The paper is more successful in identifying this "end-of-expansion" phenomenon than in explaining it; the results suggest that firms tend consistently to hire more workers in the last stages of a business expansion than is justified by the level of output.
Handle: RePEc:nbr:nberwo:0427
Template-Type: ReDIF-Paper 1.0
Title: Savings and Taxation
Author-Name: Mervyn A. King
Note: PE
Number: 0428
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0428
File-URL: http://www.nber.org/papers/w0428.pdf
File-Format: application/pdf
Publication-Status: published as King, Mervyn A. "Saving and Taxation." Public Policy and the Tax System, edited by G.A. Hughes And G.M. Heal, pp. 1-35. London: George Allen & Unwin, 1980.
Abstract: In section 1.2 we shall examine the optimal taxation of capital and labor incomes in a simple growth model and derive formulae for the optimal tax rates. These are used in section 1.3 to evaluate claims that abolishing capital income taxes would lead to large welfare gains. Inflation is introduced in section 1.4, and alternative approaches to modeling savings behavior are discussed in section 1.5. Finally, we shall look briefly at some of the empirical evidence on the effects of taxes on savings. Our analysis will be highly simplified. We shall ignore many of the issues stressed by the Meade Committee, such as the complex interaction between personal and corporate taxation, the sheer diversity of tax rates currently imposed on different forms of saving, and the portfolio aspects of personal saving. The relationship between expenditure on durables and saving and the effect of social security on consumption will also be left to one side, and we shall say little about the production side of the economy. (For surveys of the effects of taxes on investment, see Helliwell, 1976; King, 1977; and von Furstenberg and Malkiel, 1977.) Despite these omissions the model captures the essential features necessary to an evaluation of the efficiency arguments.
Handle: RePEc:nbr:nberwo:0428
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rates, Money and Relative Prices: The Dollar-Pound in the 1920's
Author-Name: Kenneth W. Clements
Author-Name: Jacob A. Frenkel
Note: ITI IFM
Number: 0429
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0429
File-URL: http://www.nber.org/papers/w0429.pdf
File-Format: application/pdf
Publication-Status: published as Clements, Kenneth W. and Frenkel, Jacob A. "Exchange Rates, Money, and Relative Prices: The Dollar-Pound in the 1920's." Journal of International Economics, Vol. 10, No 2, (May 1980), pp 249-262.
Abstract: This paper applies the analytical framework of the monetary approach to exchange rate determination to the analysis of the Dollar/Pound exchange rate during the first part of the 1920's. The analysis uses monthly data up to the return of Britain to gold in 1925. The equilibrium exchange rate is shown to be influenced by both real and monetary factors which operate through their influence on the relative demands and supplies of monies. Special attention is given to examination of the relationship between exchange rates and the relative price of traded to non-traded goods. In the empirical work the prices of traded goods are proxied by the wholesale price indices and the prices of non-traded are proxied by wages. One of the key findings of the paper is the estimate of the elasticity of the exchange rate with respect to the relative price of traded to non-traded goods. This elasticity is estimated with high precision and is shown to be .415 which provides an independent measure of the relative share of spending on non-traded goods. This estimate is consistent with other estimates obtained in studies of expenditure shares. The paper concluded with a dynamic simulation which indicates the satisfactory quality of the predictive ability of the model.
Handle: RePEc:nbr:nberwo:0429
Template-Type: ReDIF-Paper 1.0
Title: Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered
Author-Name: Christopher A. Sims
Author-Person: psi12
Note: EFG
Number: 0430
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0430
File-URL: http://www.nber.org/papers/w0430.pdf
File-Format: application/pdf
Publication-Status: published as Sims, Christopher A. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered." The American Economic Review, Vol. 70, No. 2, (May 1980), pp. 250-257.
Abstract: When monthly data on production, prices, and the money stock are interpreted, via a vector autoregression, as generated by dynamic responses to "surprises" in each of the variables, a remarkable similarity in dynamics between interwar and postwar business cycles emerges, though the size of the "surprises" is much larger in the interwar period. Furthermore, the money stock emerges as firmly causally prior, in Granger's sense, in both periods and accounts for a substantial fraction of variance in production in both periods. When a short interest rate is added to the vector autoregression, the remarkable similarity in dynamics between periods persists, but the central role of the money stock surprises evaporates for the postwar period. While there are potential monetarist explanations for such an observation, none of them seem to fit comfortably the estimated dynamics. A non-monetarist explanation of the dynamics, based on the role of expectations in investment behavior, seems to fit the estimated dynamics better. That this explanation, which is consistent with a passive role for money, could account for so much of the observed postwar relation between money stock and income may raise doubts about the monetarist interpretation even of the interwar data.
Handle: RePEc:nbr:nberwo:0430
Template-Type: ReDIF-Paper 1.0
Title: Money and the Dispersion of Relative Prices
Author-Name: Zvi Hercowitz
Author-Person: phe121
Note: EFG
Number: 0431
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0431
File-URL: http://www.nber.org/papers/w0431.pdf
File-Format: application/pdf
Publication-Status: published as Hercowitz, Zvi, 1981. "Money and the Dispersion of Relative Prices," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 328-56, April.
Abstract: A price dispersion equation is tested with data from the German hyper-inflation. The equation is derived from a version of Lucas' (1973) and Barro's (1976) partial information-localized market models. In this extension, different excess demand elasticities across commodities imply a testable dispersion equation, in which the explanatory variable is the magnitude of the unperceived money growth. The testing of this hypothesis requires two preliminary steps. First, a price dispersion series is computed using an interesting set of data. It consists of monthly average wholesale prices of 68 commodities ranging from foods to metals, for the period of January, 1921 to July, 1923. The next step is the delicate one of measuring unperceived money growth. This estimation implies the postulation of an available information set and also a function relating the variables in this set to money creation. The function used was based on considerations related to government demand for revenue. The model receives support from the empirical analysis although it is evident that unincluded variables have important effects on price dispersion.
Handle: RePEc:nbr:nberwo:0431
Template-Type: ReDIF-Paper 1.0
Title: Output Effects of Government Purchases
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 0432
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0432
File-URL: http://www.nber.org/papers/w0432.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 89, no. 6 (1981): 1086-121.
Abstract: Because of a small direct negative effect on private spending, temporary variations in government purchases as in wartime, would have a strong positive effect on aggregate demand. Intertemporal substitution effects would direct work and production toward these periods where output was valued unusually highly. Defense purchases are divided empirically into "permanent" and "temporary" components by considering the role of (temporary) wars. Shifts in non-defense purchases are mostly permanent. Empirical results verify a strong expansionary effect on output of temporary purchases, but contradict some more specific expectational propositions.
Handle: RePEc:nbr:nberwo:0432
Template-Type: ReDIF-Paper 1.0
Title: Money and Price Dispersion in the United States
Author-Name: Zvi Hercowitz
Author-Person: phe121
Note: EFG
Number: 0433
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0433
File-URL: http://www.nber.org/papers/w0433.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 10, no. 1 (1982): 25-38.
Abstract: This paper reports an empirical test of a price dispersion equation, using data on the U.S. after World War II. The equation, derived elsewhere from aversion of the partial information-localized market models, relates price dispersion to the magnitude of changes in the aggregate disturbances. In order to test the model a series on price dispersion is computed using annual wholesale price indexes for the period 1948-76. The data on money shocks are the unanticipated money growth series estimated by Barro. The tests also include a measure of aggregate-real disturbances. From the theoretical point of view the results are negative. They reject the hypothesis that unexpected money shocks, as measured by Barro, affect price dispersion in the way predicted by the model. In a previous paper, a similar model was tested with data from the German hyperinflation and found supported to a considerable extent. The difference in the results may be related to the extreme magnitude of the monetary disturbances during that period, and to the apparently important effect of unincluded relative disturbances in the United States.
Handle: RePEc:nbr:nberwo:0433
Template-Type: ReDIF-Paper 1.0
Title: R&D and the Productivity Slowdown
Author-Name: Zvi Griliches
Note: PR
Number: 0434
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0434
File-URL: http://www.nber.org/papers/w0434.pdf
File-Format: application/pdf
Publication-Status: published as Griliches, Zvi. "R & D and the Productivity Slowdown." The American Economic Review, Vol. 70, No. 2, (May 1980), pp. 343-348.
Abstract: The question I shall address in this pa-per is: Can the slowdown in productivity growth be explained, wholly or in part, by the recent slowdown in the growth of real R&D expenditures? But first we have to review the following questions: I) What is to be explained? Which productivity and what slowdown? 2) What is the mechanism by which R&D could have contributed to this slowdown? 3) What did happen to R&D in the relevant period? Besides traversing this somewhat familiar ground and reviewing some of the recent literature on this topic, I shall also report on some estimates of my own. The direct answer to the opening question is "probably not." But how we get there needs documenting and may prove instructive on its own merits.
Handle: RePEc:nbr:nberwo:0434
Template-Type: ReDIF-Paper 1.0
Title: Government Deficits and Aggregate Demand
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: EFG
Number: 0435
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0435
File-URL: http://www.nber.org/papers/w0435.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Government Deficits and Aggregate Demand." Journal of Monetary Economics, Vol. 9, No. 1, (January 1982), pp. 1-20.
Abstract: The evidence presented in this paper indicates that changes in government spending, transfers and taxes can have substantial effects on aggregate demand. The estimates also indicate that the promise of future social security benefits significantly reduces private saving. Each of the basic implications of the so-called "Ricardian equivalence theorem" is contradicted by the data. The results are consistent with the more general view of the effects of fiscal actions and fiscal expectations that is described in the paper.
Handle: RePEc:nbr:nberwo:0435
Template-Type: ReDIF-Paper 1.0
Title: The Taxation of Exhaustible Resources
Author-Name: Partha Dasgupta
Author-Name: Geoffrey Heal
Author-Person: phe40
Author-Name: Joseph E. Stiflitx
Note: PE
Number: 0436
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0436
File-URL: http://www.nber.org/papers/w0436.pdf
File-Format: application/pdf
Publication-Status: published as Dasgupta, P.; Heal, G. M.; and Stiglitz, J. E. "The Taxation of Exhaustible Resources." Public Policy and the Tax System, edited by G. A. Hughes and G . M. Heal, pp. 150-172. London: George Allen & Unwin, 1980.
Abstract: This paper analyzes the effect of taxation on the intertemporal allocation of an exhaustible resource. A general framework within which a large variety of taxes can be analyzed is developed and then applied to a number of specific taxes. It is shown that there exists a pattern of taxation which can generate essentially any desired pattern of resource usage. Many tax policies, however, have effects which are markedly different both from the effects that these policies would have in the case of produced commodities-and from those which they are designed (or widely thought) to have. For instance, if extraction costs are zero, a depletion allowance at a constant rate (widely thought to encourage the extraction of resources) has absolutely no effect; its gradual removal (usually thought to be preferable to a sudden removal) leads to faster rates of depletion (and lower prices) now, but higher prices in the future; which its sudden and unanticipated removal has absolutely no distortionary effect on the pattern of extraction. More generally, it is shown that the effects of tax structure on the patterns of extraction are critically dependent on expectations concerning future taxation. (The changes in tax structure which have occurred in the past fifty years are of the kind that, if they were anticipated, (or if similar further changes are expected to occur in the future) lead to excessively fast exploitation of natural resources. However, if it is believed that current tax policies (including rates) will persist indefinitely, the current tax structure would lead to excessive conservationism. Thus, whether in fact current tax policies have lead to excessive conservationism is a moot question.
Handle: RePEc:nbr:nberwo:0436
Template-Type: ReDIF-Paper 1.0
Title: The International Economy as a Source of and Restraint on United States Inflation
Author-Name: Michael R. Darby
Note: ITI IFM
Number: 0437
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0437
File-URL: http://www.nber.org/papers/w0437.pdf
File-Format: application/pdf
Publication-Status: published as Darby, Michael R. "The International Economy as a Source of and Restraint on United States Inflation." Inflation: Causes, Consequents, and Control, edited by William A. Gale. Cambridge: Oelgeschlager, Gunn & Hain, Publishers, Inc, 1981.
Abstract: The balance of payments, changes in our terms of trade, and other foreign influences are widely believed to be a major, if not the dominant, cause of U.S. inflation. This is possible only if the international economy has caused a significant increase in the growth rate of the nominal quantity of money sup-plied, a significant decrease in the growth rate of the real quantity of money demanded, or both. Unlike non reserve countries maintaining pegged exchange rates, the balance of payments need not influence the growth rate of the nominal quantity of money supplied by the Federal Reserve System. The Fed's reaction function is estimated and no effects of the (scaled) balance-of-payments can be detected. Noris found any other channel by which the international economy has affected the growth rate of the nominal money supply. Changes in the terms of trade will cause some transitory self-reversing effects on real income, real money demand, and the price level and also some permanent shifts in these variables. Because the permanent shifts in the level are nonrecurring, they average out when we examine the average growth rate over substantial periods. Indeed for four year averages, all autonomous variability (domestic and foreign) contributes negligibly (standard error of O.4 percent per annum) to variations in average inflation. Thus, except possibly a supporting role in the short run, international economy has contributed negligibly to U.S. inflation.
Handle: RePEc:nbr:nberwo:0437
Template-Type: ReDIF-Paper 1.0
Title: An Exploration into the Determinants of Research Intensity
Author-Name: Ariel Pakes
Author-Person: ppa20
Author-Name: Mark Schankerman
Note: PR
Number: 0438
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0438
File-URL: http://www.nber.org/papers/w0438.pdf
File-Format: application/pdf
Publication-Status: published as Pakes, Ariel and Mark Schnkerman. "An Exploration into the Determinants of Research Intensity." R&D, Patents and Productivity, edited by Zvi Griliches .Chicago: University of Chicago Press, (1984).
Publication-Status: published as An Exploration into the Determinants of Research Intensity, Ariel Pakes, Mark Schankerman. in R&D, Patents, and Productivity, Griliches. 1984
Abstract: This paper explores the economic factors which determine the variation of research effort across firms. The intra-industry coefficient of variation of research intensity is much larger than those of traditional factors. We show that this important fact is consistent with the theoretical argument that knowledge possesses unique economic characteristics, and that the demand for research depends both on the parameters of the production function for knowledge and on the ability of the firm to appropriate the benefits from the knowledge it produces. We propose and implement a framework for decomposing the observed intra-industry variance In research intensity into three components: demand inducement, a firm-specific structural parameter, and errors in the observed variables. The main empirical findings are that errors in the variables (especially research) are important, that very little of the structural variance in research intensity is accounted for by demand inducement, and that the bulk of the variance is related to differences in the firm-specific parameter. Both the theoretical and empirical analysis indicate that it is not reasonable to treat the demand for research in a manner analogous to the demand for traditional inputs, including capital. Substantially richer models are required to provide insight into the structure of incentives driving the demand for research.
Handle: RePEc:nbr:nberwo:0438
Template-Type: ReDIF-Paper 1.0
Title: Expectations and the Forward Exchange Rate
Author-Name: Craig S. Hakkio
Author-Person: pha431
Note: ITI IFM
Number: 0439
Creation-Date: 1980-01
Order-URL: http://www.nber.org/papers/w0439
File-URL: http://www.nber.org/papers/w0439.pdf
File-Format: application/pdf
Publication-Status: published as Hakkio, Craig S. "Expectations and the Forward Exchange Rate." International Economic Review, (October 1981).
Abstract: This paper provides an empirical examination of the hypothesis that the forward exchange rate provides an "optimal" forecast of the future spot ex-change rate, for five currencies relative to the dollar. This hypothesis provides a convenient norm for examining the erratic behavior of exchange rates; this erratic behavior represents an efficient market that is quickly incorporating new information into the current exchange rate. This hypothesis is analyzed using two distinct, but related, approaches. The first approach is based on a regression of spot rates on lagged forward rates. When using weekly data and a one month forward exchange rate, ordinary least squares regression analysis of market efficiency is incorrect. Econometric methods are proposed which allow for consistent (though not fully efficient) estimation of the parameters and their standard errors. This paper also presents a new approach for testing exchange market efficiency. This approach is based on a general time series process generating the spot and forward exchange rate. The hypothesis of efficiency implies a set of cross-equation restrictions imposed on the parameters of the time series model. This paper derives these restrictions, proposes a maximum likelihood method of estimating the constrained likelihood function, estimates the model and tests the validity of the restrictions with a likelihood ration statistic.
Handle: RePEc:nbr:nberwo:0439
Template-Type: ReDIF-Paper 1.0
Title: Wage Expectations in the Labor Market: Survey Evidence on Rationality
Author-Name: Jonathan S. Leonard
Author-Person: ple190
Note: EFG
Number: 0440
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0440
File-URL: http://www.nber.org/papers/w0440.pdf
File-Format: application/pdf
Publication-Status: published as Leonard, Jonathan S. "Wage Expectations in the Labor Market: Survey Evidence on Rationality." The Review of Economics and Statistics, Vol. 64, No. 1, (February 1982), pp. 157-161.
Abstract: Using a new set of directly observed wage expectations among firms, this paper finds that in general firms' forecasts fail the unbiasedness and efficiency requirements of weak-form rational expectations. These market participants consistently underestimate the wages they actually end up paying, and their expectations do not efficiently utilize the information in past realizations. The mean absolute forecast error of two percent compares with an error of only five percent if static expectations were held. The major source of wage fore-cast error seems to be errors in predicting demand, rather than in predicting supply or the general price level. Wage forecast errors are positively correlated across fields with distinct supply patterns, and are positively correlated with quantity forecast error. The properties of stochastically weighted expectations and the effectiveness of the wage and price controls of the early 1970's are also discussed.
Handle: RePEc:nbr:nberwo:0440
Template-Type: ReDIF-Paper 1.0
Title: Effect of Minimum Wages on Human Capital Formation
Author-Name: Jacob Mincer
Author-Name: Linda S. Leighton
Note: PR
Number: 0441
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0441
File-URL: http://www.nber.org/papers/w0441.pdf
File-Format: application/pdf
Publication-Status: published as Mincer, Jacob and Leighton, Linda. "Effect of Minimum Wages on Human Capital Formation." The Economy of Legal Minimum Wages, edited by S. Rottenberg. Washington, D.C.: American Enterprise Institute, 1981.
Abstract: The hypothesis that minimum wages tend to discourage on the job training is largely supported by our empirical analysis. Direct effects on reported job training and corollary effects on wage growth as estimated in microdata of the National Longitudinal Samples (NLS) and Michigan Income Dynamics (MID) are consistently negative and stronger at lower education levels. Apart from a single exception, no effects are observable among the higher wage group whose education exceeds high school. The effects on job turnover are: a decrease in turnover among young NLS whites, but an increase among young NLS blacks and MID whites. Whether these apparently conflicting findings on turnover reflect a distinction between short and long run adjustments in jobs is a question that requires further testing.
Handle: RePEc:nbr:nberwo:0441
Template-Type: ReDIF-Paper 1.0
Title: Purchasing-Power Annuities: Financial Innovation for Stable Real Retirement Income in an Inflationary Environment
Author-Name: Zvi Bodie
Author-Person: pbo569
Note: ME PE
Number: 0442
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0442
File-URL: http://www.nber.org/papers/w0442.pdf
File-Format: application/pdf
Publication-Status: published as Bodie, Zvi. "An Innovation for Stable Real Retirement Income." The Journal of Portfolio Management, Vol. 7, No. 1, (Fall 1980) pp. 5-13.
Abstract: This paper is organized as follows: The first part of the paper introduces the topic. In the next part, we explore the inadequacies of conventional and equity-based variable annuities in an inflationary environment by contrasting them with a hypothetical PPA. We then try to assess the suitability of money market instruments hedged with commodity futures as the asset base for PPA's, and consider the possibility of having financial institutions offer them to the public. The major conclusion of the paper is that private pension plans could offer retiring employees a choice between a conventional money-fixed annuity or a PPA, both of which would cost theemployer the same amount of money to fund, although this option would require the PPA benefitlevel in the first few years of retirement to be lower than that of the conventional annuity.
Handle: RePEc:nbr:nberwo:0442
Template-Type: ReDIF-Paper 1.0
Title: Federal Deficit Policy and the Effects of Public Debt Shocks
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 0443
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0443
File-URL: http://www.nber.org/papers/w0443.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, Vol. 12, no. 4, part 2 (1980): 747-762.
Abstract: Shifts between current taxation and debt issue alter the timing of taxes, which induces a variety of intertemporal substitution effects. In some circumstances the minimization of excess budget costs would entail stabilization of expected overall tax rates over time. The first section of the paper discusses this condition and derives its implications for the behavior of public debt. Empirically the major movements in U.S. public debt can be explained along the lines of the theoretical model as sensible responses to business fluctuations, changes in government expenditures, and variations in the anticipated inflation rate. In particular, much of federal deficit policy appears to be consistent with economic efficiency. The next section focuses on the economic effects of debt shocks, which are interpreted as departures of public debt movements from the systematic behavior that was investigated in the previous section. It is possible theoretically that these shocks could influence aggregate demand even when such effects did not arise from the systematic behavior of the deficit. The constructed debt shocks appear to have expansionary influences on output and negative effects on the unemployment rate, although the magnitudes of the effects that have been isolated are substantially weaker than those estimated for money shocks. Because it is the shock component of deficits -- rather than the systematic "policy" response -- that has been shown to affect real economic activity, the results do not provide a basis for using the deficit as an element of activist stabilization policy. Overall, the results do not suggest much payoff from the imposition of restrictions on federal deficit behavior; it Is likely that such constraints would mainly increase the excess burden that is imposed on the private sector by financing of government expenditures.
Handle: RePEc:nbr:nberwo:0443
Template-Type: ReDIF-Paper 1.0
Title: On Estimating the Expected Return on the Market: An Exploratory Investigation
Author-Name: Robert C. Merton
Author-Person: pme203
Note: ME
Number: 0444
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0444
File-URL: http://www.nber.org/papers/w0444.pdf
File-Format: application/pdf
Publication-Status: published as Merton, Robert C. "On Estimating the Expected Return on the Market: An Exploratory Investigation." Journal of Financial Economics, Vol. 8, (December 1980), pp. 323-361.
Abstract: The expected market return is a number frequently required for the solution of many investment and corporate finance problems, but by comparison with other financial variables, there has been little research on estimating this expected return. Current practice for estimating the expected market return adds the historical average realized excess market returns to the Current observed interest rate. While this model explicitly reflects the dependence of the market return on the interest rate, it fails to account for the effect of changes in the level of market risk. Three models of equilibrium expected market returns which reflect this dependence are analyzed in this paper. Estimation procedures which incorporate the prior restriction that equilibrium expected excess returns on the market must be positive arc derived and applied to return data for the period 1926- 1978. The principal conclusions from this exploratory investigation are: (1) in estimating models of the expected market return. the non-negativity restriction of the expected excess return should be explicitly included as part of the specification; (2) estimators which use realized returns should be adjusted for heteroscedasticity.
Handle: RePEc:nbr:nberwo:0444
Template-Type: ReDIF-Paper 1.0
Title: The Role of Intergenerational Transfers in Aggregate Capital Accumulation
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Lawrence H. Summers
Author-Person: psu137
Number: 0445
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0445
File-URL: http://www.nber.org/papers/w0445.pdf
File-Format: application/pdf
Publication-Status: published as Kotlikoff, Laurence J. and Summers, Lawrence H. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation." Journal of Political Economy, Vol. 89, No. 4, (August 1981), pp. 706-732.
Abstract: This paper uses historicaI U.S. data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation. The evidence presented indicates that intergenerational transfers account for the vast majority of aggregate U .S. capital formation; only a negligible fraction of actual capital accumulation can be traced u, life-cycle or "hump" savings. A major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age-earnings and age-consumption profiles. These profiles are simply too flat to generate substantial lifecycle savings. This paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers. fife-cycle models of savings that emphasize savings for retirement as the dominant form of apical accumulation should give way to models that illuminate the determinants of intergenerational transfers.
Handle: RePEc:nbr:nberwo:0445
Template-Type: ReDIF-Paper 1.0
Title: The Evolution of the American Labor Market 1948-1980
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0446
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0446
File-URL: http://www.nber.org/papers/w0446.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) The American Economy in Transition. Chicago: University of Chicago Press, 1980.
Publication-Status: published as The Evolution of the American Labor Market, 1948-80, Richard B. Freeman, John T. Dunlop, R. F. Schubert. in The American Economy in Transition, Feldstein. 1980
Abstract: Since World War II, the labor market in the United States has experienced significant changes in the composition of the work force, the type of work performed, institutional rules of operation and structure of wages, and employment and unemployment. Some of the changes continue historic trends. Others, however, have diverged from developments of earlier decades to create new labor market conditions and problems. In this paper, I identify seven of the most important changes, document their magnitude, and seek to estimate their impact on the economy.
Handle: RePEc:nbr:nberwo:0446
Template-Type: ReDIF-Paper 1.0
Title: Mortgage Revenue Bonds: Tax Exemption with a Vengeance
Author-Name: Patric H. Hendershott
Note: PE ME
Number: 0447
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0447
File-URL: http://www.nber.org/papers/w0447.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. "Mortgage Revenue Bonds: Tax Exemption with a Vengeance." Efficiency and the Municipal Bond Market, edited by Kaufman. Greenwich, CT: JAI Press, (1981), pp. 13-36.
Abstract: This paper presents calculations of the impacts of two levels of mortgage revenue bonds (MRBs) on: (1) yields on home mortgages, tax-exempt bonds and taxable bonds, (2) the allocation of the American fixed capital stock among residential (by three tax brackets), business, and state and local capital, (3) the productivity of this aggregate stock, and (4) the federal deficit. The levels of MRBs analyzed are $40 billion and the maxi-mum permitted by the realities of the market place. The latter is estimated to be $440 billion or over half of regular home mortgages outstanding. Limited levels of MRBs directed solely at "lower" income housing would not have any clear impact on productivity. An unlimited volume would generate an estimated annual productivity loss of $3 billion. Assuming a 4 percent discount rate, the present value of this stream is $75 billion.
Handle: RePEc:nbr:nberwo:0447
Template-Type: ReDIF-Paper 1.0
Title: The Distribution of the U.S. Capital Stock Between Residential and Industrial Uses
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE EFG
Number: 0448
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0448
File-URL: http://www.nber.org/papers/w0448.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "The Distribution of the U.S. Capital Stock Between Residential and Industrial Uses." Economic Inquiry, Vol. 19, No. 1, (January 1981), pp. 26-39.
Abstract: The purpose of the present study is to measure the extent to which an increase in the total capital stock induces an increase in the stock of residential capital, i.e., to measure the marginal propensity of additional capital to be absorbed in residential capital. A knowledge of this propensity is important to evaluate the national return on additional saving and to understand the impact that an increased capital stock could have on labor productivity and on the composition of national output. The present paper provides both a theoretical and an empirical examination of this question.
Handle: RePEc:nbr:nberwo:0448
Template-Type: ReDIF-Paper 1.0
Title: Sterilization and Monetary Control under Pegged Exchange Rates: Theory and Evidence
Author-Name: Michael R. Darby
Note: ITI IFM
Number: 0449
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0449
File-URL: http://www.nber.org/papers/w0449.pdf
File-Format: application/pdf
Publication-Status: published as Sterilization and Monetary Control: Concepts, Issues, and a Reduced-Form Test, Michael R. Darby. in The International Transmission of Inflation, Darby, Lothian, Gandolfi, Schwartz, and Stockman. 1983
Abstract: In veiw of recent strong evidence that substantial sterilization of the monetary effects of reserve flows occurs, a modified monetary approach model is formulated in which central banks exercise no control over their domestic money supply despite their sterilization activities. This model is compared with a more general model in which the balance of payments and domestic money supply are both influenced by the central bank's domestic policy goals. In order for the central bank to exercise monetary control, three conditions must be met: assets are not perfect substitutes, goods are not perfect substitutes, and expected depreciation is not "too -responsive" to the balance of payments. The third condition may be met for small but not large reserve flows. Reduced form tests are derived which show for Canada, France, Germany, Italy, Japan, th Netherlands, and the United Kingdom that domestic policy goals strongly influenced quarterly changes in the domestic money supply; this strongly contradicts both the modified and standard monetary approach to the balance of payments. Thus there is a relevant "short-run" in which monetary authorities exercise monetary control. The paper concludes that the simpler monetary approach is no longer empirically tenable for analysis of quarterly data and that more general simultaneous models must be specified and tested.
Handle: RePEc:nbr:nberwo:0449
Template-Type: ReDIF-Paper 1.0
Title: Flexible Exchange Rates in the 1970's
Author-Name: Jacob A. Frenkel
Note: ITI EFG IFM
Number: 0450
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0450
File-URL: http://www.nber.org/papers/w0450.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. "Flexible Exchange Rates, Prices, and the Role of "News": Lessons from the 1970s." Journal of Political Economy, Vol 89, No. 4, (August 1981), pp. 665-705.
Abstract: The 1970's witnessed the dramatic evolution of the international monetary system from a regime of pegged exchange rates into a regime of flexible rates. This paper surveys the key issues and lessons from the experience with floating rates during the1970's. The main orientation is empirical and the analysis is based on the experience of the three exchange rates: the Dollar/Pound, the Dollar/French Franc, and the Dollar/DM. The first issue that is being examined is the efficiency of the foreign exchange market and the degree of exchange rates volatility. The analytical framework emphasizes that exchange rates are the prices of assets that are traded in organized markets and are strongly influenced by expectations about future events. The principal finding is that the behavior of the foreign exchange market has been broadly consistent with the efficient market hypothesis. The second issue concerns the relationship between exchange rates and interest rates. It is shown that during the inflationary period of the 1970's, exchange rates and interest rates were positively correlated. This positive association is interpreted in terms of the role played by inflationary expectations. The analysis draws a distinction between expected and unexpected changes in interest rates; it is demonstrated that changes in exchange rates are strongly associated with the unexpected component of changes in the interest rates. The third issue concerns the relationship between exchange rates and prices. It is shown that the experience of the 1970'sdoes not support the prediction of the simple version of the purchasing power parity theory and that the deviations from purchasing power parities can be characterized by a first-order autoregressive process. These deviations are then interpreted.
Handle: RePEc:nbr:nberwo:0450
Template-Type: ReDIF-Paper 1.0
Title: Dynamic Aspects of of Children's Health, Intellectual Development, and Family Economic Status
Author-Name: Robert A. Shakotko
Note: EH
Number: 0451
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0451
File-URL: http://www.nber.org/papers/w0451.pdf
File-Format: application/pdf
Abstract: This paper is an empirical investigation of childhood and adolescent health and cognitive development as determined by family economic variables. The model proposed recognizes that these processes may be jointly dependent, and may in part be determined by common unobserved factors; these factors may also be correlated with the observed family economic variables. A two-factor model is estimated using panel data, and the results indicate that when such factors are taken account of, family income is estimated to have no significant influence on health and cognitive development, but parents' education a strong positive influence.
Handle: RePEc:nbr:nberwo:0451
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rates, Prices and Money: Lessons from the 1920s
Author-Name: Jacob A. Frenkel
Note: ITI EFG IFM
Number: 0452
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0452
File-URL: http://www.nber.org/papers/w0452.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. "Exchange Rates, Prices, and Money: Lessons From the 1920s." The American Economic Review, Vol. 70, No. 2, (May 1980), pp. 242-255.
Abstract: This paper summarizes the results of an empirical study of the operation of flexible exchange rates during the 1920's under both the hyperinflationary conditions (based on the experience of Germany) and under the normal conditions (based on the experience of Britain, the United States and France).Section I deals with some general characteristics of the market for foreign exchange by examining the relationship between spot and forward exchange rates. Section II deals with the relationship between exchange rates and prices by examining aspects of the purchasing power parity doctrine. Section III deals with the determinants of exchange rates within the context of a simple monetary model.
Handle: RePEc:nbr:nberwo:0452
Template-Type: ReDIF-Paper 1.0
Title: Disequilibrium Dynamics with Inventories and Anticipatory Price-Setting:Some Impirical Results
Author-Name: Jerry R. Green
Author-Person: pgr476
Author-Name: Jean-Jacques Laffont
Note: EFG ITI IFM
Number: 0453
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0453
File-URL: http://www.nber.org/papers/w0453.pdf
File-Format: application/pdf
Publication-Status: published as Green, Jerry and Laffont, Jean-Jacques. "Disequilibrium and Anticipated Price-Setting." European Economic Review, Vol. XVI, No. 1, (May 1981), pp. 199-221.
Abstract: The basic assumption of this paper is an attempt to be specific about price formation while retaining a fixed-price, quantity-constrained equilibration in the short-run. The second theme of this paper is the role of inventories in macrodynamics a topic of long-recognized importance, but one which has not received much attention within the disequilibrium literature. We will analyze how the level of inventories interacts with the level of prices and wages, and how the spillover effects in a fixed-price equilibrium produce certain testable characteristics in macro time series data. We will argue that these can be used to discriminate between a model of the type we study and the analogous flexible-price system. In section 2 we set out the basic model and discuss its assumptions. Section 3 derives the short-run quantity-constrained equilibrium as it depends on initial inventory stocks and on the random disturbances within the period. Section 4 presents, for comparison purposes, the analogous results under conditions of full price flexibility after these shocks are realized. Sections 5 and 6 are the heart of the paper. We first derive the probabilistic nature of the equilibrium as it depends upon the underlying stochastic disturbances. The probabilities of different types of quantity constrained equilibria can be compared. Then, we use these results to present the dynamics of inventory behavior and the statistical relationships between real wages, inventories and employment. We emphasize the possibility of using this type of analysis to test the disequilibrium hypothesis with anticipatory pricing, against the market-clearing assumptions.
Handle: RePEc:nbr:nberwo:0453
Template-Type: ReDIF-Paper 1.0
Title: An Exploration of the Dynamic Relationship between Health and Cognitive Development in Adolescence
Author-Name: Robert A. Shakotko
Author-Name: Linda N. Edwards
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 0454
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0454
File-URL: http://www.nber.org/papers/w0454.pdf
File-Format: application/pdf
Publication-Status: published as Shakotko, R.A.; Edwards, L.N.; and Grossman, M. An Exploration of the Dynamic Relationship between Health and Cognitive Development in Adolescence." Health, Economics, and Health Economics, edited by J. van der Gaag and M. Perlman, pp. 305-328. Amsterdam: North-Holland, 1981.
Abstract: This paper is an empirical exploration of the dynamic relationship between health and cognitive development in a longitudinal data set compiled from two nationally representative cross-sections of children. Our results indicate that there is feedback both from health to cognitive development and from cognitive development to health, but the latter of these relationships is stronger. They also indicate that estimates of family background effects taken from the dynamic model -- which can be assumed to be less influenced by genetic factors are smaller than their cross-sectional counterparts, but some still remain statistically significant. The first finding calls attention to the existence of a continuing inter-action between health and cognitive development over the life cycle. The second finding suggests that nurture "matters" in cognitive development and health outcomes.
Handle: RePEc:nbr:nberwo:0454
Template-Type: ReDIF-Paper 1.0
Title: A Consistent Characterization of a Near-Century of Price Behavior
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 0455
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0455
File-URL: http://www.nber.org/papers/w0455.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Robert J. "A Consistent Characterization of a Near Century of Price Behavior." The American Economic Review, Vol. 70, No. 2, (May 1980), pp. 2 43-249.
Abstract: This paper demonstrates that the commonly used Expectational Phillips Curve (EPC) framework cannot explain the last eighty-seven years of aggregate price behavior in the United States. The EPC explanation, which in its most general form relates price change to expected inflation and the level of detrended output, obscures the fact that price change has been much more closely related to the contemporaneous rate of change of detrended output. Over the near-century of annual data studied here, a change in output has shown a remarkably consistent tendency to be associated in annual data with a simultaneous change in the price level of about one-half as much. Stated another way, nominal GNP changes have been divided consistently, with two-thirds taking the form of output change and the remaining one-third the form of price change. This finding applies not only over the entire 1890-1978sample period, but also over three subperiods (1890-1929, 1929-53, and 1953-78).
Handle: RePEc:nbr:nberwo:0455
Template-Type: ReDIF-Paper 1.0
Title: Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 0456
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0456
File-URL: http://www.nber.org/papers/w0456.pdf
File-Format: application/pdf
Publication-Status: published as Shiller, Robert J. "Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends? The American Economic Review, Vol. 71, No. 3, (June 1981), PP. 421-436.
Abstract: This paper will develop the efficient markets model in Section I to clarify some theoretical questions that may arise in connection with the inequality (1) and some similar inequalities will be derived that put limits on the standard deviation of the innovation in price and the standard deviation of the change in price. The model is restated in innovation form which allows better understanding of the limits on stock price volatility imposed by the model. In particular, this will enable us to see (Section II) that the standard deviation of p is highest when information about dividends is revealed smoothly and that if information is revealed in big lumps occasionally the price series may have higher kurtosis (fatter tails) but will have lower variance. The notion expressed by some that earnings rather than dividend data should be used is discussed in Section III, and a way of assessing the importance of time variation in real discount rates is shown in Section IV. The inequalities are compared with the data in Section V.
Handle: RePEc:nbr:nberwo:0456
Template-Type: ReDIF-Paper 1.0
Title: Tax Neutrality and the Social Discount Rate: A Suggested Framework
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 0457
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0457
File-URL: http://www.nber.org/papers/w0457.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "Tax Neutrality and the Social Discount Rate: A Suggested Framework." Journal of Public Economics, Vol. 17, No. 3 (April 1982), pp. 355-372.
Abstract: There is probably no specific problem in tax analysis which has generated as much study and discussion among economists as the question of how to formulate "neutral" tax incentives for investment. Yet no consensus has been reached concerning the proper approach to take when adjusting taxes. Comparing the two fundamental notions of neutrality found in the literature, referred to here as "present value" rules and "internal rate of return" rules, we argue that there is both a single appropriate neutrality criterion (the latter) and a framework which can be used to evaluate the performance of a tax system with respect to this criterion.
Handle: RePEc:nbr:nberwo:0457
Template-Type: ReDIF-Paper 1.0
Title: Postwar Changes in the American Financial Markets
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0458
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0458
File-URL: http://www.nber.org/papers/w0458.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Postwar Changes in the American Financial Markets." The American Economy in Transition, edited by Martin Feldstein, pp. 9-99. Chicago: University of Chicago Press, 1980.
Publication-Status: published as Postwar Changes in the American Financial Markets, Benjamin M. Friedman, Milton Friedman, A. W. Clausen. in The American Economy in Transition, Feldstein. 1980
Abstract: The object of this essay is to gain an overview of developments in theAmerican financial markets since World War II, with particular attention to changes that have occurred either between the prewar and post-war years or within the past several decades. Inevitably such an effort must be selective. The primary emphasis here is on the interaction between the financial markets and the nonfinancial economy, in the sense of the demands that the nonfinancial economy has placed on the financial markets and the ways in which the financial markets have responded to these demands. In addition, much of this essay focuses on the evolving role of government in the financial markets and on the changes that it has brought about. Questions pertaining to the internal organization of financial markets and financial institutions, and to financial innovations per se, are also important, but they will receive less attention here.
Handle: RePEc:nbr:nberwo:0458
Template-Type: ReDIF-Paper 1.0
Title: Postwar Macroeconomics: The Evolution of Events and Ideas
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 0459
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0459
File-URL: http://www.nber.org/papers/w0459.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Robert J. "Postwar Macroeconomics: The Evolution of Events and Ideas." The American Economy in Transition, edited by Martin Feldstein, pp. 101-182. Chicago: University of Chicago Press, 1980.
Publication-Status: published as Postwar Macroeconomics: The Evolution of Events and Ideas, Robert J. Gordon, Arthur M. Okun, Herbert Stein. in The American Economy in Transition, Feldstein. 1980
Abstract: This paper traces the evolution of macroeconomic events and ideas from the late 1940s to the present day. After a brief introduction that highlights the unique features of the main macroeconomic variables as compared to their behavior before 1947, the paper turns to an analysis of four main postwar sub-periods. The analysis of each sub-period begins with a summary of the dominant conceptual framework popular at the time, reviews the most surprising features of both demand fluctuations and supply phenomena, and concludes with a retrospective evaluation of policy. Many shifts in macroeconomic thinking can be traced to the influence of particular events. The small role that monetary changes played in explaining demand fluctuations in the first postwar decade helped maintain intact the Keynesian multiplier framework, but the increasing importance of autonomous monetary movements in the second decade laid the groundwork for a greater emphasis on the potency of monetary policy in the late 1960s. The widespread acceptance of monetarism owes much to the coincidence in 1968 of an unexpected acceleration in inflation together with the failure of the tax surcharge enacted in that year. Similarly, the increased degree of inertia evident in the behavior of inflation from 1954 on helped win ready acceptance for the idea of a stable Phillips-curve tradeoff, while the refusal of inflation to abate in 1970 helped solidify the victory of the natural hypothesis. A major theme of the paper is the gradual but profound shift in macroeconomics from the dominance of demand issues to a new emphasis on supply topics. Price controls, crop failures, and OPEC actions in the l970s have brought supply shocks to the forefront of policy discussions, revived fiscal policy asa means of countering supply shocks, and lessened support for a monetarist reliance on simple policy rules.
Handle: RePEc:nbr:nberwo:0459
Template-Type: ReDIF-Paper 1.0
Title: Inventories in the Keynesian Macro Model
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 0460
Creation-Date: 1980-02
Order-URL: http://www.nber.org/papers/w0460
File-URL: http://www.nber.org/papers/w0460.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. "Inventories in the Keynesian Macro Model." Kyklos, Vol. 3 3, No. 4, (1980), pp. 585-614.
Abstract: An otherwise conventional Keynesian macro model is modified to include inventories of final goods by (1) drawing a distinction between production and final sales, and (2) allowing for a negative effect of the level of inventories on production. Two models are presented: one in which the labor market clears and one in which it does not. Both models are stable only if the negative effect of inventories on production is "large enough." Both models also imply that real wages move counter cyclically -- in direct contrast to the usual implication of Keynesian models. Detailed analysis of the market-clearing model show that there should be negative correlation between the levels of inventories and output, and between changes in inventories and changes in output, over the business cycle. However, inventory change should be positively correlated with the level of output.
Handle: RePEc:nbr:nberwo:0460
Template-Type: ReDIF-Paper 1.0
Title: Protectionist Pressures, Imports, and Employment in the United States
Author-Name: Anne O. Krueger
Note: ITI IFM
Number: 0461
Creation-Date: 1980-03
Order-URL: http://www.nber.org/papers/w0461
File-URL: http://www.nber.org/papers/w0461.pdf
File-Format: application/pdf
Publication-Status: published as Krueger, Anne O. "Protectionist Pressures, Imports, and Employment in the United States." Scandinavian Journal of Economics, Vol. 82, No. 2, (1980).
Publication-Status: published as Krueger, Anne O. "Protectionist Pressures, Imports, and Employment in the United States." Unemployment: Macro and Micro-Economics Explanations, editedby Lars Matthiessen and Steiner Strom. London: Macmillan, 1981.
Abstract: This paper assesses the theoretical and empirical basis for American labor union leaders' contention that imports have been a big source of job loss in the United States. It is shown, first, that identification of job losses "due to imports" is exceptionally difficult because economic growth affects adversely the industries believed affected by imports. Then, an accounting framework is employed to assess possible empirical orders of magnitude. The results are fairly conclusive in indicating that factors other than import competition have been primary in leading to structural shifts in employment.
Handle: RePEc:nbr:nberwo:0461
Template-Type: ReDIF-Paper 1.0
Title: The Mark III International Transmission Model
Author-Name: Michael R. Darby
Author-Name: Alan C. Stockman
Author-Person: pst94
Note: ITI IFM
Number: 0462
Creation-Date: 1980-03
Order-URL: http://www.nber.org/papers/w0462
File-URL: http://www.nber.org/papers/w0462.pdf
File-Format: application/pdf
Publication-Status: published as The Mark III International Transmission Model: Specification, Michael R. Darby, Alan C. Stockman. in The International Transmission of Inflation, Darby, Lothian, Gandolfi, Schwartz, and Stockman. 1983
Abstract: This paper presents a summary and estimates of the Mark III International Transmission Model, a quarterly macroeconometric model of the United States, United Kingdom, Canada, France, Germany, Italy, Japan, and the Netherlands estimated for 1957 through 1976. The model is formulated to test and measure the empirical importance of alternative channels of international transmission including the effects of capital and trade flows on the money supply, of export shocks on aggregate demand, of currency substitution on money demand, and of variations in the real price of oil. Major Implications of the model estimates are:(1) Countries linked by pegged exchange rates appear to have much more national economic independence than generally supposed. (2) Substantial or complete sterilization of the effects of contemporaneous reserve flows on the money supply is a universal practice of the nonreserve central banks. (3) Quantities such as international trade flows and capital flows are not well explained by observed prices, exchange rates, and interest rates. (4) Explaining real income by innovations inaggregate demand variables works well for U.S. real income but does not transfer easily to other countries. The empirical results suggest a rich menu for further research.
Handle: RePEc:nbr:nberwo:0462
Template-Type: ReDIF-Paper 1.0
Title: Resolving Nuisance Disputes: The Simple Economics of Injunctive and Damage Remedies
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Note: LE
Number: 0463
Creation-Date: 1980-03
Order-URL: http://www.nber.org/papers/w0463
File-URL: http://www.nber.org/papers/w0463.pdf
File-Format: application/pdf
Publication-Status: published as Polinsky, A. Mitchell. "Resolving Nuisance Disputes: The Simple Economics of Injunctive and Damage Remedies." Stanford Law Review, Vol. 32, No. 6, (July 1980), pp. 1075-1112.
Abstract: In nuisance-type cases, legal commentators generally recommend -- and the courts seem to increasingly use -- the award of damages rather than the granting of an injunction of the harmed party. This essay compares the economic consequences of injunctive and damage remedies under a variety of circumstances. The discussion focuses on the ability of the remedies to deal with the strategic behavior of the litigants, the cost of redistributing income among the litigants (or classes of litigants), and the im-perfect information of the courts. In ideal circumstances -- cooperative behavior, costless redistribution, and perfect information -- injunctive and damage remedies are equivalent. The presence of strategic behavior alone does not change this conclusion. However, if it is also costly to redistribute income, the remedies are no longer equivalent. When there are a small number of litigants in these circumstances, neither remedy is generally more effective. When there are a large number of litigants, the damage remedy is superior. Finally, and most realistically, if the courts also have imperfect information, neither remedy dominates the other. Thus, the general presumption in favor of damage remedies is not supported.
Handle: RePEc:nbr:nberwo:0463
Template-Type: ReDIF-Paper 1.0
Title: Monetary Accommodation of Supply Shocks under Rational Expectations
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 0464
Creation-Date: 1980-03
Order-URL: http://www.nber.org/papers/w0464
File-URL: http://www.nber.org/papers/w0464.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. "Monetary Accommodation of Supply Shocks under Rational Expectations." Journal of Money, Credit and Banking, Vol. XIII, No. 4, (November 1981), pp. 425-438.
Abstract: In dealing with the expectationists' arguments, I will divide them (somewhat artificially) into two groups. Arguments in the first group, which I call "present disaster" arguments, allege that econometric models err by understating the reaction of inflationary expectations. For example, it is claimed that a policy of monetary accommodation would increase inflationary expectations, shift the short-run Phillips curve upward, and defeat the purpose of the expansionary policy. Arguments in the second group, which I call "future disaster" arguments, are more subtle, but also more elusive. The idea is that by informing private agents that it will accommodate supply shocks in the future, the monetary authority would exacerbate the downward rigidity of wages and prices, thus making it more difficult to deal with future supply shocks. Such arguments are cases of the Lucas [12] econometric policy critique, since they suggest that policy changes will cause parameter shifts. Neither of these arguments is implausible on its face. The problem is that it is hard to know how to evaluate them until they are formalized in theoretical models and then tested empirically. This paper takes one small step in that direction by augmenting two popular macro models with rational expectations so that they are capable of dealing with supply shocks, and then examining both the present and future disaster arguments in the context of each.
Handle: RePEc:nbr:nberwo:0464
Template-Type: ReDIF-Paper 1.0
Title: How Effective Have Fiscal Policies Been in Changing the Distribution of Income and Wealth?
Author-Name: Mervyn A. King
Note: PE
Number: 0465
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0465
File-URL: http://www.nber.org/papers/w0465.pdf
File-Format: application/pdf
Publication-Status: published as King, Mervyn A. "How Effective have Fiscal Policies been in Changing the Distribution of Income and Wealth." The American Economic Review, Vol. 70, No . 2, (May 1980), pp. 72-76.
Abstract: Despite the expansion of empirical research in public finance, there remains consider- able uncertainty about the distributional consequences of fiscal policy. For this session, I have been asked to summarize some international comparisons. I shall divide the issue into two questions. How effective has fiscal policy been in reducing inequality? Mow big are the potential gains from further redistribution? In Section I, I examine some of the evidence on the redistributive effects of taxes and benefits in the United States, the United Kingdom, and Sweden. I shall concentrate on the distribution among house- holds, and not among the units, individuals, or by type of factor income. This ignores the fact that the formation of households is itself endogenous and depends, in part, on fiscal policy, especially subsidies to housing costs. Any statement about the impact of taxes on distribution depends on a counter-factual assumption about the distribution which would be observed in the absence of taxes and benefits. Since there is no overwhelming evidence in favor of any one particular set of assumptions, I shall argue that it is helpful to pose a second question, the answer to which docs not depend on assumptions about incidence. Given the distribution which emerges from the existing system of taxes and benefits, what would be the gains from attempting further redistribution? Finally, in Section III some suggestions are presented for future research.
Handle: RePEc:nbr:nberwo:0465
Template-Type: ReDIF-Paper 1.0
Title: Trade Policy as an Input to Development
Author-Name: Anne O. Krueger
Note: ITI IFM
Number: 0466
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0466
File-URL: http://www.nber.org/papers/w0466.pdf
File-Format: application/pdf
Publication-Status: published as Krueger, Anne O. "Trade Policy as an Input to Development." The American Economic Review, Vol. 70, No. 2, (May 1980), pp. 288-292.
Publication-Status: published as Reprinted in G.M. Meier, Leading Issues in Economic Development. 5th ed., Oxford University Press, 1988.
Abstract: My topic is the question: what difference does the set of commercial policies chosen by a developing country make to its rate of economic growth? Three points are salient. First, in its present state, trade theory provides little guidance as to the role of trade policy and trade strategy in promoting growth. Second, the empirical evidence overwhelmingly indicates that there are important links between them. Third, a number of hypotheses as to the reasons for these links have been put forward, but there is not as yet sufficient evidence to enable us to estimate their relative importance.
Handle: RePEc:nbr:nberwo:0466
Template-Type: ReDIF-Paper 1.0
Title: On the Possibility of an Inverse Relationship between Tax Rates and Government Revenues
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 0467
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0467
File-URL: http://www.nber.org/papers/w0467.pdf
File-Format: application/pdf
Publication-Status: published as Fullerton, Don. "On the Possibility of an Inverse Relationship between Tax Rates and Government Revenues." Journal of Public Economics, Vol. 19, No. 1(October 1982), pp. 3-22.
Abstract: When Arthur Laffer or other "supply side advocates" plot total tax revenue as a function of a particular tax rate, he draws an upward sloping segment called the normal range, followed by a downward sloping segment called the prohibitive range. Since a given revenue can be obtained with either of two tax rates, government would minimize total burden by choosing the lower rate of the normal range. A brief literature review indicates that tax rates on the prohibitive range in theoretical and empirical models have been the result of particularly high tax rates, high elasticity parameters, or both. Looking at labor tax rates and total revenue, for example, the tax rate which maximizes revenue will depend on the assumed labor supply elasticity. This paper introduces a new curve which summarizes the tax rate and elasticity combinations that result in maximum revenues, separating the "normal area" from the "prohibitive area." A general-purpose empirical U.S. general equilibrium model is used to plot the Laffer curve for several elasticities, and to plot the newly introduced curve using the labor tax example. Results indicate that the U.S. could conceivably be operating in the prohibitive area, but that the tax wedge and/or labor supply elasticity would have to be much higher than most estimates would suggest.
Handle: RePEc:nbr:nberwo:0467
Template-Type: ReDIF-Paper 1.0
Title: An Index of Inequality: With Applications to Horizontal Equity and Social Mobility
Author-Name: Mervyn A. King
Note: PE
Number: 0468
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0468
File-URL: http://www.nber.org/papers/w0468.pdf
File-Format: application/pdf
Publication-Status: published as King, Mervyn A. "An Index of Inequality: With Application Horizontal Equityand Social Mobility." Econometrica, Vo. 51, No. 1, (1982), pp. 99-115.
Abstract: An index of Inequality is constructed which decomposes into two components, corresponding to vertical and "horizontal" equity respectively. Horizontal equity Is defined in terms of changes in the ordering of a distribution. The proposed index is a function to two inequality aversion parameters. One empirical application is for comparison of a pre-tax distribution with a post-tax distribution, and an example of this is given for the distribution of incomes in the UK in 1977. There is a trade-off between "horizontal"and vertical equity, and for particular combinations of the inequality aversion parameters the original distribution will be preferred to the final distribution. The paper concludes with an application of the proposed index to a model of optimal taxation.
Handle: RePEc:nbr:nberwo:0468
Template-Type: ReDIF-Paper 1.0
Title: Trends in U.S. International Trade and Investment since World War II
Author-Name: William H. Branson
Note: ITI IFM
Number: 0469
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0469
File-URL: http://www.nber.org/papers/w0469.pdf
File-Format: application/pdf
Publication-Status: published as Branson, William H. "Trends in U.S. International Trade and Investment since World War II." The American Economy in Transition, edited by Chicago: University of Chicago Press, 1980.
Publication-Status: published as Trends in United States International Trade and Investment since World War II, William H. Branson, Herbert Giersch, Peter G. Peterson. in The American Economy in Transition, Feldstein. 1980
Abstract: This paper presents and analyzes the data on the trends in United States international trade and investment since World War II. From this data we can perceive a shrinking United States fraction of manufacturing output and exports, a return to and strengthening of lines of comparative advantage, and balanced and rapid growth in long-term investment. We can also see increasing volatility of trade and long-term investment in the 1970s, along with a real depreciation of 25 percent in the weighted United States exchange rate.
Handle: RePEc:nbr:nberwo:0469
Template-Type: ReDIF-Paper 1.0
Title: Accelerating Inflation and the Distribution of Household Savings Incentives
Author-Name: Edward J. Kane
Author-Person: pka853
Note: ME
Number: 0470
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0470
File-URL: http://www.nber.org/papers/w0470.pdf
File-Format: application/pdf
Publication-Status: published as "Accelerating Inflation and the Distribution of Household Savings Incentives," in Stagflation: the Causes, Effects, and Solutions, U.S. Congress, Joint Economic Committee, Special Study of Economic Change, Vol. 4, Dec. 1980, pp. 193-224.
Abstract: This study describes how accelerating inflation has led households indifferent economic and demographic classes to reallocate their "transactable savings." Cross-section data from the 1962 and 1970 Surveys of Consumer Finances are used to estimate both the composition of accumulated households having and prospective rates of return on this saving. The paper shows that accelerating inflation has, in thee presence of comprehensive ceilings on deposit interest rates, altered the savings incentives of different types of households. The effect has been to bias small savers toward leveraged investments in tangible assets (especially real estate) and large savers toward certificates of deposit and marketable bonds. Small savers with disadvantaged access to credit are simply victimized. Our analysis helps to explain a number of anomalous features of the 1975-1979 macroeconomic recovery, particularly the dominant role of consumer spending, the unprecedented expansion of household debt, the boom in housing, and declining flows of household savings into deposit institutions. These data underscore the unintended consequences of trying to reconcile deposit-rate. ceilings with accelerating inflation. This combination of policies unpleasantly distorts the sectoral composition of spending and risk-bearing (crowding out some productive business investment) and aggravates inequities in the distribution of income and opportunity.
Handle: RePEc:nbr:nberwo:0470
Template-Type: ReDIF-Paper 1.0
Title: Expectations and the Valuation of Shares
Author-Name: Burton G. Malkiel
Author-Name: John G. Cragg
Note: ME
Number: 0471
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0471
File-URL: http://www.nber.org/papers/w0471.pdf
File-Format: application/pdf
Abstract: This is a study using a unique body of expectations data collected over the decade of the 1960s. After describing the data, this paper first looks at the extent of consensus among those financial institutions providing the forecasts and measures the accuracy of the forecasts. We then ask if the forecasts are consistent with the hypothesis that tile expectations are "rational". We then turn to the relationship of the forecasts to security valuation. We develop our own variant of the popular capital asset pricing model using a framework suggested by Ross for this arbitrage model. Alternative specifications are developed relating expected returns to risk variables and relating securities prices to expectations and risk variables. We find that the expectations data of the sort we have collected do appear to influence security prices in the manner suggested by the theory. We also find that the expected security returns implied by the expectations data are related to "systematic" risk measures appropriately defined. Nevertheless, we find that, even when a variety of systematic influences are used, other risk measures, possibly related to their own variance of the securities, appear to play some role in security valuation.
Handle: RePEc:nbr:nberwo:0471
Template-Type: ReDIF-Paper 1.0
Title: Monetary Stabilization, Intervention and Real Appreciation
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 0472
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0472
File-URL: http://www.nber.org/papers/w0472.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "Monetary Stabilization, Intervention and Real Appreation." Open Economy Macroeconomics, edited by Rudiger Dornbusch. New York: Basic Books, 1980.
Abstract: This paper investigates the adjustment process to a reduction in the rate of credit creation in an open, flexible exchange rate economy. The framework of analysis is one of rational expectations with respect to interest rates, inflation and depreciation. The special feature of the model is the role of exchange market intervention and the resulting endogeneity of the money stock. The model is of empirical interest because of the growing experience in countries such as Israel, Spain or Argentina with th fact that monetary disinflation rapidly leads to real appreciation, unemployment and money creation induced by exchange market intervention. With capital flows and induced money creation threatening attempts at stabilization, there is a need to understand the relationship between intervention and inflation.
Handle: RePEc:nbr:nberwo:0472
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Rules and Macroeconomic Stability
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 0473
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0473
File-URL: http://www.nber.org/papers/w0473.pdf
File-Format: application/pdf
Publication-Status: published as Open Economy Macroeconomics. New York: Basic Books, 1980.
Publication-Status: published as Dornbusch, Rudiger. "PPP Exchange-Rate Rules And Macroeconomic Stability," Journal of Political Economy, 1982, v90(1), 158-165.
Abstract: This paper discusses exchange rate rules in their role as macroeconomic instruments. Two quite different approaches are pursued. The traditional view is that exchange rate flexibility is a substitute for money wage flexibility so that managed money and managed exchange rates yield the necessary instruments for internal and external balance. An entirely different perspective is offered by the modern macro-economics of wage contracting and the long run trade-off between the stability of output and the stability of inflation. In this context it is shown that exchange rate policies that seek to maintain real exchange rates or competitiveness do stabilize output but do so at the cost of in-creased inflation instability. Exchange rate rules such as full purchasing power parity crawling pegs are the analogue of full monetary accommodation of price disturbances.
Handle: RePEc:nbr:nberwo:0473
Template-Type: ReDIF-Paper 1.0
Title: The "Speculative Efficiency" Hypothesis
Author-Name: John F. O. Bilson
Note: ITI IFM
Number: 0474
Creation-Date: 1980-04
Order-URL: http://www.nber.org/papers/w0474
File-URL: http://www.nber.org/papers/w0474.pdf
File-Format: application/pdf
Publication-Status: published as Bilson, John F.O. "The 'Speculative Efficiency' Hypothesis." Journal of Business, Vol. 54, No. 3, (June 1981), pp. 435-451.
Abstract: The hypothesis that forward prices are the best unbiased forecast of future spot prices is often presented in the economic and financial analysis of futures markets. This paper considers the hypothesis independently of its implications for rational expectations or market efficiency and in order to stress this fact, the term "speculative efficiency" is used to characterize the state envisaged under the hypothesis. If a market is subject to efficient speculation, the supply of speculative funds is infinitely elastic at the forward price that is equal to the expected future spot price. The expected future spot price is a market price determined as the solution to the underlying rational expectations macroeconomic model. Although the paper is primarily concerned with testing this hypothesis in the foreign exchange market, the methodology introduced in the paper is of general application to all futures markets.
Handle: RePEc:nbr:nberwo:0474
Template-Type: ReDIF-Paper 1.0
Title: Interactions Between Inflation and Trade-Regime Objectives in Stabilization Programs
Author-Name: Anne O. Krueger
Note: ITI IFM
Number: 0475
Creation-Date: 1980-05
Order-URL: http://www.nber.org/papers/w0475
File-URL: http://www.nber.org/papers/w0475.pdf
File-Format: application/pdf
Publication-Status: published as Krueger, Anne O. "Interactions Between Inflation and Trade-Regime Objectives in Stabilization Programs." Economic Stabilization in Developing Countries, eds. William R. Cline and Sidney Weintraub. Washington, D.C.: The Brookings Institution, 1981.
Abstract: This paper examines the relationship between macroeconomic objectives of controlling inflation and trade-regime objectives in stabilization programs of developing countries. It is seen that there need be, in principle, no close relationship between the two, as a crawling peg exchange-rate policy can prevent inflation from affecting the performance of the foreign sector. In practice, trade regime objectives have been linked with inflation-reducing objectives, often to the detriment of resource allocation and growth. Differences between devaluation under liberalized regimes and under exchange control are also examined.
Handle: RePEc:nbr:nberwo:0475
Template-Type: ReDIF-Paper 1.0
Title: Efficiency of Foreign Exchange Markets and Measures of Turbulence
Author-Name: Jacob A. Frenkel
Author-Name: Michael L. Mussa
Note: ITI IFM
Number: 0476
Creation-Date: 1980-05
Order-URL: http://www.nber.org/papers/w0476
File-URL: http://www.nber.org/papers/w0476.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. and Mussa, Michael L. "The Efficiency of Foreign Exchange Markets and Measures of Turbulence." The American Economic Review, Vol. 70 , No. 2, (May 1980), pp. 374-381.
Abstract: Since the move to generalized floating in1973, exchange rates between major currencies have displayed large fluctuations. This turbulence of foreign exchange rates is an important concern of government policy and its explanation is a challenge for theories of foreign exchange market behavior. In Section I of this paper, we document the extent of turbulence in foreign exchange markets by examining (i) the magnitude of short-run variations in exchange rates relative to other measures of economic variability; (ii) the degree of divergence between actual and expected changes in exchange rates; and (iii) the extent to which exchange-rate movements have diverged from movements of relative national price levels. In Section II, we provide a general explanation of this turbulence in terms of the modern "asset market theory" to exchange-rate determination. This theory emphasizes that exchange rates, like the prices of other assets determined in organized markets, are strongly influenced by the market's expectation of future events. In this context, we also discuss the narrower technical question of "foreign exchange market efficiency." Finally, in Section III, we address the question of whether turbulence in the foreign exchange markets has been "excessive" and what policy measures can (or should) be taken to reduce it.
Handle: RePEc:nbr:nberwo:0476
Template-Type: ReDIF-Paper 1.0
Title: Social Security Benefits and the Accumulation of Preretirement Wealth
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0477
Creation-Date: 1980-05
Order-URL: http://www.nber.org/papers/w0477
File-URL: http://www.nber.org/papers/w0477.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Social Security Benefits and the Accumulation of Preretirement Wealth." The Determinants of National Saving and Wealth, edited by Franco Modigliani and Richard Hemming, pp. 3-23. New York: St. Martin's Press, (1983).
Abstract: This paper uses a new and particularly well-suited body of data to assess the impact of social security retirement benefits on private savings. The Retirement History Survey combines survey evidence on the wealth of couples in their early sixties with detailed information from the administrative records of the Social Security Administration on the lifetime earnings of those individuals and the social security benefits to which they are entitled. The present paper uses these data to estimate a model of the determination of preretirement net worth. On balance, the estimates developed in this study favor the extended life cycle model as a theory of asset accumulation and indicate a substantial substitution of social security wealth for private wealth accumulation.
Handle: RePEc:nbr:nberwo:0477
Template-Type: ReDIF-Paper 1.0
Title: Labor Markets and Evaluations of Vocational Training Programs in the Public High Schools - Toward a Framework for Analysis
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 0478
Creation-Date: 1980-05
Order-URL: http://www.nber.org/papers/w0478
File-URL: http://www.nber.org/papers/w0478.pdf
File-Format: application/pdf
Publication-Status: published as Gustman, Alan L. and Steinmeier, Thomas L. "Labor Markets and Evaluations of Vocational Training Programs in the Public High Schools - Toward a Framework for Analysis." Southern Economic Journal, Vol. 49, No.1, (July 1982),pp. 185-200.
Abstract: A simplified model is constructed to analyze the role played by vocational training programs In high schools. The model assumes that there are two kinds of educational programs in high schools, vocational and general. It also assumes that there are two types of jobs for high school graduates. One job requires training that either can be obtained from a vocational program in high school or as general training on the job. The other job has no special training requirements. The model is used in two ways. First, it is used to examine how the equilibrium outcome is affected by limitations on the number of places in the vocational training program and by the minimum wage. Second, it helps to determine what can be. learned from studies that take what has become a standard approach to evaluating high school vocational training programs -- attempting to estimate the productivity of this program by comparing the earnings of vocational and nonvocational program graduates. We conclude that whether or not limitations on enrollments In vocational programs and minimum wages influence the wage difference between vocational and nonvocational program graduates, findings based on the standard approach to cost-benefit analysis of high school vocational training programs may prove to be highly misleading guides for policy.
Handle: RePEc:nbr:nberwo:0478
Template-Type: ReDIF-Paper 1.0
Title: Interrupted Work Careers
Author-Name: Jacob Mincer
Author-Name: Haim Ofek
Note: LS
Number: 0479
Creation-Date: 1980-05
Order-URL: http://www.nber.org/papers/w0479
File-URL: http://www.nber.org/papers/w0479.pdf
File-Format: application/pdf
Publication-Status: published as Mincer, Jacob A. and Ofek, Haim. "Interrupted Work Careers: Depreciation and Restoration of Human Capital." Journal of Human Resources, (Winter 1982).
Abstract: The quantitative effects and even the existence of "human capital depreciation" phenomena has been a subject of controversy in the recent literature. Prior work, however, was largely cross-sectional and theiotgitudina1 dimension, if any, was retrospective. Using longitudinal panel data (on married women in NLS) we have now established that real wages at reentry are, indeed, lower than. at the point of labor force withdrawal, and the decline in wages is bigger the longer the interruption. Another striking finding is a relatively rapid growth in wages after the return to work. This rapid growth appears to reflect the restoration (or "repair") of previously eroded human capital. The phenomenon of "depreciation" and "restoration" is also visible in data for immigrants to the United States. However, while immigrants eventually catch up with and often surpass natives, returnees from the non-market never fully restore their earnings potential.
Handle: RePEc:nbr:nberwo:0479
Template-Type: ReDIF-Paper 1.0
Title: Economic Consequences of Unfunded Vested Pension Benefits
Author-Name: Mark Gersovitz
Note: PE
Number: 0480
Creation-Date: 1980-05
Order-URL: http://www.nber.org/papers/w0480
File-URL: http://www.nber.org/papers/w0480.pdf
File-Format: application/pdf
Publication-Status: published as Gersovitz, Mark, 1982. "Economic consequences of unfunded vested pension benefits," Journal of Public Economics, Elsevier, vol. 19(2), pages 171-186, November.
Abstract: This paper examines the relationship between unfunded vested pension liabilities and the market value of a firm's shares. This relationship has important implications for the mechanism by which private pensions influence aggregate savings. Attention is paid to modeling the institutional determinants of this relation implied by ERISA legislation. These considerations require a nonlinear regression model with very special properties which are developed and discussed. Estimation results suggest that ERISA has had an important effect on the relation between unfunded benefits and firm value that previous investigations have neglected.
Handle: RePEc:nbr:nberwo:0480
Template-Type: ReDIF-Paper 1.0
Title: An Implicit Clientele Test of the Relationship between Taxation and Capital Structure
Author-Name: Paul Grier
Author-Name: Paul Strebel
Note: PE
Number: 0481
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0481
File-URL: http://www.nber.org/papers/w0481.pdf
File-Format: application/pdf
Publication-Status: Published as "The Empirical Relationship Between Taxation and Capital Structure" Financial Review, Vol. 15, no. 3 (1980): 45-57.
Abstract: This paper presents a test for the existence of debt clienteles in which the latter are represented by progressive personal tax brackets. The test generates some evidence consistent with the implication of debt clientele theory that, over time, firms' debt ratios should vary with the relative tax incentives which their investors have to hold debt. Changes in the relative structure of taxes, however, at best only partially account for the time series behavior of debt ratios, especially in the case of high debt firms.
Handle: RePEc:nbr:nberwo:0481
Template-Type: ReDIF-Paper 1.0
Title: The Location of Overseas Production and Production for Export by U.S. Multinational Firms
Author-Name: Irving B. Kravis
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 0482
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0482
File-URL: http://www.nber.org/papers/w0482.pdf
File-Format: application/pdf
Publication-Status: published as Kravis, Irving B. and Lipsey, Robert E. "The Location of Overseas Production and Production for Export by U.S. Multinational Firms." Journal of International Economics, Vol. 12, No. 3/4 (May 1982), pp. 201-223.
Abstract: The location of overseas manufacturing production by U.S. firms seems to have been strongly influenced by common factors that operate in all industries: notably proximity to the United States and to other markets. Within industries, the choices made by parent firms among locations appear to show a tendency of "opposites attract," with low-wage and low-capital-intensity parents choosing high-wage, high-capital intensity countries and high-wage, high-capital-intensity parents making the opposite choice. Production for export seems to have been most strongly attracted by large internal markets in host countries. Economies of scale in production presumably made large markets also economical as export bases. Another factor was high trade propensities of host countries, which we interpret as representing access to imported materials at low world prices or better transport, finance, and other trade facilities. Labor cost seems to have been a weak influence on location choices. U.S. firms tended to export from high-wage countries but the high productivity in such countries more than offset the high wages. However, labor cost, to the extent we could measure it, was not in general a major influence on the location of export production.
Handle: RePEc:nbr:nberwo:0482
Template-Type: ReDIF-Paper 1.0
Title: A Note on the Efficient Design of Investment Incentives
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 0483
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0483
File-URL: http://www.nber.org/papers/w0483.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "A Note on the Efficient Design of Investment Incentives." The Economic Journal, Vol. 91, (March 1981), pp. 217-223.
Abstract: In a recent article in this Journal, Robin Boadway has argued that the appropriate requirement for neutrality is that the present value of the returns from an initial investment of [1pound], using the social discount rate, should be equal for all projects undertaken at the margin. We have few qualifications about this approach itself; although discounting with the social rate of time preference (STP) may be inappropriate in the current context. However, we would take issue with two aspects of Boadwav's application of his view of neutrality. The first problem concerns the appropriate definition of the constraint on firm leverage which would arise from the existence of limited liability. We believe Boadway's assumption to be inappropriate, and find that its replacement with what we argue to be the correct one leads to important revisions in evaluating the neutrality of different incentives. Another point we would make is that Boadway's results depend crucially on the absence of both personal taxes and inflation. We argue below that once realistic account has been taken of these important elements of the problem, general results about the neutrality of different incentives can no longer be derived, so that while Boadway's criterion may be appropriate, its application promises to be very difficult.
Handle: RePEc:nbr:nberwo:0483
Template-Type: ReDIF-Paper 1.0
Title: Fixed Costs and Labor Supply
Author-Name: John F. Cogaj
Note: LS
Number: 0484
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0484
File-URL: http://www.nber.org/papers/w0484.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 49, no. 4 (1981): 945-964.
Abstract: This study is a theoretical and empirical analysis of the effects of time and money costs of labor market participation on married women's supply behavior. The existence of fixed costs implies that individuals are not willing to work less than some minimum number of hours, termed reservation hours. The theoretical analysis of the properties of the reservation hours function are derived. The empirical analysis develops and estimates labor supply functions when fixed costs are present, but cannot be observed in the data. The likelihood function developed to estimate the model is an extension of the statistical model of Heckman (1974) that allows the minimum number of hours supplied to be nonzero and differ randomly among individuals. The empirical results indicate that fixed costs of work are of prime importance in determining the labor supply behavior of married women. At the sample means, the minimum number of hours a woman is willing to work is about 1300per year. The estimated fixed costs an average woman incurs upon entry into the labor market is $920 in 1966 dollars. This represents 28 percent of her yearly earnings. Finally, labor supply parameters estimated with the fixed cost model are compared to those estimated under the conventional assumption of no fixed costs. Large differences in estimated parameters are found, suggesting that the conventional model is seriously misspecified.
Handle: RePEc:nbr:nberwo:0484
Template-Type: ReDIF-Paper 1.0
Title: Imperfect Asset Substitutability and Monetary Policy under Fixed Exchange Rates
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0485
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0485
File-URL: http://www.nber.org/papers/w0485.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "Imperfect Asset Substitutability and Monetary Policy under Fixed Exchange Rates." Journal of International Economics, Vol. 10, No. 2, (May 1980), pp. 177-200.
Abstract: This paper presents a long-run model of the open economy in a world of fixed exchange rates and imperfect substitutability between bonds denominated in different currencies. The model explicitly accounts for the wealth flow accompanying current-account imbalance and for the flow of interest payments associated with international lending. Both the dynamic and steady-state implications of the model are quite different from those of models that specify the capital account as a continuing flow responding to the level of interest rates. In particular, we find that when there exists outside government debt, open-market policy is not in general neutral in the long run. We also find conditions under which the central bank is able to hold the domestic price level constant in the face of an inflationary disturbance from abroad without exhausting, in the long run, its stock of domestic assets.
Handle: RePEc:nbr:nberwo:0485
Template-Type: ReDIF-Paper 1.0
Title: Economic Growth and the Rise of Service Employment
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: LS
Number: 0486
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0486
File-URL: http://www.nber.org/papers/w0486.pdf
File-Format: application/pdf
Publication-Status: published as Fuchs, Victor R. "Economic Growth and the Rise of Service Employment." Towards an Explanation of Economic Growth, edited by Herbert Giersch, pp. 221-2 52. Tubingen, West Germany: J.C.B. Mohr (Paul Siebeck), 1981.
Abstract: The distribution of employment among Agriculture, Industry, and Service within countries is closely related to the level of real Gross Domestic Product per capita. As real income rises, Agriculture's share falls, Service employment rises, and Industry’s share rises to a peak at about $3,300 (1970 dollars) per capita and then declines. U.S. time series and OECD cross-sections follow almost identical patterns of employment change. The decline of Agriculture is attributable primarily to differences in income elasticity of demand but the shift from Industry to Service is attributable primarily to differential rates of growth of output per worker. Economic growth also contributes to the rise of service employment through an increase in female labor force participation because families with working wives tend to spend a higher proportion of their income on services. Productivity tends to grow less rapidly in the Service sector than in the rest of the economy, but the shift of employment to Services was not a major factor in the slowing of aggregate productivity in the United States in the 1970's.
Handle: RePEc:nbr:nberwo:0486
Template-Type: ReDIF-Paper 1.0
Title: Income Tax Incentives to Promote Saving
Author-Name: Charles Becker
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 0487
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0487
File-URL: http://www.nber.org/papers/w0487.pdf
File-Format: application/pdf
Publication-Status: published as Becker, Charles and Fullerton, Don. "Income Tax Incentives to Promote Saving." National Tax Journal, Vol. XXXIII, No. 3, (September 1980), pp. 331-35 .
Abstract: We examine six alternative plans which might be discussed in an effort to increase consumer savings through the personal income tax system in the United States. These plans attempt to affect savings through an increase in the real rate of return either by direct tax cuts on savings or by indexing tax rates against inflation. The paper presents estimates of static and dynamic resource allocation effects for the six plans, and compares them to results obtained in earlier work on the impacts of more sweeping reforms. A medium-scale numerical general equilibrium model is used which integrates the U. S. tax system with consumer demand behavior by household and producer behavior by industry.
Handle: RePEc:nbr:nberwo:0487
Template-Type: ReDIF-Paper 1.0
Title: The Level and Distribution of Economic Well-Being
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 0488
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0488
File-URL: http://www.nber.org/papers/w0488.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. "The Level and Distribution of Economic Well-Being." The American Economy in Transition, edited by Martin Feldstein, pp. 415-499. Chicago: University of Chicago Press, 1980.
Publication-Status: published as The Level and Distribution of Economic Well-Being, Alan S. Blinder, Irving Kristol, Wilbur J. Cohen. in The American Economy in Transition, Feldstein. 1980
Abstract: This paper summarizes and critically evaluates what is known about postwar trends in both the level and distribution of economic well-being. Although certain non-income aspects of well-being are considered, the primary focus is on the level and inequality of income. Considerable attention is paid to recent controversies over the effects of transfers in kind and changing life-cycle income patterns on the overall trend in income inequality.
Handle: RePEc:nbr:nberwo:0488
Template-Type: ReDIF-Paper 1.0
Title: Martingale-Like Behavior of Prices
Author-Name: Christopher A. Sims
Author-Person: psi12
Note: EFG
Number: 0489
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0489
File-URL: http://www.nber.org/papers/w0489.pdf
File-Format: application/pdf
Abstract: Asset prices set in a competitive market need not be martingales; that is, it need not be true that the best predictor of future prices is the current price. Nonetheless, statistical tests for this property are sometimes treated as tests for the proper functioning of an asset market; asset prices often seem to have the property to a close approximation, and it is sometimes supposed that the martingale ought to be imposed on econometric models of asset markets and forecasts made from them. This paper shows that under general conditions, which allow among other things for risk aversion among market participants, competitive asset prices ought to be locally -- over small units of time -- martingale-like. This implies that tests of proper functioning of the market ought to be conducted with data at fine time intervals; results of such tests should not be used to justify imposing the martingale property on a model's long-term projections of asset prices.
Handle: RePEc:nbr:nberwo:0489
Template-Type: ReDIF-Paper 1.0
Title: Intertemporal Substitution and the Business Cycle
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 0490
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0490
File-URL: http://www.nber.org/papers/w0490.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J. "Intertemporal substitution and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 14(1), pages 237-268, January 1981. Also: Barro, Robert J. and Robert G. King. "Time-Separable Preferences And Intertemporal-Substitution Models Of Business Cycles," Quarterly Journal of Economics, 1984, v99(4), 817-840.
Abstract: This paper summarizes the theoretical role of intertemporal substitution variables in the "new classical macroeconomics." An important implication is that positive monetary shocks tend to raise expected real returns that are calculated from the usual partial information set, but tend to lower realized real returns. After reviewing previous empirical findings in the area, the study reports new results on the behavior of returns on the New York Stock Exchange and on Treasury Bills. The analysis isolates realized real rate of return effects that are significantly positive for a temporary government purchases variable and significantly negative for monetary movements. However, the results do not support the theoretical distinction between money shocks and anticipated changes in money. Since the study focuses on realized real returns, which can be measured in a straightforward manner, there is no evidence on the hypothesis that expected real returns, which are calculated on the basis of incomplete in-formation, rise with monetary disturbances. Because this proposition is sensitive to the specification of information sets, It may be infeasible to test it directly.
Handle: RePEc:nbr:nberwo:0490
Template-Type: ReDIF-Paper 1.0
Title: Components of Manufacturing Inventories
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Jerry R. Green
Author-Person: pgr476
Note: EFG
Number: 0491
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0491
File-URL: http://www.nber.org/papers/w0491.pdf
File-Format: application/pdf
Abstract: This paper presents a structural model of production and inventory accumulation based on the hypothesis of cost minimization. It differs from previous attempts in several respects. First, it integrates the analysis of input inventories with output inventories, treating the two stocks separately. Second, it distinguishes between temporary and permanent fluctuations in sales as they are anticipated by the industry. Third, it allows for a more general structure of adjustment costs, and in particular for a cost changing the production level rather than only for deviations of the production level from a fixed target. Empirically, there are three principal conclusions. This model performs much better than those with no cost of production adjustment allowed. Disaggregation of inventories provides significant insights into the dynamics of the adjustment process. However, the restrictions on our model implied by the continuous-time stochastic control theory that we utilize are rejected by the data. We believe that a more disaggregated specification or a more detailed econometric treatment of the discrete-time nature of the observations would avoid this difficulty.
Handle: RePEc:nbr:nberwo:0491
Template-Type: ReDIF-Paper 1.0
Title: Exchange-Rate Unions and the Volatility of the Dollar
Author-Name: Richard C. Marston
Note: ITI IFM
Number: 0492
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0492
File-URL: http://www.nber.org/papers/w0492.pdf
File-Format: application/pdf
Publication-Status: published as Marston, Richard C. "Financial Disturbances and the Effects of an Exchange Rate Union." Exchange Rate Management under Uncertainty, edited by J. Bhandari. Cambridge: M.I.T. Press, (February 1985), pp. 272-291.
Abstract: This study analyzes why formation of an exchange-rate union, such as the newly-established European Monetary System, can be harmful to the interests of some member countries. The framework provided for analyzing behavior in the union is a three-country model which combines an asset market determination of exchange rates with a price sector emphasizing wage indexation behavior and price competitiveness between countries. The three countries consist of two members of the union as well as a nonmember country (the United states), allowing the study to investigate trade and financial relationships within and outside the union. The study examines how each country's exchange rates and prices respond to stochastic disturbances of several types, of which the most important is a capital account disturbance directly affecting one member's financial market (originating, for example, in shifts between U.S. securities and those of one member country). The analysis shows that the effects of the union on each member country depends upon (1) the source of those economic disturbances which give rise to fluctuations in exchange rates, (2) the share of trade between members of the union, (3) the degree of integration between the financial markets of the member countries, and (4) the responsiveness of domestic wages and prices to changes in exchange rates. The exchange-rate union fixes the cross exchange rate between member currencies, thereby preventing disturbances from affecting this key exchange rate. In doing so, however, the union may actually increase the variability of prices in the economy of one member country. The outcome depends critically upon the degree of financial integration between the two member countries in the absence of the union. The importance of another factor, domestic price responsiveness, is brought out clearly by comparing the alternative extremes of no price adjustment and full price adjustment to exchange rate changes. Price behavior interacts in an interesting way with financial integration to determine the potential gains or losses of each country in joining the union.
Handle: RePEc:nbr:nberwo:0492
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Risk and the Macroeconomics of Exchange Rate Determination
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 0493
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0493
File-URL: http://www.nber.org/papers/w0493.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "Exchange Rate Risk and the Macroeconomics of Exchange Rate Determination." Research in International Business and Finance, Vol. 3, edited by R. Hawkind et al, (1983).
Abstract: This paper discusses the link between portfolio diversification models of exchange risk and the macroeconomics of exchange rate determination. A first part sets out the mean-variance model of portfolio choice for the case of two nominal assets with random real returns. From there the model is made "international" by a specification of the world inflation process. The concept of exchange risk is discussed in terms of the variability of the real exchange rate. The paper shows that when all randomness in real returns derives from variability of the real exchange rate, rather than from inflation variability, full hedging is possible. Even for the case of no real exchange rate variability, it is shown, variability of the nominal rate of depreciation is a determinant of the portfolio composition. The risk premium is derived and discussed in terms of the deviation of the anticipated rate of depreciation from the interest differential. The actual rate of depreciation may exceed the interest differential either because of news or because of a risk premium that depends on the relative asset supplies compared to their shares in a minimum variance portfolio. An appendix investigates the implications of tastes and differences and shows that there is an additional component of the premium due to differences in consumption patterns. The portfolio model is integrated In a macro-model to show how the relative supplies of non-monetary assets, through yield and valuation effects, determine the impact and long run consequences of real and nominal monetary disturbances. The integration of the portfolio and macro models relies crucially on the properties of the demand for money. A demand for money that depend. on the average return on securities, rather than on the domestic interest rate, implies that portfolio considerations do not affect exchange rates.
Handle: RePEc:nbr:nberwo:0493
Template-Type: ReDIF-Paper 1.0
Title: Sterilization and Offsetting Capital Movements: Evidence from West Germany, 1960-1970
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0494
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0494
File-URL: http://www.nber.org/papers/w0494.pdf
File-Format: application/pdf
Abstract: The purpose of this paper is two fold. First, to estimate, using structural methods, the extent to which capital flows undermined West German monetary policy during the Bretton Woods years 1960 to 1970 and second, to show that earlier reduced form estimates of the capital-account offset coefficient are tainted by simultaneity bias thanks to the Deutsche Bundesbank's systematic policy of sterilization, and so overestimate the true coefficient. The paper distinguishes between the short-run or one-quarter offset coefficient and the long-run coefficient implied by the full adjustment of all asset markets. An aggregative structural model German financial markets yields short-run coefficients between .50 and .65implying substantial Bundesbank control over the monetary base, at least in the short-run. A formal test for simultaneous-equations bias provides evidence that variations in domestic credit cannot be regarded as exogenous and that equations regressing capital flows on changes in domestic credit and other variables exaggerate the extent of the offset.
Handle: RePEc:nbr:nberwo:0494
Template-Type: ReDIF-Paper 1.0
Title: Will the Real Excess Burden Please Stand Up? (Or, Seven Measures in Search of a Concept)
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 0495
Creation-Date: 1980-06
Order-URL: http://www.nber.org/papers/w0495
File-URL: http://www.nber.org/papers/w0495.pdf
File-Format: application/pdf
Publication-Status: published as The Fiscal Behavior of State and Local Governments, Rosen, H., ed., Edward Elgar Publishing, 1997, pp. 301-322.
Abstract: It is well understood that a tax which distorts relative prices generates a welfare cost or "excess burden" in addition to any associated transfer of resources, but there remains considerable controversy and confusion with respect to procedures for measuring this excess burden. The purpose of this paper is to clarify matters concerning what is one of the most basic concepts in welfare economics. We describe and evaluate a number of alternative conceptual experiments which might lie behind an excess burden calculation, showing how these notions can be represented graphically and algebraically and how they can be approximated numerically.
Handle: RePEc:nbr:nberwo:0495
Template-Type: ReDIF-Paper 1.0
Title: Taxation and the Ex-Dividend Day Behavior of Common Stock Prices
Author-Name: Jerry R. Green
Author-Person: pgr476
Note: EFG PE
Number: 0496
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0496
File-URL: http://www.nber.org/papers/w0496.pdf
File-Format: application/pdf
Abstract: The behavior of stock prices around ex-dividend days has been suggested as evidence for tax-induced clientele effects and as a means to estimate the average effective tax rate faced by investors. In this paper these possibilities are examined theoretically and empirically. Theoretically it is shown that the measured price drop per dollar of dividend may provide a biased estimate of the effective tax rate. Looking at the volume of trade around ex-dividend days we show that the conditions under which it would be unbiased are unlikely to hold. Strong evidence, based on a broader database than that used by previous investigators, is presented for the presence of the clientele effect.
Handle: RePEc:nbr:nberwo:0496
Template-Type: ReDIF-Paper 1.0
Title: Alternative Tax Treatments of the Family: Simulation Methodology and Results
Author-Name: Daniel R. Feenberg
Author-Person: pfe56
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 0497
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0497
File-URL: http://www.nber.org/papers/w0497.pdf
File-Format: application/pdf
Publication-Status: published as Feenberg, Daniel R. and Harvey S. Rosen. "Alternative Tax Treatments of the Family: Simulation Methodology and Results." Chapter l in Behavioral Methods in Tax Policy Analysis, ed. Martin Feldstein. Chicago: UCP, 1983.
Publication-Status: published as Alternative Tax Treatments of the Family: Simulation Methodology and Results, Daniel R. Feenberg, Harvey S. Rosen. in Behavioral Simulation Methods in Tax Policy Analysis, Feldstein. 1983
Abstract: A number of suggestions have been made to reform the tax treatment of the family. None of these proposals has been accompanied by careful estimates of their effects on the income distribution, revenue collections, and labor supply. The purpose of this paper is to provide such information. Our analysis is based upon a series of simulations using the TAXSIM file of the National 3ureau of Economic Research, which contains information from a sample of tax returns filed in 1974. Substantial attention is devoted to the problem of imputing data that are absent from TAXSIM. The simulations assume that wives' labor supply behavior depends upon the tax system. The tax reforms simulated include various exemptions and credits for secondary workers, as well as changes in the rules governing filing status. In a number of cases we find that allowing for even a modest behavioral response leads to substantial changes in the revenue implications of the proposals.
Handle: RePEc:nbr:nberwo:0497
Template-Type: ReDIF-Paper 1.0
Title: Monetary Information and Macroeconomic Fluctuations
Author-Name: John F. Boschen
Author-Name: Herschel I. Grossman
Note: EFG
Number: 0498
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0498
File-URL: http://www.nber.org/papers/w0498.pdf
File-Format: application/pdf
Publication-Status: published as Boschen, John F. and Herschel I. Grossman. "Monetary Information and Macroeconomic Fluctuations." Modern Macroeconomic Theory, edited by J. P. Fitonssi, New Jersey: Barnes and Noble Books, (1983), pp. 173-184.
Abstract: This paper introduces contemporaneously available monetary data into an "equilibrium" model that combines rational expectations, market clearing, and incomplete information about monetary disturbances. Data on the current money stock involve a preliminary estimate that is subject to a subsequent process of gradual revision. The model implies the testable hypothesis that aggregate output and employment are uncorrelated with the contemporaneous measure of money growth implied by the difference between the currently available estimates of current and past money shocks. Rejection of this hypothesis provides strong evidence again at the equilibriums approach to modeling the relation between monetary disturbances and macro-economic fluctuations.
Handle: RePEc:nbr:nberwo:0498
Template-Type: ReDIF-Paper 1.0
Title: On the Almost Neutrality of Inflation: Notes on Taxation and the Welfare Costs of Inflation
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 0499
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0499
File-URL: http://www.nber.org/papers/w0499.pdf
File-Format: application/pdf
Publication-Status: published as Stiglitz, Joseph E. "On the Almost Neutrality of Inflation: Notes on Taxation and the Welfare Costs of Inflation." Development in an Inflationary World, edited by M. June Flanders and Assaf Razin, pp. 419-457. New York: Academic Press, Inc., 1981.
Abstract: In this paper I attempt to clarify the nature of the losses associated with inflation within a conventional model of a competitive economy. I shall argue that were inflation fully anticipated, it would be "almost neutral" provided (a) that the tax system were fully indexed and (b) that interest were paid on bank deposits (as to an increasing extent it is in the United States). However, unanticipated inflation may have significant effects.
Handle: RePEc:nbr:nberwo:0499
Template-Type: ReDIF-Paper 1.0
Title: The Transmission of Disturbances under Alternative Exchange-Rate Regimeswith Optimal Indexing
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Nancy Peregrim Marion
Author-Person: pma1464
Note: ITI IFM
Number: 0500
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0500
File-URL: http://www.nber.org/papers/w0500.pdf
File-Format: application/pdf
Publication-Status: published as Flood, Robert Philip and Marion, Nancy Peregrim. "The Transmission of Disturbances under Alternative Exchange-Rate Regimes with Optimal Indexing." Quarterly Journal of Economics, (February 1982), pp. 43-6 6.
Abstract: The paper develops a general stochastic macroeconomic model which can be used to study the international transmission of disturbances under alternative exchange-rate systems. Four types of exchange-rate systems are considered: uniform flexible exchange rates, uniform fixed exchange rates, two-tier exchange rates in which the current-account exchange rate is fixed and the capital-account exchange rate is flexible, and two-tier exchange rates with separate, floating rates for current and capital-account transactions. It is assumed that expectations are rational, so only the unexpected portion of macro policy alters the level of output. In addition, private contracts form the underpinning of the aggregate supply function, and they can be adjusted optimally in response to the country's choice of exchange-rate regime. It is shown that when the home country takes all prices as exogenous and wages are optimally indexed, the country is fully insulated from foreign disturbances under the two fixed-rate regimes but not under the two flexible-rate regimes. Even so, the fixed-rate regimes are inferior to the flexible-rate regimes in terms of their ability to minimize output variance. When the home country is large in the market for its own produced good, these results must be modified. The analysis makes two general points. First, one cannot assume stability of structure when assessing the consequences of alternative exchange-rate regimes. For example, the slope of the aggregate supply curve and the rationally-formed expectations in the asset markets can respond dramatically to the government's choice of exchange-rate regime. Second, exchange-rate regimes that provide full insulation from foreign disturbances may nevertheless be inferior to other regimes in terms of their ability to maximize social welfare.
Handle: RePEc:nbr:nberwo:0500
Template-Type: ReDIF-Paper 1.0
Title: Adjustment to Variations in Imported Input Prices: The Role of Economic Structure
Author-Name: Louka T. Katseli
Author-Name: Nancy Peregrim Marion
Author-Person: pma1464
Note: ITI IFM
Number: 0501
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0501
File-URL: http://www.nber.org/papers/w0501.pdf
File-Format: application/pdf
Publication-Status: published as Katseli-Papaefstratiou, L. and Marion, Nancy Peregrim. "Adjustment to Variations in Imported Input Prices: The Role of Economic Structure." Weltwirtschaftliches Archiv (Review of World Economics), Vol. 1, No. (Band) 118, (1982), pp. 131-147.
Abstract: This paper introduces an imported input into a model of art open economy with developed financial markets, a flexible exchange rate, and some degree of market power on the export side. The model is designed to investigate the impact of an increase in imported input prices on the exchange rate, domestic interest rate, income and nontraded-goods prices. The analysis reveals that changes in various structural parameters, such as the degree of market power or the extent of demand-side openness" or "financial openness," alter the transmission of foreign price disturbances to the domestic economy.
Handle: RePEc:nbr:nberwo:0501
Template-Type: ReDIF-Paper 1.0
Title: Irreversibility, Uncertainty, and Cyclical Investment
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Note: EFG
Number: 0502
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0502
File-URL: http://www.nber.org/papers/w0502.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben S. "Irreversibility, Uncertainty, and Cyclical Investment." Quarterly Journal of Economics, Vol. 97, No. 1, (February 1983), pp. 85-106.
Abstract: The optimal timing of real investment is studied under the assumptions that investment is irreversible and that new information about returns is arriving over time. Investment should be undertaken in this case only when the costs of deferring the project exceed the expected value of information gained by waiting. Uncertainty, because it increases the value of waiting for new information, retards the current rate of investment. The nature of investor's optimal reactions to events whose implications are resolved over time is a possible explanation of the instability of aggregate investment over the business cycle.
Handle: RePEc:nbr:nberwo:0502
Template-Type: ReDIF-Paper 1.0
Title: Modeling Price Rigidity or Predicting the Quality of the Good that Clears the Market
Author-Name: Dennis W. Carlton
Author-Person: pca14
Note: EFG
Number: 0503
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0503
File-URL: http://www.nber.org/papers/w0503.pdf
File-Format: application/pdf
Publication-Status: published as Carlton, Dennis. "Equilibrium Fluctuations when Price and Delivery Lags Clear the Market," The Bell Journal of Economics, Vol. 14, No. 2, Autumn 1983,pp. 562-572.
Abstract: To say that the price of some good is inflexible over time has little meaning if the "good" is changing over time. In this paper we concentrate on delivery lags as being the only dimension other than price that varies. We show how one can predict the relative importance of price and delivery lag fluctuations as equilibrating mechanisms. The complications of the theory as well as the surprising results underscore the complexity of predicting price behavior when the characteristics of the good are endogenous. The empirical results provide strong support for the theory that delivery lags are an important influence on market behavior and therefore that an understanding of their influence is crucial in predicting how markets will respond to supply and demand shocks.
Handle: RePEc:nbr:nberwo:0503
Template-Type: ReDIF-Paper 1.0
Title: Taxes, Saving, and Welfare: Theory and Evidence
Author-Name: Charles E. McLure, Jr.
Author-Person: pmc33
Note: PE
Number: 0504
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0504
File-URL: http://www.nber.org/papers/w0504.pdf
File-Format: application/pdf
Publication-Status: published as McLure, Jr., Charles E. "Taxes, Saving, and Welfare: Theory and Evidence." National Tax Journal, Vol. 33, No. 3, (September 1980), pp. 311-320.
Abstract: The purpose of this paper is to review theoretical analysis and results of empirical research on the effects of taxation on private saving and economic welfare. One basic conclusion of section II is that long-established results of theoretical analysis are often ignored or misunderstood by economists, as well as by policy-makers, and the lessons of more recent theoretical analyses of optimal taxation have been only dimly perceived. This generally inadequate conceptual state of affairs is mirrored in empirical analysis, the subject of section III, where it appears that the few serious scholars working at trying to untangle the effects of taxation on saving and welfare have not always been asking -- or even recognizing -- the "right"questions. But the problems of empirical analysis go beyond those that result from failure to frame the research question carefully. Limitations posed by inadequate data and econometric difficulties make it difficult even to arrive at a satisfactory answer to the wrong question.
Handle: RePEc:nbr:nberwo:0504
Template-Type: ReDIF-Paper 1.0
Title: The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households
Author-Name: Robert E. Hall
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG
Number: 0505
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0505
File-URL: http://www.nber.org/papers/w0505.pdf
File-Format: application/pdf
Publication-Status: published as Hall, Robert E. and Mishkin, Frederic S. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households." Econometrica, Vol. 50, No. 2, (March 1982), pp. 461-481.
Abstract: We investigate the stochastic relation between income and consumption (specifically, consumption of food) within a panel of about 2,000 households. Our major findings are: 1. Consumption responds much more strongly to permanent than to transitory movements of income. 2. The response to transitory income is nonetheless clearly positive. 3. A simple test, independent of our model of consumption, rejects a central implication of the pure life cycle-permanent income hypothesis. The observed covariation of income and consumption is compatible with pure life cycle-permanent income behavior on the part of80 percent of families and simple proportionality of consumption and income among the remaining 20 percent. As a general matter, our findings support the view that families respond differently to different sources of income variations. In particular, temporary income tax policies have smaller effects on consumption than do other, more permanent changes in income of the same magnitude.
Handle: RePEc:nbr:nberwo:0505
Template-Type: ReDIF-Paper 1.0
Title: Does Anticipated Monetary Policy Matter? An Econometric Investigation
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG
Number: 0506
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0506
File-URL: http://www.nber.org/papers/w0506.pdf
File-Format: application/pdf
Publication-Status: published as Mishkin, Frederic S. "Does Anticipated Monetary Policy Matter? An Econometric Investigation." Journal of Political Economy, Vol. 90, No. 1, 1982), pp. 22-51.
Abstract: Recent theorizing with business cycle models which incorporate features of the Friedman-Phelps natural rate model along with rational expectations lead to the following policy conclusions. Anticipated changes in aggregate demand policy will have already been taken into account in economic agents behavior and will thus evoke no further output or employment response. Therefore, deterministic feedback policy rules will have no impact on output fluctuations in the economy. These policy implications of what Modigliani has dubbed the Macro Rational Expectations (MRE) hypothesis are of such importance that a wide range of empirical research is needed for its verification or refutation. Recent empirical work has tested the "neutrality" implication of the MRE hypothesis that anticipated monetary policy does not affect output or unemployment. Although this empirical work has frequently been favorable to the MRE hypothesis, it suffers from several deficiencies that create suspicion about the robustness of the results. This paper is an attempt to conduct an econometric investigation of the implications of the MRE hypothesis which does not suffer from these deficiencies. The results here strongly reject the neutrality implications of the MRE hypothesis: unanticipated movements in monetary policy are not found to have a larger impact on output and unemployment than anticipated movements. This evidence casts doubt on previous evidence that is cited as supporting the view that only unanticipated monetary policy is relevant to the business cycle.
Handle: RePEc:nbr:nberwo:0506
Template-Type: ReDIF-Paper 1.0
Title: Are Market Forecasts Rational?
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG
Number: 0507
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0507
File-URL: http://www.nber.org/papers/w0507.pdf
File-Format: application/pdf
Publication-Status: published as Mishkin, Frederic S. "Are Market Forecasts Rational?" The American Economic Review, Vol. 71, No. 3, (June 1981), pp. 295-306.
Publication-Status: published as Are Market Forecasts Rational?, Frederic S. Mishkin. in A Rational Expectations Approach to Macroeconometrics: Testing Policy Ineffectiveness and Efficient-Markets Models, Mishkin. 1983
Abstract: This paper conducts tests of the rationality of both inflation and short-term interest rate forecasts in the bond market. These tests are developed with the theory of efficient markets and make use of security price data to infer information on market expectations.
Handle: RePEc:nbr:nberwo:0507
Template-Type: ReDIF-Paper 1.0
Title: State and Local Taxes and the Rate of Return on Nonfinancial Corporate Capital (revised as W0740)
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE ME
Number: 0508
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0508
File-URL: http://www.nber.org/papers/w0508.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin and James M. Poterba. "State and Local Taxes and the Rateof Return on Nonfinancial Corporate Capital." Journal of Public Economics, Vol. 21, No. 2, (1983), pp. 129-158. (NOTE: Reprint 443 is based on BOTH W0508 AND W740.)
Abstract: Although states and localities collect a substantial amount of revenue from corporate profits taxes and property taxes on corporate capital, these taxes have been inadequately reflected in previous calculations of the effective corporate tax rate and the pretax rate of return to corporate capital. The present study focuses on non-financial corporations and begins by estimating the profits taxes and property taxes which these corporations pay to state and local governments. These estimates are then used to calculate the pretax rate of return on non-financial corporate capital; the results suggest that the conventional omission of state-local property taxes leads to an understatement of this rate of return by about one percentage point. The effective tax rate on non-financial corporate profits is also computed, taking account of state-local taxes. These taxes amount to approximately sixteen percent of the pretax profits of non-financial corporations. The total effective tax rate on these corporations is shown to have risen substantially during the past two decades; it averaged more than seventy percent in the most recent five-year period. The series for the rate of return and effective tax rate are used to compute the real after-tax rate of return on non-financial corporate capital. The calculations show that this number has declined recently, reaching 2.3 percent in 1979. This is to be contrasted with after-tax returns of over five percent which prevailed during the mid-1960s.
Handle: RePEc:nbr:nberwo:0508
Template-Type: ReDIF-Paper 1.0
Title: Pension Funding, Share Prices, and National Saving
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Stephanie Seligman
Note: ME PE
Number: 0509
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0509
File-URL: http://www.nber.org/papers/w0509.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin and Seligman, Stephanie. "Pension Funding, Share Prices,and National Savings." The Journal of Finance, Vol. XXXVI, No. 4, (September 1981), pp. 801-824.
Abstract: This paper examines empirically the effect of unfunded pension obligations on corporate share prices and discusses the implications of these estimates for national saving, the decline of the stock market in recent years, and the rationality of corporate financial behavior. The analysis uses the information on inflation-adjusted income and assets that large firms were required to provide for 1976 and subsequent years. The evidence for a sample of nearly 200 manufacturing firms is consistent with the conclusion that share prices fully reflect the value of unfunded pension obligations. Since the conventional accounting measure of the unfunded pension liability has a number of problems (which we examine in the paper), it would be more accurate to say that the data are consistent with the conclusion that shareholders accept the conventional measure as the best available information and reduce share prices by a corresponding amount. The most important implication of the share price response is that the existence of unfunded private pension liabilities does not necessarily entail a reduction in total private saving. Because the pension liability reduces the equity value of the firm, shareholders are given notice of its existence and an incentive to save more themselves. For this reason, unfunded private pensions differ fundamentally from the unfunded Social Security pension and the other unfunded federal government civilian and military pensions.
Handle: RePEc:nbr:nberwo:0509
Template-Type: ReDIF-Paper 1.0
Title: Distributions of Family Hospital and Physician Expenses
Author-Name: Bernard Friedman
Note: EH
Number: 0510
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0510
File-URL: http://www.nber.org/papers/w0510.pdf
File-Format: application/pdf
Abstract: The paper develops frequency distribution of annual health expense for a variety of family compositions. The basic data resource was a sample of claims for a large group of federal employees in 1977. The primary data were compared in several aspects against three other sources of reference data on expenses by the non-aged population; the comparisons were reassuring. The method of convolution is used to obtain family frequency distributions from the distribution for individual adults and children. This technique is necessary when the claims data do not record family com-position. In consequence, the results may not be nationally representative of households which are relatively large or affected by unemployment. Aside from this special reservation, the experience of the non-elderly federal employee families seems to be a useful resource for policy analysis.
Handle: RePEc:nbr:nberwo:0510
Template-Type: ReDIF-Paper 1.0
Title: A Model of Firms' Decisions to Export or Produce Abroad
Author-Name: J. Weinblatt
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 0511
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0511
File-URL: http://www.nber.org/papers/w0511.pdf
File-Format: application/pdf
Abstract: This paper is a theoretical analysis of the factors influencing production location decisions by a multinational corporation. It starts with a simple model of optimization for a firm facing the choice between exporting and producing abroad a single differentiated final product and then develops the model to take account of production of intermediate as well as final products, the existence of scale economies, and finally, the effects of transport cost and of factors affecting the cost of production. The share of foreign output is shown to be related to the level of transport cost, to the size of host-country markets, to host-country wage levels relative to those of the home country, in combination with labor intensities of production. All of these relationships in turn are shown to interact in various ways with economies of scale in affecting the choice of production locations.
Handle: RePEc:nbr:nberwo:0511
Template-Type: ReDIF-Paper 1.0
Title: Analyzing the Relation of Unemployment Insurance to Unemployment
Author-Name: Alan L. Gustman
Author-Person: pgu327
Note: LS
Number: 0512
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0512
File-URL: http://www.nber.org/papers/w0512.pdf
File-Format: application/pdf
Publication-Status: published as Gustman, Alan L. "Analyzing the Relation of Unemployment Insurance to Unemployment." Research in Labor Economics, edited by Ronald Ehrenberg, Vol. 5,(1982), pp. 69-114.
Abstract: This paper presents a framework for analyzing the relation of unemployment insurance to unemployment and applies the framework to evaluate recent developments in the UI literature and future research needs. Unemployment is decomposed into more basic elements related to the labor market flows which determine unemployment incidence and duration. It is also disaggregated by reason for unemployment -- e.g., entry into the labor force or quit last job. A matrix containing those definitional elements of unemployment which are potentially affected by the UI system forms the basis for organizing the discussion. Each component of unemployment which may be affected by variations in characteristics of the UI system is considered in turn. The discussion of each of these elements focuses on recent theoretical arid empirical studies which analyze how they are influenced by features of the UI system. By proceeding systematically through the elements which comprise unemployment and considering the major behavioral explanations linking the unemployment insurance system to unemployment, it is possible to determine where the analysis has proceeded satisfactorily and where major gaps remain.
Handle: RePEc:nbr:nberwo:0512
Template-Type: ReDIF-Paper 1.0
Title: Market Wages, Reservation Wages, and Retirement Decisions
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: LS
Number: 0513
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0513
File-URL: http://www.nber.org/papers/w0513.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Roger H. and Blinder, Alan S. "Market Wages, Reservation Wages, and Retirement Decisions." Journal of Public Economics, Vol.14, No. 2, (October 1980), pp. 277-308.
Publication-Status: published as Market Wages, Reservation Wages, and Retirement Decisions, Roger H. Gordon, Alan S. Blinder. in Econometric Studies in Public Finance, Atkinson and Bradford. 1980
Abstract: The paper is an empirical cross-section study of the retirement decisions of American white men between the ages of 58 and 67. predicated on the theoretical notion that an individual retires when his reservation wage exceeds his market wage. Reservation wages are derived from an explicit utility function in which the most critical taste parameter is assumed to vary both systematically and randomly across individuals. Market wages are derived from a standard wage equation adjusted to the special circumstances of older workers. The two equations are estimated jointly by maximum likelihood, which takes into account the potential selectivity bias inherent in the model (low-wage individuals tend to retire and cease reporting their market wage). The model is reasonably successful in predicting retirement decisions, and casts serious doubt on previous claims that the social security system induces many workers to retire earlier than they otherwise would. The normal effects of aging (on both market and reservation wages) and the incentives set up by private pension plans are estimated to be major causes of retirement.
Handle: RePEc:nbr:nberwo:0513
Template-Type: ReDIF-Paper 1.0
Title: Demographic Differences in Cyclical Employment Variation
Author-Name: Kim B. Clark
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: LS
Number: 0514
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0514
File-URL: http://www.nber.org/papers/w0514.pdf
File-Format: application/pdf
Publication-Status: published as Clark, Kim B. and Summers, Lawrence H. "Demographic Differences in Cyclical Employment Variation." The Journal of Human Resources, Vol. XVI, (Winter 1981), pp. 61-79.
Abstract: Demographic differences in patterns of employment variation over the business cycle are examined in this paper. Three primary conclusions emerge. First, both participation and unemployment must be considered in any analysis of cyclical changes in the labor market. Second, young people bear a disproportionate share of cyclical employment variation. Third, failure to consider participation has led to undue pessimism about the effect of aggregate demand policy on high unemployment groups. If participation did not surge, reduction in overall unemployment to its 1969 level would reduce the unemployment of almost all demographic groups to very low levels.
Handle: RePEc:nbr:nberwo:0514
Template-Type: ReDIF-Paper 1.0
Title: Inventories and the Structure of Macro Models
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 0515
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0515
File-URL: http://www.nber.org/papers/w0515.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan. "Inventories and the Structure of Macro Models." The American Economic Review, Vol. 71, No. 2, (May 1981), pp. 11-16.
Abstract: The message of this paper can be summed up in two words: inventories matter. They matter empirically, in the sense that inventory developments are of major importance in the propagation of business cycles; and they matter theoretically, in the sense that recognition of their existence changes the structure of a variety of theoretical macromodels in some fairly important ways. This paper is mainly about the implications of inventories for the structure of theoretical macro models, but I begin by demonstrating the empirical importance of inventories in business fluctuations
Handle: RePEc:nbr:nberwo:0515
Template-Type: ReDIF-Paper 1.0
Title: Implications for the Adjustment Process of International Asset Risks: Exchange Controls, Intervention and Policy Risk, and Sovereign Risk
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ITI IFM
Number: 0516
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0516
File-URL: http://www.nber.org/papers/w0516.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, W.H. "Implications for the Adjustment Process of International Asset Risk: Exchange Controls, Intervention and Policy Risk, and Sovereign Risk ." Internationalization of Financial Markets & National Economic Policy, ed . by R.G. Hawkinsm R.M. Levich & C.G. Wihlberg, JAI Press, 1983, pp. 69-102
Publication-Status: published as Journal of Financial Economics, Vol. 13, no. 2 (1984): 187
Abstract: This paper analyzes the implications of international asset risks for the operation of the international adjustment process, with special emphasis on the scope for monetary policy. After a brief review of actual practice in the evaluation of country risk, the paper discusses a number of modifications in the standard theory of efficient international financial markets that are necessitated by the existence of country risk., For macroeconomic policy, the major implications are that domestic and foreign assets become imperfect substitutes and that world demand for domestic assets is likely to be less than perfectly elastic, even in the "small country" case, Even under a fixed exchange rate, a measure of domestic control over domestic interest rates therefore exists.
Handle: RePEc:nbr:nberwo:0516
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy and Long-Term Interest Rates: An Efficient Markets Approach
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG
Number: 0517
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0517
File-URL: http://www.nber.org/papers/w0517.pdf
File-Format: application/pdf
Publication-Status: published as Mishkin, Frederic S. "Monetary Policy and Long-Term Interest Rates: An Efficient Markets Approach." Journal of Monetary Economics, Vol. 7, No. 1, (January 1981), pp. 1-27.
Abstract: This paper is an application of efficient markets theory to analyze empirically the relationship of money supply growth and long-term interest rates. This approach has the advantage over earlier research on this subject in that it imposes a theoretical structure on this relationship that allows easier interpretation of the empirical results as well as more powerful statistical tests. In the interest of ascertaining the robustness of the results, many different empirical tests are carried out in this paper, and they uniformly do not support the proposition that increases in the money supply are correlated with declines in long rates.
Handle: RePEc:nbr:nberwo:0517
Template-Type: ReDIF-Paper 1.0
Title: Anticipated Inflation, the Frequency of Transactions, and the Slope of the Phillips Curve
Author-Name: Zvi Hercowitz
Author-Person: phe121
Note: EFG
Number: 0518
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0518
File-URL: http://www.nber.org/papers/w0518.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, Vol. 15, no. 2 (1983): 139-154.
Abstract: This paper examines the effects of expected inflation on the responsiveness of output to nominal disturbances in the framework of a localized markets model. The mechanism described in the theoretical part of the paper is that expected inflation has a positive effect on the transaction frequency, which in turn increases the flow of price information across markets. More information implies less misperception of monetary shocks as relative shifts in excess demand, resulting in lower sensitivity of real output to these socks. The empirical implication of this proposition -- namely ,that expected inflation reduces the coefficient of nominal shocks in an output equation -- is tested first using data across countries, and then with time series data from the United States. The first test uses Lucas's and Alberro's estimates of Phillips Curve coefficients from different countries and the corresponding average inflation rates. The second test involves data from the post-World War II period. It uses nominal rates of return on Treasury Bills and corporate bonds as measures of anticipated inflation and Barro's estimates of unanticipated money. In general, results in both tests provide support (stronger than expected)for the implication of the theory.
Handle: RePEc:nbr:nberwo:0518
Template-Type: ReDIF-Paper 1.0
Title: Labor Market Competition among Youths, White Women, and Others
Author-Name: James H. Grant
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 0519
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0519
File-URL: http://www.nber.org/papers/w0519.pdf
File-Format: application/pdf
Publication-Status: published as Grant, James H. and Hamermesh, Daniel S. "Labor Market Competition among Youths, White Women, and Others." The Review of Economics and Statistics, Vol . LXIII, No. 3, (August 1981), pp. 354-360.
Abstract: We estimate substitution possibilities among a set of age-race-sex groups in the labor force. The estimates are based on cross-section data from SMSAs in 1969,and they allow us to consider how substitutable adult women are for young women or young men. The estimates are used, along with assumptions about the extent of wage rigidity and elasticities of labor supply, to simulate the direct and indirect effects of the growth of the female labor force on job opportunities for youth, assuming rigid wages for young workers, and on the wage rates of adult males, assuming these wages are flexible.
Handle: RePEc:nbr:nberwo:0519
Template-Type: ReDIF-Paper 1.0
Title: Transition Losses of Partially Mobile Industry-Specific Capital
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 0520
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0520
File-URL: http://www.nber.org/papers/w0520.pdf
File-Format: application/pdf
Publication-Status: published as Fullerton, Don. "Transition Losses of Partially Mobile Industry-Specific Captial." Quarterly Journal of Economics, Vol. 98, No. 1, February 1983, pp. 107-125.
Abstract: Comparative static models typically assume homogeneous and mobile factors in estimating the economic effects of a tax policy change. Even dynamic models employ a given homogeneous capital stock in two different al locations for the first period of two equilibrium sequences. This malleable capital assumption causes overstatement of early efficiency gains from policies designed to improve factor allocation. on the other hand, immobile factor models would understate such gains by assuming that no capital ever relocates. The model in this paper attempts to bridge this gap by restricting each industry's capital reduction to its rate of depreciation. The stock of depreciated capital from the previous period represents an industry-specific type of capital which may earn a lower equilibrium return. The usage of mobile capital above this minimum constraint is limited by the total gross saving of the economy, including all industries' depreciation and consumer net saving. The industry-specific capital model suggests, for example, that previous estimates of the dynamic efficiency gain from full integration of personal and corporate taxes in the U.S. are overstated by about $5 billion. The model could also be used to estimate distributional impacts on individuals with more than proportionate ownership of capital in particular industries.
Handle: RePEc:nbr:nberwo:0520
Template-Type: ReDIF-Paper 1.0
Title: Prices and Market Shares in the International Machinery Trade
Author-Name: Irving B. Kravis
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Dennis M. Bushe
Note: ITI IFM
Number: 0521
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0521
File-URL: http://www.nber.org/papers/w0521.pdf
File-Format: application/pdf
Publication-Status: published as Kravis, Irving B. and Lipsey, Robert E. "Prices and Market Shares in the International Machinery Trade." The Review of Economics and Statistics, Vol. LXIV, No. 1, (February 1982), pp. 110-116. 6
Publication-Status: published as Bushe, Dennis, Irving B. Kravis and Robert E. Lipsey."Prices, Activity, and Machinery Exports: An Analysis Based on New Price Data" The Review of Economics and Statistics, Vol. LXVIII No. 2, pp. 248-55, May 1986.
Abstract: We use new international price measures we have developed for machinery and transport equipment to explain changes in exports and export shares of the United States, Germany, and Japan. The effects of relative price changes on export shares are fairly large, producing relative quantity changes that are 50 to 100 per cent and as much as 200 per cent greater than the price changes. The effects of price changes seem to stretch out over 3 to 5 years and possibly longer. We also find that delays between order and delivery may affect measures of export quantity and of its response to price. Equations for individual countries suggest that exports by the United States are most responsive to relative price changes and those of Germany least responsive. The income elasticities are very sensitive to the inclusion or exclusion of a time variable to measure "unexplained" trends in exports. A system of supply and demand equations is developed in which the supply of exports depends on a country's export and domestic prices for the same goods, as well as on its real income. The supply elasticities range from about 2% for Germany to over 7 for the United States, implying that firms switch easily between domestic sales and exports.
Handle: RePEc:nbr:nberwo:0521
Template-Type: ReDIF-Paper 1.0
Title: Import Competition and Macro Economic Adjustment under Wage-Price Rigidity
Author-Name: Michael Bruno
Note: ITI IFM
Number: 0522
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0522
File-URL: http://www.nber.org/papers/w0522.pdf
File-Format: application/pdf
Publication-Status: published as Bruno, Michael. "Import Competition and Macro Economic Adjustment under Wage-Price Rigidity." Import Competition and Response, edited by Jagdish N. Bhagwati, pp. 11-37. Chicago: University of Chicago Press, 1982.
Publication-Status: published as Import Competition and Macroeconomic Adjustment under Wage-Price Rigidity, Michael Bruno. in Import Competition and Response, Bhagwati. 1982
Abstract: The paper analyzes the problem of short-term adjustment to a fall in the price of competing imports when thee is wage and price rigidity. This is done in terms of a two-sector model which incorporates a domestically producible import good and a semi-tradeable home good. The effect of a fall in import prices on domestic employment, prices and the balance of payments under nominal or real wage rigidity is analyzed in the various market disequilibrium regimes. The possible responses in terms of demand management and exchange rate (or tariff) policy as well as supply management are analyzed. The theory is then applied to the stagflationary environment of the 1970s within a modified framework in which the price of imported raw materials has simultaneously risen. This helps to show how the above adjustment problem crucially depends on the nature of the underlying macroeconomic environment.
Handle: RePEc:nbr:nberwo:0522
Template-Type: ReDIF-Paper 1.0
Title: Aggregate Land Rents and Aggregate Transport Costs
Author-Name: Richard J. Arnott
Author-Person: par13
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 0523
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0523
File-URL: http://www.nber.org/papers/w0523.pdf
File-Format: application/pdf
Publication-Status: published as Arnott, Richard J. and Stiglitz, Joseph E. "Aggregate Land Rents and Aggregate Transport Costs." The Economic Journal, Vol 91, (June 1981), pp. 331-34 7.
Abstract: This paper explores the relationship between aggregate land rents and aggregate transport costs for land markets in which locations differ solely in terms of accessibility. That there exists a relationship between land rents and transport costs has been recognized at least since the time of von Thunen. The precise relationship between the two is, however, not generally well-understood. For instance, until quite recently it was considered correct to estimate the benefits from a transport improvement by the induced change in aggregate land rents at those locations where travel costs are reduced. This procedure can be shown to be correct only in very special circumstances. This paper presents a very general characterization of the relationship between aggregate land rents and aggregate transport costs. In some special cases, the relationship turns out to be remarkably simple: for a circular city with linear transport costs, aggregate transport costs are precisely twice aggregate land rents, independent of the distribution of tastes or income; for a linear city with linear transport costs, aggregate transport costs are equal to aggregate land rents. One corollary of our general analysis is that aggregate land rents may stay the same or actually fall in response to a transport improvement which makes everyone better off. In the first section we consider a simple example. The second derives the basic theorems of the paper, while the third examines their implications for the relationship between the benefits from a transport improvement and the change in aggregate land rents induced by the improvement. And in the fourth section, we examine the extent to which the theorems of section II generalize.
Handle: RePEc:nbr:nberwo:0523
Template-Type: ReDIF-Paper 1.0
Title: The Role of Money Supply Shocks in the Short-Run Demand for Money
Author-Name: Jack Carr
Author-Name: Michael R. Darby
Note: ITI IFM
Number: 0524
Creation-Date: 1980-07
Order-URL: http://www.nber.org/papers/w0524
File-URL: http://www.nber.org/papers/w0524.pdf
File-Format: application/pdf
Publication-Status: published as Carr, Jack and Darby, Michael R. "The Role of Money Supply Shocks in the Short-Run Demand for Money." Journal of Monetary Economics, Vol. 8, No. 2, (September 1981), pp. 183-199.
Abstract: Previous models of the demand for money are either inconsistent with contemporaneous adjustment of the price level to expected changes in the nominal money supply or imply implausible fluctuations in interest rates in response to unexpected changes in the nominal money supply. This paper proposes a shock-absorber model of money demand in which money supply shocks affect the synchronization of purchases and sales of assets and so engender a temporary desire to hold more or less money than would otherwise be the case. Expected changes in nominal money do not cause fluctuations in real money inventories. The model is simultaneously estimated for the United States, United Kingdom, Canada, France, Germany, Italy, Japan, and the Netherlands using the postwar quarterly data set and instruments used in the Mark III International Transmission Model. The shock-absorber variables significantly improve the estimated short-run money demand functions in every case.
Handle: RePEc:nbr:nberwo:0524
Template-Type: ReDIF-Paper 1.0
Title: The Relation of Stock Prices to Corporate Earnings Adjusted for Inflation
Author-Name: Phillip Cagan
Note: ME
Number: 0525
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0525
File-URL: http://www.nber.org/papers/w0525.pdf
File-Format: application/pdf
Publication-Status: published as Cagan, Phillip. "Do Stock Prices Reflect the Adjustment of Earnings for Inflation?" Monograph Series in Finance and Economics, Monograph 1982-2. New York: Salomon Brothers Center, 1982.
Abstract: The effects of inflation adjustments of corporate earnings on market prices were tested by cross section regressions of 485 manufacturing companies for the period 1966-76 and subperiods. The basic data were company reports and stock prices. For the full period, market prices reflected the inventory valuation adjustment and the decline in real value of net financial liabilities fairly completely, but they reflected the adjustment for the understatement of depreciation to only a small extent. The surprisingly low effect of the depreciation adjustment could only be partly attributed to measurement error, but not entirely. The estimated effect of capital gains on stock prices was either in the wrong direction or negligible. The implication of the results is that market investors use a range of adjustments for the effects of inflation which differs from the estimates used in this study, though how and why they differ is not clear. The adjustments were much lower in the later period 1972-76 than in the earlier period 1966-71. This seemed inconsistent with the higher inflation rates in the later period. The explanation for the difference is not clear, but it may reflect the difficulties of judging the size of the adjustments in a period of rapid inflation.
Handle: RePEc:nbr:nberwo:0525
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Portfolio Choice, and the Price of Land and Corporate Stock
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0526
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0526
File-URL: http://www.nber.org/papers/w0526.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Inflation, Portfolio Choice, and the Prices of Land and Corporate Stock." American Journal of Agricultural Economics, Vol. 62, No. 5, (December 1980), pp. 910-916.
Abstract: This paper presents an explicit model of portfolio demand and uses it to show how the rate of inflation and its variances affect the real prices of land and of common stock. The analysis is thus an extension of two of the author's earlier papers which studied how the interaction of inflation and tax rules alter the real prices of land and stock. The analysis shows the importance of going beyond the traditional assumption that net-of-tax yields are equated for all assets.
Handle: RePEc:nbr:nberwo:0526
Template-Type: ReDIF-Paper 1.0
Title: The Optimal Weighting of Indicators for a Crawling Peg
Author-Name: William H. Branson
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Note: ITI IFM
Number: 0527
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0527
File-URL: http://www.nber.org/papers/w0527.pdf
File-Format: application/pdf
Publication-Status: published as Branson, William H. and Jorge Braga de Macedo. "The Optimal Weighting of Indicators for a Crawling Peg." Journal of International Money and Finance, Vol. 1 (1982), pp. 165-178.
Abstract: This paper derives optimal weights for current-account and reserve indicators for adjusting the exchange rate (a "crawling peg"). Keven (1975)showed that use of a current account indicator alone would not stabi1iereserves, while a reserve indicator results in unstable fluctuations in the exchange rate. This paper begins by analyzing the problem in the frame work of Phillips (1954), in which the current account indicator is "proportional" and the reserve indicator is "integral." We then analyze the problem in a deterministic optimal control framework, and finally as a problem in stochastic control. In all cases the optimal combination is a weighted average, which we call the Keven-Phillips formula. With a fairly low variance of the current account, its weight falls in the range 0.47-0.65. Rising variance reduces its weight in the optimal formula.
Handle: RePEc:nbr:nberwo:0527
Template-Type: ReDIF-Paper 1.0
Title: The Capitalization of Income Streams and the Effects of Open Market Policy under Fixed Exchange Rates
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0528
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0528
File-URL: http://www.nber.org/papers/w0528.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "The Capitalization of Income Streams and the Effects of Open Market Policy under Fixed Exchange Rates." Journal of Monetary Economics. Vol. 9, No. 1, (January 1982), pp. 87- 98.
Abstract: This paper investigates the long- and short-run neutrality of open-market monetary policy in a world of fixed exchange rates and imperfect substitutability between bonds denominated in different currencies. Using an illustrative portfolio-balance model, it shows that when the public discounts the future tax liabilities associated with the national debt and the central bank supports the exchange rate by trading non-interest-bearing foreign assets, open-market policy has a short-run effect, but no long-run effect, on the domestic price level and interest rate. When the foreign-exchange intervention assets earn interest that is rebated to and capitalized by the public, open-market policy loses even its short-run efficacy -- the capital-account offset to monetary policy is complete.
Handle: RePEc:nbr:nberwo:0528
Template-Type: ReDIF-Paper 1.0
Title: The Historical Evolution of Female Earnings Functions and Occupations
Author-Name: Claudia D. Goldin
Author-Person: pgo601
Note: DAE
Number: 0529
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0529
File-URL: http://www.nber.org/papers/w0529.pdf
File-Format: application/pdf
Publication-Status: published as Goldin, Claudia. "The Historical Evolution of Female Earnings Functions and Occupations." Explorations in Economic History, Vol. 21, January 1984, pp. 1-27.
Abstract: Of all the changes in the history of women's market work, few have been more impressive than the rapid emergence and feminization of the clerical sector and the related decline in manufacturing employment for women. Although a century ago few women were clerical workers, as early as 1920 22% of all employed non-farm women were, and about 50% of all clerical workers were women. Employment for women in the clerical sector expanded at five times the annual rate in manufacturing from 1890 to 1930, and during the same period of time wages for female clerical workers fell relative to those in manufacturing. This paper explores the underlying causes of these dramatic sectoral shifts by estimating the relationship between earnings and experience for manufacturing and clerical workers from 1888 to 1940. It is seen that earnings profiles for employment in manufacturing rose steeply with experience and peaked early, while those in the clerical sector were much flatter and did not peak within the relevant range. Returns to off-job training and depreciation with age and with time away from the labor force also differed between these occupations. A model of sectoral shift is developed in which workers choose occupations and therefore the time path of training on the basis of their life-cycle labor force participation and their consumption value of education. The coefficients from the earnings function estimations are used to demonstrate that the decline in the relative wage of clerical to manufacturing work from 1890 to 1930 can be explained by such a model, Finally, it is shown that a sizable percentage of the difference in the growth of female employment in the manufacturing and clerical sectors can be explained by various labor supply factors.
Handle: RePEc:nbr:nberwo:0529
Template-Type: ReDIF-Paper 1.0
Title: Does the Investment Interest Limitation Explain the Existence of Dividends?
Author-Name: Daniel R. Feenberg
Author-Person: pfe56
Note: PE
Number: 0530
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0530
File-URL: http://www.nber.org/papers/w0530.pdf
File-Format: application/pdf
Publication-Status: published as Feenberg, Daniel. "Does the Investment Interest Limitation Explain the Existence of Dividends?" Journal of Financial Economics, Vol. 9, No. 3, (September 1981), pp. 265-269.
Abstract: Miller and Scholes show that under certain conditions the Federal Income tax taxes dividend income at a rate no higher than the rate on capital gains. Tabulations of actual 1977 tax returns show that the special circumstances under which this can occur apply to less than 3% of dividend income and no significant role can be ascribed to their result in the determination of corporate dividend policy.
Handle: RePEc:nbr:nberwo:0530
Template-Type: ReDIF-Paper 1.0
Title: Policy Decentralization and Exchange Rate Management in Interdependent Economies
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Jonathan Eaton
Author-Person: pea5
Note: ITI IFM
Number: 0531
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0531
File-URL: http://www.nber.org/papers/w0531.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. and Jonathan Eaton. "Policy Decentralization and Exchange Rate Management in Interdependent Economies." Exchange Rate Management under Uncertainty, edited by J.S. Bhandari, (1985), pp. 31-54, MIT Press, Cambridge, MA.
Abstract: The paper provides a theoretical framework for analyzing policy formation among independent authorities operating in an interdependent environment. This is then applied to the analysis of optimal monetary policy in a stochastic two-country model with rational expectations. The main conclusions are 1) Optimal monetary policy requires a finite response of the money supply to the exchange rate (which is the only contemporaneously observed variable.) Neither a fixed nor a freely floating exchange rate is likely to be optimal. 2) Output stabilizing monetary policy may well require 'leaning with the wind' in the foreign exchange market, expanding the money supply when the home currency depreciates, thus increasing the volatility of the exchange rate. 3) The ability of the monetary authorities to influence real variables is due to the assumption that the private sector does not make exchange rate-contingent forward contracts.4) There are likely to be gains from policy coordination.
Handle: RePEc:nbr:nberwo:0531
Template-Type: ReDIF-Paper 1.0
Title: Microeconomic Aspects of Productivity Growth under Import Substitution: Turkey
Author-Name: Anne O. Krueger
Author-Name: Baran Tuncer
Note: ITI IFM
Number: 0532
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0532
File-URL: http://www.nber.org/papers/w0532.pdf
File-Format: application/pdf
Publication-Status: published as "An Empirical Test of the Infant Industry Argument," American Economic Review, Vol. 72, No. 5, December 1982, pp. 1142-1152.
Publication-Status: Published as "Growth of factor productivity in Turkish manufacturing industries," Journal of Development Economics. Volume 11, Issue 3, December 1982, Pages 307-325
Abstract: This paper assesses the empirical relevance of "dynamic" factors in industrialization in developing countries. Using data from a sample of 91 firms, rates of growth of output per unit of input are calculated. It is shown that there is little basis, at least with regard to Turkish experience, to the notion that non-traditional industries are in some sense more "dynamic" than traditional industries.
Handle: RePEc:nbr:nberwo:0532
Template-Type: ReDIF-Paper 1.0
Title: The Tax Advantages of Pension Fund Investments in Bonds
Author-Name: Fischer Black
Note: PE
Number: 0533
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0533
File-URL: http://www.nber.org/papers/w0533.pdf
File-Format: application/pdf
Publication-Status: published as Black, Fischer. "The Tax Consequences of Long-Run Pension Policy." Financial Analysts Journal, Vol. 36, (July/August 1980), pp. 21-28.
Abstract: I believe that every tax-paying firm's defined benefit pension fund portfolio should be invested entirely in bonds (or insurance contracts). Although the firm's pension funds are legally distinct from the firm, there is a close tie between the performance of the pension fund investments and the firm's cash flows. Sooner or later, gains or losses In pension fund portfolios will mean changes in the firm's pension contributions. Shifting from stocks to bonds in the pension funds will increase the firm's debt capacity, because it will reduce the volatility of the firm's future cash flows. Shifting from stocks to bonds in the pension funds will give an indirect tax benefit equal to the firm's marginal tax rate times the interest on the bonds. There is no indirect tax benefit if the pension funds are invested in stocks. Fully implementing the plan will mean shifting all of the stocks in the pension fund to fixed income investments, and putting all new contributions into fixed income investments. Shifting $2 million from stocks to bonds has a present value for the firm's stockholders of about $1 million. Shifting from stocks to bonds in the pension funds will reduce the firm's leverage. To offset this, the firm can issue more debt than it otherwise would have issued. The money raised can be invested in the firm or used to buy back the firm's stock. This version of the plan, with more bonds in the pension fund and more debt on the firm's balance sheet, is equivalent to the following transactions: (1)sell a portfolio of stocks on which no taxes are paid, and buy the firm's stock on which no taxes are paid; and (2) issue the firm's bonds at an after-tax interest rate, and buy other firm's bonds at a before-tax interest rate.
Handle: RePEc:nbr:nberwo:0533
Template-Type: ReDIF-Paper 1.0
Title: Incomplete Information, Risk Shifting, and Employment Fluctuations
Author-Name: Herschel I. Grossman
Note: EFG
Number: 0534
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0534
File-URL: http://www.nber.org/papers/w0534.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Herschel I. "Incomplete Information, Risk Shifting, and Employment Fluctuations." Review of Economic Studies, Vol. XLVIII, No. 152 (April 1981), pp. 189-197.
Abstract: This paper explores one of the ways in which acceptance of the hypothesis that labor market transactions involve arrangements for shifting risk from workers to employers strengthens the case for accepting the hypothesis that incomplete information is the critical factor in producing the positive effect of aggregate demand for output on aggregate employment. The analysis shows that the introduction of risk-shifting arrangements into models of incomplete information eliminates the dependence of the relation between aggregate demand and aggregate employment on the relative strengths of the usual substitution and income effects on labor supply of perceived real wage rates or perceived real interest rates. In addition, the analysis shows that the apparent fact that workers choose an amount of risk shifting that gives them constant nominal wage rates implies that incomplete information would produce a positive effect of aggregate demand on aggregate employment. The key to these results is that risk shifting allows workers to use the value of product associated with high levels of demand to supplement the income associated with low levels of demand. Consequently, they can choose high employment instates of high demand without causing a corresponding reduction in their expected marginal utility of consumption.
Handle: RePEc:nbr:nberwo:0534
Template-Type: ReDIF-Paper 1.0
Title: Some Aspects of the Canadian Experience with Flexible Exchange Rates in the 1970s
Author-Name: Charles Freedman
Author-Name: David Longworth
Note: ITI IFM
Number: 0535
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0535
File-URL: http://www.nber.org/papers/w0535.pdf
File-Format: application/pdf
Publication-Status: published as Freedman, Charles and David Longworth. "Some Aspects of the Canadian Experience with Flexible Exchange Rates in the 1970s." Bank of Canada Technical Report 20, (1980).
Abstract: In this study, the authors examine three aspects of the Canadian experience with flexible exchange rates in the 1970s: the movements in the Canadian dollar-U.S. dollar exchange rate, the sharp growth of external borrowings by Canadians in the 1974-76 period, and the real effects of relative price movements. Several theoretical and empirical exchange rate models are found to have done poorly in explaining the movements of the value of the Canadian dollar over the decade. In the examination of external borrowings in the mid-1970s, it is concluded that there was some response in borrower and lender behaviour to movements in nominal long-term interest rate differentials. Four sources of explanation for such behaviour are examined. A three-sector model comprising non-tradable goods, resource-based tradable goods and non resource-based tradable goods, is used to study the effects of changes in raw material prices, domestic unit labour costs, and the exchange rate on various real variables in the Canadian economy.
Handle: RePEc:nbr:nberwo:0535
Template-Type: ReDIF-Paper 1.0
Title: Further Evidence on the Value of Professional Investment Research
Author-Name: Kenneth L. Stanley
Author-Name: Wilbur G. Lewehlen
Author-Name: Gary G. Schlarbau
Note: ME
Number: 0536
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0536
File-URL: http://www.nber.org/papers/w0536.pdf
File-Format: application/pdf
Publication-Status: published as Stanley, Kenneth L.; Lewellen, Wilbur G.; and Schlarbaum, Gary G. "Further Evidence on the Value of Professional Investment Research." The Journal of Financial Research, Vol. IV, No. 1, (Spring 1981), pp. 1-9.
Abstract: This paper shall consider not only the potential for individual investors to exploit one of the major categories of professional investment advice to earn superior portfolio returns, but also will examine the actual return experiences of a representative sample of investors who were, in fact, observed to trade on such advice.
Handle: RePEc:nbr:nberwo:0536
Template-Type: ReDIF-Paper 1.0
Title: Exchange-Rate Expectations and Nominal Interest Differentials: A Test ofthe Fisher Hypothesis
Author-Name: Robert E. Cumby
Author-Person: pcu115
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0537
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0537
File-URL: http://www.nber.org/papers/w0537.pdf
File-Format: application/pdf
Publication-Status: published as Cumby Robert E. and Obstfeld, Maurice. "A Note on Exchange-Rate Expectations and Nominal Interest Differentials: A Test of the Fisher Hypothesis." The Journal of Finance, Vol. XXXVI, No. 3, (June 1981), pp. 697-703.
Abstract: This note tests the hypothesis that nominal interest differentials between similar assets denominated in different currencies can be explained entirely by the expected change in the exchange rate over the holding period. This proposition, often called the "Fisher open" hypothesis or the hypothesis of perfect asset substitutability, has been a major component of recent theories of exchange-rate determination, and has important implications for monetary policy.
Handle: RePEc:nbr:nberwo:0537
Template-Type: ReDIF-Paper 1.0
Title: Estimated Effects of the October 1979 Change in Monetary Policy on the 1980 Economy
Author-Name: Ray C* Fair
Author-Person: pfa24
Note: EFG
Number: 0538
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0538
File-URL: http://www.nber.org/papers/w0538.pdf
File-Format: application/pdf
Publication-Status: published as Fair, Ray C. "Estimated Effects of the October 1979 Change in Monetary Policy on the 1980 Economy." The American Economic Review, Vol. 71, No. 2, (May 1981), pp. 160-165.
Abstract: On October 6. 1979, the Federal Reserve announced what most people interpreted as a change in monetary policy. The purpose of this paper is to estimate the effects of this change on the 1980-81 economy. The effects of the change are estimated from simulations with my model of the U.S. economy (1976, 1980b).
Handle: RePEc:nbr:nberwo:0538
Template-Type: ReDIF-Paper 1.0
Title: Time Preference and Health: An Exploratory Study
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: EH
Number: 0539
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0539
File-URL: http://www.nber.org/papers/w0539.pdf
File-Format: application/pdf
Publication-Status: published as Fuchs, Victor R. "Time Preference and Health: An Exploratory Study." Economic Aspects of Health, edited by Victor R. Fuchs, pp. 93-120. Chicago: University of Chicago Press, 1982.
Publication-Status: published as Time Preference and Health: An Exploratory Study, Victor R. Fuchs. in Economic Aspects of Health, Fuchs. 1982
Abstract: This paper reports the results of an exploratory survey designed to measure differences in time preference across individuals and to test for relationships between time preference and schooling, health behaviors, and health status. Approximately 500 adults age 25-64 were surveyed by telephone. Time preference was measured by a series of six questions asking the respondent to choose between a sum of money now and a larger sum at a specific point in the future. Approximately two-thirds gave consistent replies to the six questions. The implicit interest rate revealed in their replies is weakly correlated with years of schooling (negative), cigarette smoking (positive), and health status(negative). Family background, especially religion, appears to be an important determinant of time preference.
Handle: RePEc:nbr:nberwo:0539
Template-Type: ReDIF-Paper 1.0
Title: Intermediate Imports, the Terms of Trade, and the Dynamics of the Exchange Rate and Current Account
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0540
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0540
File-URL: http://www.nber.org/papers/w0540.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "Intermediate Imports, the Terms of Trade, and the Dynamics of the Exchange Rate and Current Account." Journal of International Economics, Vol. 10, No. 4, (November 1980), pp. 461-480.
Abstract: This paper studies the macroeconomic effects of an increase in the price of an imported intermediate production input. The framework of the analysis is a small open economy with abating exchange rate and endogenous terms if trade, in which saving depends on residents'(variable) rate of time preference. Contrary to popular conceptions, an intermediate price shock may lead to an appreciation of the exchange rate in both the short run and the long run, and is likely to occasion a current-account surplus. The terms of trade between foreign and domestic finished goods always improve in the long run.
Handle: RePEc:nbr:nberwo:0540
Template-Type: ReDIF-Paper 1.0
Title: Three Papers on Brazilian Trade and Payments
Author-Name: Eliana A. Cardoso
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 0541
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0541
File-URL: http://www.nber.org/papers/w0541.pdf
File-Format: application/pdf
Abstract: This report brings together three separate, short papers on problems of Brazilian trade and payments. The following topics are addressed: the determinants of export behavior in the manufactures sector, measures of the real exchange rate and the monetary approach applied to the external balance. In the paper on export behavior of manufactures, we report estimates of an export supply equation. We show that for the period 1959-1977 exports of manufactures were determined by productive capacity, the relative price (inclusive of subsidies) facing exporters and the domestic output gap. The equation describes well the behavior of exports and documents on export price elasticity of unity and a significant responsiveness of exports to the level of domestic demand relative to capacity. The study of real exchange rates examines a number of different empirical measures of external competitiveness. Specifically, we look at the manufactures terms of trade, the relative wholesale prices in Brazil and abroad, export prices relative to home prices and export prices relative to prices in world trade. The comparison of these real exchange rate measures points out the important role that composition effects played in Brazilian export growth. A large fraction of Brazilian exports is in the area of processed foods that experienced a particularly sharp increase in their relative price in world trade in 1968-1974. The paper dealing with the monetary approach explains reserve and exchange rate behavior in terms of domestic credit and the determinants of nominal money demand. It corrects earlier estimates in the literature and, while sustaining the success of a monetary approach, it also qualifies that approach by drawing attention to the role of monetary liabilities of the consolidated banking, system.
Handle: RePEc:nbr:nberwo:0541
Template-Type: ReDIF-Paper 1.0
Title: Expected Inflation and Equity Prices: A Structural Econometric Approach
Author-Name: David S. Jones
Note: ME
Number: 0542
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0542
File-URL: http://www.nber.org/papers/w0542.pdf
File-Format: application/pdf
Abstract: The purpose of the present paper is to investigate the effects of expected inflation on the general level of common stock prices using a structural rather than a reduced-form approach. To this end, an aggregative partial-equilibrium structural econometric model of the U.S. equity market is constructed using quarterly flow-of-funds data. The primary endogenous variable in this model is the Standard and Poor's Index of 500 Common Stock Prices, P. After passing several standard validation exercises he model is used to perform a number of simulation experiments designed o assess the impact of expected inflation on P. To anticipate, we find that increases in expected inflation depress current equity prices by bout the same amount as found in a related study of Modigliani and Cohn: a l00 basis point increase in expected inflation, holding real interest rates constant, is predicted to lower the general level of equity prices by 7.8%. In the course of constructing the structural equity market model equity demand equations are estimated for households, life insurance companies, open-end investment companies, property and casualty insurance companies, and state and local government retirement systems. Equations are also estimated for the demand for mutual fund shares by households and equity issues by U.S. nonfinancial corporations.
Handle: RePEc:nbr:nberwo:0542
Template-Type: ReDIF-Paper 1.0
Title: The Economics of Tenure Choice: 1955-79
Author-Name: Patric H. Hendershott
Author-Name: James D. Shilling
Note: PE
Number: 0543
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0543
File-URL: http://www.nber.org/papers/w0543.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. and Shilling, James D. "The Economics of Tenure Choice: 1955-79." Research in Real Estate, Vol. I, pp. 105-133. Greenwich, CT: JAI Press, 1982.
Abstract: The aggregate homeownership rate in the United States has continued to rise throughout the 1970s despite rising inflation and the rapid growth of young and primary individual households with relatively low homeownership rates. This appears to be a result of a decline in the cost of homeownership relative to renting. The post 1965 decline in the real after-tax interest rate has acted to reduce the costs of both types of housing. However, inflation, and legislation induced increases in taxation of rental housing have largely offset the decline in the net real financing rate. Depreciation is based on historic cost and nominal capital gains are taxed. Moreover, this taxation was increased in 1969 and 1976 with the introduction and expansion of the minimum tax, the increased recapture of accelerated depreciation, and the amortization, rather than expensing, of construction period interest and property taxes. The decline in the cost of owner-occupied housing relative to rental housing is estimated to have sharply increased homeownership. In the absence of this decline 4.5 to 5 million fewer households would have been homeowners at the end of 1978. That is, the homeownership rate would have been 60 percent, rather than 65 percent.
Handle: RePEc:nbr:nberwo:0543
Template-Type: ReDIF-Paper 1.0
Title: Gold Monetization and Gold Discipline
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Peter M. Garber
Author-Person: pga124
Note: EFG
Number: 0544
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0544
File-URL: http://www.nber.org/papers/w0544.pdf
File-Format: application/pdf
Publication-Status: published as Flood, Robert P. and Peter M. Garber. "Gold Monetization and Gold Discipline." Journal of Political Economy, Vol. 92, No. 1, (February 1984).
Abstract: The paper is a study of the price level and relative price effects of a policy to monetize gold and fix its price at a given future time and at the then prevailing nominal price. Price movements are analyzed both during the transition to the gold standard and during the post-monetization period. The paper also explores the adjustments to fiat money which are necessary to ensure that this type of gold monetization is non-inflationary. Finally, some conditions which produce a run on the government's gold stock leading to the collapse of the gold standard and the timing of such a run are examined.
Handle: RePEc:nbr:nberwo:0544
Template-Type: ReDIF-Paper 1.0
Title: Staggered Wage Setting without Money Illusion: Variations on a Theme of Taylor
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Ian Jewitt
Author-Person: pje50
Note: ITI IFM
Number: 0545
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0545
File-URL: http://www.nber.org/papers/w0545.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. and Jewitt, Ian. "Staggered Wage Setting with Real Wage Relativities: Variations on a Theme of Taylor." The Manchester School, Vol. XLIX, No. 3, (September 1981), pp. 211-228.
Abstract: In a number of influential recent papers, Taylor (1979a, b; 1980a, b) has analyzed the behaviour of an economy characterized by staggered over-lapping wage contracts and rational expectations. His model has the "Keynesian" feature that the second moment of the distribution function of real output is not invariant under changes in the deterministic (and known) components of monetary policy rules. The reason for this is the inertia in the money wage process induced by the staggered multi-period contracts and the assumption that the wage payments due in any given period under the contract are not "indexed", that is not made contingent on the actually realized values of such nominal variables as the general price level. We retain the crucial assumption of multi-period (staggered) non-contingent contracts but wish to examine the consequences of altering Taylor's assumption that wage bargainers are influenced by relative money wages rather than relative real wages. In Taylor's model money wage contracts are negotiated without reference to past, current and expected future prices. Our suggested modification that wage bargainers are influenced by relative real wages, which we consider somewhat more plausible, has some interesting implications for the empirical estimation of models with staggered wage contracts (see especially Taylor, 1980b).
Handle: RePEc:nbr:nberwo:0545
Template-Type: ReDIF-Paper 1.0
Title: Taxation, Portfolio Choice, and Debt-Equity Ratios: A General Equilibrium Model
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Mervyn A. King
Note: PE
Number: 0546
Creation-Date: 1980-08
Order-URL: http://www.nber.org/papers/w0546
File-URL: http://www.nber.org/papers/w0546.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. and King, Mervyn A. "Taxation, Portfolio Choice and Debt- Equity Ratios: A General Equilibrium Model." Quarterly Journal of Economics , (November 1983): 588-609.
Abstract: This paper explores the portfolio behavior of investors differing with respect to both tax rates and risk-aversion, emphasizing the role of constraints on individual and firm behavior in ensuring the existence of and characterizing portfolio equilibrium. Under certain conditions on the securities available in the market, which also are required for shareholders to be unanimous in supporting firm value maximization, investors will be segmented by tax rate into two groups, one specialized in equity and the other in debt. Though the relative wealths of the two groups determines the aggregate debt-equity ratio, each firm will be indifferent to its financial policy.
Handle: RePEc:nbr:nberwo:0546
Template-Type: ReDIF-Paper 1.0
Title: Inflation and the Tax Treatment of Firm Behavior
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 0547
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0547
File-URL: http://www.nber.org/papers/w0547.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "Inflation and the Tax Treatment of Firm Behavior." The American Economic Review, Vol. 71, No. 2, (May 1981), pp. 419-423.
Abstract: In the past decade, economists have be-gun to realize that inflation, even when fully anticipated, constitutes a great deal more than a tax on money balances. The primary reason for inflation's wider impact is the existence of a tax system designed with stable prices in mind. This paper offers a brief summary of the effects of inflation on the tax treatment of the firm, focusing on four important decisions the firm makes: the scale of investment; the method of finance; the durability of assets used in production; and the holding period of these assets. There are a number of interesting and related issues which cannot be covered in a paper of this length. As I will be considering inflation that is both uniform and fully anticipated, questions concerning the behavior of the firm in response to uncertainty about inflation, or to a concommitant change in relative prices, will not arise.
Handle: RePEc:nbr:nberwo:0547
Template-Type: ReDIF-Paper 1.0
Title: Transfers, Taxes, and the NAIRU
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 0548
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0548
File-URL: http://www.nber.org/papers/w0548.pdf
File-Format: application/pdf
Publication-Status: published as Hamermesh, Daniel S. "Transfers, Taxes, and the NAIRU." The Supply-Side Effects of Economic Policy, edited by Laurence H. Meyer, pp.203-229. St. Louis: Center for the Study of American Business, 1981.
Publication-Status: published as Daniel S. Hamermesh, 1981. "Transfers, Taxes and the NAIRU," Review, vol 63.
Abstract: Just as war is too important to be left to the generals, the impact of taxes and transfers on the aggregate unemployment rate is too important to be left to the macroeconomists. I therefore subject the issue of how tax and transfer policy affects unemployment and aggregate supply to a detailed, microeconomic examination of the effects of individual tax and transfer program structures. This inductive approach is, I believe, likely to provide a far better guide to discovering how changes in these policies have worked through the economy than would a macroeconomic approach that ignored the programs' complexities.
Handle: RePEc:nbr:nberwo:0548
Template-Type: ReDIF-Paper 1.0
Title: The Timing of Monetary and Price Changes and the International Transmission of Inflation
Author-Name: Anthony Cassese
Author-Name: James R. Lothian
Note: ITI IFM
Number: 0549
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0549
File-URL: http://www.nber.org/papers/w0549.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 10, no. 1 (1982): 1-24.
Publication-Status: published as The Timing of Monetary and Price Changes and the International Transmission of Inflation, Anthony Cassese, James R. Lothian. in The International Transmission of Inflation, Darby, Lothian, Gandolfi, Schwartz, and Stockman. 1983
Abstract: This paper presents a theoretical and empirical investigation into timing relationships between variables within and across industrialized countries. In the analysis we highlight the two polar cases of completely closed and open economies and draw some implications for timing between monetary expansion and inflation, inter-country comparisons of inflation rates and interest rates, and comparisons of central bank behavior. The Granger-causality test is applied in a bivariate fashion to these groups of variables. The main empirical results of our analysis are: (1) Domestic monetary expansion appears to lead inflation in the sense that money Granger-causes prices without feedback, contradicting an implication of the monetary approach to the balance of payments. (2) Hardly any significant timing relationship exists between domestic and foreign rates of inflation during the fixed exchange rate period, providing no evidence for a generalized "law of one price." (3) Some sterilization of official reserve inflows was successfully performed by the non-reserve central banks, except for Canada. (4) U.S. interest rates Granger-cause foreign rates, providing evidence of some international transmission via asset markets.
Handle: RePEc:nbr:nberwo:0549
Template-Type: ReDIF-Paper 1.0
Title: Government Intervention in the Inflation Process: The Econometrics of "Self-Inflicted Wounds"
Author-Name: Jon Frye
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 0550
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0550
File-URL: http://www.nber.org/papers/w0550.pdf
File-Format: application/pdf
Publication-Status: published as Frye, Jon and Gordon, Robert J. "Government Intervention in the Inflation Process: The Econometrics of 'Self-Inflicted Wounds.'" The American Economic Review, Vol. 71, No. 2, (May 1981), pp. 288-294.
Abstract: This paper presents a single reduced-form inflation equation that can explain both the variance and acceleration of inflation during the 1970s.Inflation is explained by four sets of factors. Aggregate demand enters through the lagged output ratio and the growth rate of nominal GNP. The adjustment of inflation to changes in aggregate demand is limited by the role of inertia in the inflation process, expressed as the dependence of the rate of change of prices on its own past values. Two types of supply-side elements enter. Government intervention directly altered the price level during the Nixon control era, and in addition the government has aggravated the inflation problem by what have been called "self-inflicted wounds," including increases in the effective social security tax rate and effective minimum wage. Also there have been external supply shocks that are outside of the immediate control of the government, including changes in the relative prices of food and energy, changes in the growth rate of productivity, and changes in the foreign exchange value of the dollar. Considerable attention is given to alternative methods of estimating the impact of direct episodes of government intervention In the price-setting process, particularly during the Nixon controls. We find that such episodes have been futile. Because of their futility, these intervention episodes can be regarded as "self-inflicted wounds," like the payroll tax and minimum wage changes that normally are described by this term.
Handle: RePEc:nbr:nberwo:0550
Template-Type: ReDIF-Paper 1.0
Title: The Variance and Acceleration of Inflation in the 1970s: Alternative Explanatory Models and Methods
Author-Name: Jon Frye
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 0551
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0551
File-URL: http://www.nber.org/papers/w0551.pdf
File-Format: application/pdf
Abstract: The paper attributes the behavior of U.S. inflation to four sets of factors: aggregate demand shifts; government intervention in the form of the Nixon price controls and changes in the social security tax rate and the effective minimum wage; external supply shocks that include the impact of the changing relative prices of food and energy, the depreciation of the dollar, and the aggregate productivity slowdown: and inertia that makes the inflation rate depend partly on its own lagged values. Considerable attention is given to alternative methods of measuring the impact of government intervention, including the Nixon controls, Kennedy- Johnson guideposts, and the Carter pay standards. The results imply that direct intervention has been futile, since the guidelines and pay standards had no effect at all on inflation, while the Nixon-era controls had only a temporary impact that stabilized both the inflation rate and the level of real output. Some previous studies have had a problem in explaining why inflation was so rapid in 1974 and have been forced to conclude that the termination of the Nixon controls raised prices more than the imposition of controls had lowered them. We find that much of the explanation of rapid inflation in 1974 is the same as that in 1979-80: the shortfall of productivity growth below its ever-slowing trend rate of growth raised business costs and forced-extra price increases, and the depreciation of the dollar in 1971-73 and 1978 boosted the prices of exports and import substitutes, Rapid demand growth, the 1979-80 oil shock, the depreciation of the dollar, the productivity slow- down, and payroll tax increases all help to explain why the inflation rate accelerated between 1976 and 1980 by much more than was generally expected two or three years ago.
Handle: RePEc:nbr:nberwo:0551
Template-Type: ReDIF-Paper 1.0
Title: Wages, Nonwage Job Characteristics, and Labor Mobility
Author-Name: Ann P. Bartel
Note: LS
Number: 0552
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0552
File-URL: http://www.nber.org/papers/w0552.pdf
File-Format: application/pdf
Publication-Status: published as Bartel, Ann P. "Wages, Nonwage Job Characteristics, and Labor Mobility." Industrial and Labor Relations Review, Vol. 35, No. 4, (1982), pp. 578-589.
Abstract: This paper examines the impact of a set of nonwage job characteristics on the quit decisions of young and middle-aged men. The empirical analysis shows that young men are less likely to quit "physical" jobs or jobs with bad working conditions but are more likely to quit repetitive jobs. Older men, however, are more likely to quit jobs with physical requirements or bad physical conditions but are less likely to quit repetitious jobs. After they quit, young men experience an increase in the physical components of the job and a decline in repetitiveness while exactly the opposite holds for the older men. It was shown that the age differences in the impacts of the nonwage attributes could be explained by the fact that young men place greater weight on wage growth opportunities in the job and in the physically demanding jobs there are good opportunities for wage growth, while in the repetitive jobs, wage growth is slow. The finding that young workers want to move into jobs that are simultaneously perceived by older workers to be undesirable indicates how opportunities for mobility can improve an economy's productivity.
Handle: RePEc:nbr:nberwo:0552
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Income Taxes, and Owner-Occupied Housing
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 0553
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0553
File-URL: http://www.nber.org/papers/w0553.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James M. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach." Quarterly Journal of Economics, Vol. 99, No. 4, (November 1984), pp. 729-752.
Abstract: Owner-occupied housing receives favorable treatment under current tax law for several reasons. A homeowner's imputed rent is not taxed, and mortgage interest payments are tax deductible. Many past studies have analyzed the effects of these provisions. Inflation's importance in determining the implicit subsidy to owner-occupied housing has received less attention. Since home- owners can deduct their nominal mortgage payments, they do not bear the full cost of higher interest rates. They also receive essentially untaxed capital gains on their homes during periods of high inflation. The after-tax capital gains outweigh the higher after-tax interest payments, so inflation reduces the effective cost of homeownership. This paper develops a simple model to estimate the effect of higher expected inflation rates on the real price of houses and the equilibrium housing stock. Simulation results suggest that the inflation-tax interactions can have a substantial impact on the housing market. The increases in expected inflation during the 1970s could have accounted for as much as a thirty percent increase in real house prices. Over time, builders should respond to higher home prices and increase the amount of new construction. The persistence of current inflation rates could lead ultimately to a twenty percent increase in the housing stock.
Handle: RePEc:nbr:nberwo:0553
Template-Type: ReDIF-Paper 1.0
Title: Oil and the Dollar
Author-Name: Paul R. Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 0554
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0554
File-URL: http://www.nber.org/papers/w0554.pdf
File-Format: application/pdf
Publication-Status: published as Krugman, Paul. "Oil and the Dollar." Economic Interdependence Under Flexible Exchange Rates, edited by J. Bhandari and B. Putnam, pp. 179-190. Cambridge: Massachusetts Institute of Technology, 1983.
Abstract: This paper develops a simple theoretical model of the effect of an oil price increase on exchange rates. The model shows that the direction of this effect depends on a comparison of the direct balance of payments burden of the higher oil price with the indirect balance of payments benefits of OPEC spending and investment. In the short run, what matters is whether the U.S. share of world oil imports is more or less than its share of OPEC asset holdings; in the long run, whether its share of oil imports is more or less than its share of OPEC imports. Casual empiricism suggests that the initial effect and the long run effect will run in opposite directions: an oil price increase will initially lead to dollar appreciation, but eventually leads to dollar depreciation.
Handle: RePEc:nbr:nberwo:0554
Template-Type: ReDIF-Paper 1.0
Title: Inflation Stabilization and Capital Mobility
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 0555
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0555
File-URL: http://www.nber.org/papers/w0555.pdf
File-Format: application/pdf
Publication-Status: published as Open Economy Macroeconomics. New York: Basic Books, 1980.
Abstract: The paper investigates the process of inflation stabilization under conditions of international capital mobility. A first part looks at the traditional view of inflation and payments problems as a reflection of fiscal problems and deficit finance. From there the analysis proceeds to the macro-dynamics of inflation stabilization under alternative policy regimes. Inflation stabilization is studied in an open economy model of inflation and output determination with high but imperfect capital mobility. The policy regimes considered range from a monetary growth rule combined with constant real exchange rates to a prefixed path for the nominal exchange rate combined with active money for external balance. The analysis identifies three main problems in the stabilization effort. First and foremost, the problems of stubborn inflation. Because inflation does not collapse in the face of good intentions inflation stabilization requires a protracted reduction in the level of demand. The inflation process is modeled along two different lines, each emphasizing inertia. Second, the velocity problem which arises from the fact that a reduction in inflation and nominal interest rates raises real demand. This implies that in the adjustment process Inflation has to average less than money growth and, indeed, has to fall transitorily below the new rate of money creation. Third, the real exchange rate problem. This arises from the fact inflation stabilization reduces output and raises real interest rates, thus improving the balance of payments, creating a sterilization problem and/or putting upward pressure on the exchange rate. An initial real appreciation might be welcome as it provides help in the disinflation process, but it must be recognized that the benefit is transitory and must ultimately be repaid when the real exchange rate, with adverse inflation effects, returns to its equilibrium level.
Handle: RePEc:nbr:nberwo:0555
Template-Type: ReDIF-Paper 1.0
Title: Trade Adjustment Assistance under the U.S. Trade Act of 1974: An Analytical Examination and Worker Survey
Author-Name: J. David Richardson
Note: ITI IFM
Number: 0556
Creation-Date: 1980-09
Order-URL: http://www.nber.org/papers/w0556
File-URL: http://www.nber.org/papers/w0556.pdf
File-Format: application/pdf
Publication-Status: published as Bhagwati, Jagdish N. (ed.) Import Competition and Response. Chicago: University of Chicago Press, 1982.
Publication-Status: published as Trade Adjustment Assistance under the United States Trade Act of 1974: An Analytical Examination and Worker Survey, J. David Richardson. in Import Competition and Response, Bhagwati. 1982
Abstract: The goals of trade adjustment assistance (TAA) are to ease transition, compensate injury, and bleed political pressure for protectionism. Section I of the paper outlines the economic principles underlying these goals, and their shifting historical importance in the U.S. Sections II and III of the paper discuss the personal characteristics of a representative sample of worker recipients of TAA in 1976, and their labor market success in several subsequent years. Their experience is compared to that of a matched sample of workers receiving standard unemployment insurance (UI) . Comparisons in Section II focus on differences in mean characteristics and experience between the TAA and UT samples, controlling only for whether workers returned eventually to the firm from which they were initially separated. Comparisons in Section III focus on differences between the TAA and UI samples in their ability to recover lost employment and income, using a regression approach that in principle controls for all relevant variables, and not for just one. The most important conclusions of the research are the following. (1) The majority of TAA recipients in 1976 were not permanently displaced, but returned eventually to their former employers. A far greater proportion of UI recipients suffered permanent displacement. (2) Workers receiving TAA had higher incomes on average than their counterparts who received only UI. Their incomes furthermore fell less frequently below the poverty line. (3) TAA recipients nevertheless experienced more frequent and enduring transitional unemployment than did UI recipients, and did not return to their former income level as rapidly. (4) The reasons for conclusion (3) were unclear. It could not readily be explained by differences between the TAA and UI samples in permanence of layoff, generosity of program benefits, age, experience, industry, affluence, economic environment, socioeconomic status, or behavioral responses to any of these variables. Conclusions (1) and (2) are at variance with most previous work on TAA. Conclusion (3) is not, but the traditional explanations for it are those that conclusion (4) rules out.
Handle: RePEc:nbr:nberwo:0556
Template-Type: ReDIF-Paper 1.0
Title: Capital Mobility and Devaluation in an Optimizing Model with Rational Expectations
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0557
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0557
File-URL: http://www.nber.org/papers/w0557.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "Capital Mobility and Devaluation in an Optimizing Modelwith Rational Expectations." The American Economic Review, Vol. 71, No. 2,(May 1981), pp. 217-221.
Abstract: This paper examines the effects of ex-change-rate policies when individuals maximize lifetime utility on the basis of rational expectations about the future. The economy studied is one in which the authorities allow free mobility of capital under a crawling-peg exchange-rate regime. Many industrializing economies have adopted a crawling peg as a means of reconciling disparate inflation rates at home and abroad, and some recent efforts to use the rate of crawl as an instrument of anti-inflation policy have attracted considerable interest (see Carlos Diaz Alejandro). Tools similar to those employed here have been applied by Guillermo Calvo (forthcoming) to study this type of exchange-rate management under conditions of capital immobility.
Handle: RePEc:nbr:nberwo:0557
Template-Type: ReDIF-Paper 1.0
Title: Price Level Determinacy with an Interest Rate Policy Rule and Rational Expectations
Author-Name: Bennett T. McCallum
Note: EFG
Number: 0559
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0559
File-URL: http://www.nber.org/papers/w0559.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "Price Level Determinacy With an Interest Rate Policy Rule and Rational Expectations." Journal of Monetary Economics, Vol. 8, No. 3, (November 1981), pp. 319-329.
Abstract: This paper reconsiders a result obtained by Sargent and Wallace, namely, that price level indeterminacy obtains in their well-known model if the monetary authorities adopt a policy feedback rule for the interest rate rather than the money stock. Since the Federal Reserve seems often to have used the federal funds rate as its operating instrument, with the money stack determined by the quantity demanded, this result suggests that the Sargent-Wallace model -- as well as others incorporating rational expectations -- is inconsistent with U.S. experience. It is here shown, however, that the indeterminacy result vanishes if the interest rate rule is chosen so as to have some desired effect on the expected quantity of money demanded. This revised conclusion holds even if considerable weight is given, in the choice of a rule, to the aim of smoothing interest rate fluctuations.
Handle: RePEc:nbr:nberwo:0559
Template-Type: ReDIF-Paper 1.0
Title: The Importance of Lifetime Jobs in the U.S. Economy
Author-Name: Robert E. Hall
Note: EFG LS
Number: 0560
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0560
File-URL: http://www.nber.org/papers/w0560.pdf
File-Format: application/pdf
Publication-Status: published as Hall, Robert E. "The Importance of Lifetime Jobs in the U.S. Economy." The American Economic Review, Vol. 72, No. 4, (September 1982), pp. 716-724.
Abstract: Though the U.S. labor market is justly notorious for high turnover and consequent high unemployment, it also provides stable, near-lifetime employment to an important fraction of the labor force. This paper investigates patterns of job duration by age, race, and sex, with the following major conclusions: 1. The typical worker today is holding a job which has lasted or will last about eight years. Over a quarter of all workers are holding jobs which will last twenty years or more. Sixty percent hold jobs which will last five years or more. 2. The jobs held by middle-aged workers with more than ten years of tenure are extremely stable. Over the span of a decade, only twenty to thirty percent come to an end. 3. Among workers aged thirty and above, about forty percent are currently working in jobs which eventually will last twenty years or more. Three-quarters are in jobs which will last five years or more.4. The duration of employment among blacks is just as long as among whites. Even though the jobs held by blacks are worse in almost every other dimension, they are no more unstable than those held by whites. 5. Women's jobs are substantially shorter than men's, on the average. Only about a quarter of all women over the age of thirty are employed in jobs which will last over twenty years, whereas over half of men over thirty are holding these near-lifetime jobs.
Handle: RePEc:nbr:nberwo:0560
Template-Type: ReDIF-Paper 1.0
Title: Patents and R and D at the Firm Level: A First Look
Author-Name: Ariel Pakes
Author-Person: ppa20
Author-Name: Zvi Griliches
Note: PR
Number: 0561
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0561
File-URL: http://www.nber.org/papers/w0561.pdf
File-Format: application/pdf
Publication-Status: published as Pakes, Ariel and Zvi Griliches. "Patents and R and D at the Firm Level: A First Report." Economics Letter, No. 5, (1980), pp. 377-381.
Publication-Status: published as Pakes, Ariel and Zvi Griliches. "Patents and R and D at the Firm Level: A First Look." R and D Patents & Productivity, edited by Zvi Griliches. Chicago: University of Chicago Press, (1984). pp. 55-72.
Publication-Status: published as Patents and R&D at the Firm Level: A First Look, Ariel Pakes, Zvi Griliches. in R&D, Patents, and Productivity, Griliches. 1984
Abstract: This is a first report from a larger study of inventive activity of U.S. firms and some of its consequences. It reports on the relationship between patents applied for and R&D expenditures based on data for 121 large corporations covering the 1968-1975 period. The main conclusion is that there is a statistically significant relationship between a firm's R&D expenditures and the number of patents it applied for and receives. This relationship is very strong in the cross-sectional dimension (squared partial correlations of .8 or higher). It is weaker in the within-firm time-series dimension (partial r[squared]'s of .2 to .3). Attempts to fit an unconstrained distributed lag relationship yields only significant coefficients for the first and last terms in the lag structure, indicating both a quick response of patenting to changes in R&D and a small but persistent effect of past R&D, the truncation of this long lag being reflected in a significant coefficient for R&D lagged five years. In spite of these difficulties, patent counts do measure something systematic and hence are worthy of further study.
Handle: RePEc:nbr:nberwo:0561
Template-Type: ReDIF-Paper 1.0
Title: Reconsidering the Work Disincentive Effects of Social Security
Author-Name: Alan S. Blinder
Author-Person: pbl41
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Donald E. Wise
Note: EFG
Number: 0562
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0562
File-URL: http://www.nber.org/papers/w0562.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S.; Gordon, Roger H. and Wise, Donald E. "Reconsidering the Work Disincentive Effects of Social Security." National Tax Journal, Vol. XX XIII, No. 4, (December 1980), pp. 431-442.
Abstract: This paper shows that, contrary to commonly held views, the provisions of the social security law actually provide strong work incentives for older men. The reason is that, for most workers, higher current earnings lead to higher future social security benefits. These incentives have been particularly strong for workers under 65 years of age and, although they will be reduced somewhat when the 1977 amendments to the social security law become fully effective, they will remain substantial. The findings raise serious questions about recent econometric work attributing the decline in labor force participation rates of older men to the social security system.
Handle: RePEc:nbr:nberwo:0562
Template-Type: ReDIF-Paper 1.0
Title: Alternative Tests of Rational Expectations Models: The Case of the Term Structure
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 0563
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0563
File-URL: http://www.nber.org/papers/w0563.pdf
File-Format: application/pdf
Publication-Status: published as Shiller, Robert J. "Alternative Tests of Rational Expectations Models: The Case of the Term Structure." Journal of Econometrics, Vol. 16, (1981), pp. 71-87.
Abstract: A linearized version of the rational expectations models of the term structure is put forth in terms of a complete vector of equally spaced observations along the yield curve. A data series on intermediate maturity yields which meets the specifications of the model is presented. The model is tested against a specific and easily interpreted alternative. Earlier studies of rational expectations models, which used "volatility tests" or "likelihood ratio tests," are discussed.
Handle: RePEc:nbr:nberwo:0563
Template-Type: ReDIF-Paper 1.0
Title: The Determinants of the Variability of Stock Market Prices
Author-Name: Sanford J. Grossman
Author-Person: pgr108
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 0564
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0564
File-URL: http://www.nber.org/papers/w0564.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Sanford J. and Shiller, Robert J. "The Determinants of the Variability of Stock Market Prices." The American Economic Review, Vol. 71, No. 2 , (May 1981), pp. 222-227.
Abstract: The most familiar interpretation for the large and unpredictable swings that characterize common stock price indices is that price changes represent the efficient discounting of "new information" It is remarkable given the popularity of this interpretation that it has never been established what this information is about. Recent work by Shiller, and Stephen LeRoy and Richard Porter, has shown evidence that the variability of stock price indices cannot be accounted for by information regarding future dividends since dividends just do not seem to vary enough to justify the price movement. These studies assume a constant discount factor. In this paper, we consider whether the variability of stock prices can be attributed to information regarding discount factors (i.e., real interest rates), which are in turn related to current and future levels of economic activity. The appropriate discount factor to be applied to dividends which are received k years from today is the marginal rate of substitution between consumption today and consumption k periods from today, We use historical data on per capita consumption from 1890-1979 to estimate the realized value of these marginal rates of substitution. Theoretically, as LeRoy and C. J. La Civita have also noted independently of us, consumption variability may induce stock price variability whose magnitude depends on the degree of risk aversion.
Handle: RePEc:nbr:nberwo:0564
Template-Type: ReDIF-Paper 1.0
Title: The Use of Volatility Measures in Assessing Market Efficiency
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 0565
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0565
File-URL: http://www.nber.org/papers/w0565.pdf
File-Format: application/pdf
Publication-Status: published as Shiller, Robert J. "The Use of Volatility Measures in Assessing Market Efficiency." The Journal of Finance, Vol. XXXVI, No. 2, (May 1981), pp. 291-304 .
Abstract: My initial motivation for considering volatility measures in the efficient markets models was to clarify the basic smoothing properties of the models to allow an understanding of the assumptions which are implicit in the notion of market efficiency. The efficient markets models, which are described in section II below ,relate a price today to the expected present value of a path of future variables. Since present values are long weighted moving averages, it would seem that price data should be very stable and smooth. These impressions can be formalized in terms of inequalities describing certain variances (section III). The results ought to be of interest whether or not the data satisfy these inequalities, and the procedures ought not to be regarded as just "another test" of market efficiency. Our confidence of our understanding of empirical phenomena is enhanced when we learn how such an obvious property of data as its "smoothness" relates to the model, and to alternative models (section IV below).On further examination of the volatility inequalities, it became clear that the inequalities may also suggest formal tests of market efficiency that have distinct advantages over conventional tests. These advantages take the form of greater power in certain circumstances of robustness to data errors such as misalignment and of simplicity and understandability. An interpretation of volatility tests versus regression tests in terms of the likelihood principle is offered in section V.
Handle: RePEc:nbr:nberwo:0565
Template-Type: ReDIF-Paper 1.0
Title: Asset Prices, Substitution Effects, and the Impact of Changes in Asset Stocks
Author-Name: Carl E. Walsh
Author-Person: pwa23
Note: ME
Number: 0566
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0566
File-URL: http://www.nber.org/papers/w0566.pdf
File-Format: application/pdf
Publication-Status: published as Walsh, Carl E. "Asset Prices, Asset Stocks and Rational Expectations." Journal of Monetary Economics, Vol. 11, No. 3, (May 1983), pp. 337-349.
Abstract: The standard result in macroeconomic models is that an increase in the stock of government debt has an ambiguous effect on aggregate demand. Models which have derived this result have assumed that all assets are gross substitutes. Some recent work within the framework of mean-variance portfolio models, however, seems to imply that the assumption that all assets are gross substitutes is sufficient to determine whether an increase in government debt is expansionary or contractionary. This apparent inconsistency is resolved by showing that gross substitutability is sufficient to sign the impact of a change in government debt only when money is riskless. To carry out the analysis, portfolio choice and equilibrium asset prices are characterized in a new way through the use of a distance function.
Handle: RePEc:nbr:nberwo:0566
Template-Type: ReDIF-Paper 1.0
Title: Two Notes on Exchange Rate Rules and on the Real Value of External Debt
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 0567
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0567
File-URL: http://www.nber.org/papers/w0567.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "PPP Exchange Rate Rules and Macroeconomic Stability." Journal of Political Economy, Vol. 90, No. 1 (February 1982), pp. 158-165.
Abstract: This report presents two unrelated, short papers on exchange rate rules and on the real value of the external debt. The paper on exchange rate policy uses the Taylor model of overlapping, long term wage contracts to ask whether accommodating or PPP oriented exchange rate policies tend to stabilize output. In earlier work I had shown that exchange rate indexing, while destabilizing prices enhances the stability of output. The result is qualified hereby showing that the exchange rate not only affects aggregate demand directly but operates also, through the cost of imported intermediates, on the price level. It is shown that unless monetary policy is sufficiently accommodating this latter effect may dominate with the consequence that increased exchange rate indexation reduces output stability .The paper on the real value of external debt poses the question how to integrate external debt holdings in the traditional framework used to evaluate the effects on real income of changes in world prices. It is shown that integrating debt service liabilities in a comprehensive income measure makes real disposable income equal to the value of output less the real value of real interest payments on the external debt. Furthermore, with the CPI being the appropriate deflator for foreign debt, a rise in export prices raises income in proportion to exports while a rise in import prices lowers real income in proportion to Imports. The proper accounting of debt in a comprehensive income framework, noting the intertemporal budget constraints, thus restores the conventional treatment of the income effects of price changes.
Handle: RePEc:nbr:nberwo:0567
Template-Type: ReDIF-Paper 1.0
Title: Private Pensions and Inflation
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0568
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0568
File-URL: http://www.nber.org/papers/w0568.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Private Pensions and Inflation." The American Economic Review, Vol. 71, No. 2, (May 1981), pp. 424-428.
Abstract: Much of the recent discussion about the relation between pensions and inflation has emphasized the adverse impact that the un-expected rise in inflation has had on pension recipients and on the performance of pension funds. In contrast, the present paper focuses on the way that pensions are likely to evolve in response to the expectation of continued inflation in the future and to the uncertainty about the rate of inflation. The unfortunate effects that occurred when inflation caught pensioners and pension fund managers by surprise should not be confused with an inability to adjust to future conditions, even uncertain future conditions. As I shall explain, the persistence of a high rate of inflation is likely to increase the share of total saving that goes into private pensions. Since the tax treatment of pension contributions allows individuals to save in this way for retirement on the same terms that they would under a consumption tax,' the existence of the private pension system may be one of a few things that prevents the national saving rate from going even lower in the current inflationary environment.
Handle: RePEc:nbr:nberwo:0568
Template-Type: ReDIF-Paper 1.0
Title: The Collapse of Purchasing Power Parities during the 1970s
Author-Name: Jacob A. Frenkel
Note: ITI EFG IFM
Number: 0569
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0569
File-URL: http://www.nber.org/papers/w0569.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. "Collapse of Purchasing Power Parities during the 1970s." European Economic Review, Vol. XVI, No. 1, (May 1981), pp. 145-165.
Publication-Status: published as The Collapse of Purchasing Power Parities during the 1970s, Jacob A. Frenkel. in International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, de Ménil and Gordon. 1991
Abstract: This paper reviews and analyzes the empirical record of exchange rates and prices during the 1970's and the analysis is based on the experience of the Dollar/Pound, the Dollar/French Franc and the Dollar/DM exchange rates. Section 2 presents the evidence on PPP during the 1970's and contrasts it with the evidence from the 1920's -- a period during which the doctrine held up reasonably well. This analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks, and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy. The evidence regarding deviations from purchasing power parities is also relevant for determining whether there is a case for managed float. Section 3 attempts to explain what went wrong with the performance of the doctrine during the 1970's. It examines the hypothesis that the departures from PPP are a U.S. phenomenon, as well as the hypothesis that the departures are due to large changes in inter-sectoral relative price changes within the various economies. Given that the predictions of the simple versions of PPP do not hold up, section 4 proceeds in examining the question of whether national price levels have been independent of each other. Section 5 addresses the question of whether exchange rates and national price levels are comparable and whether in principle one should have expected them to be closely linked to each other. The main point that is being emphasized is that there is an important intrinsic difference between exchange rates and national price levels which stems from the basset market theory' of exchange rate determination. This theory implies that the exchange rate, like the prices of other assets, is much more sensitive to expectations concerning future events than national price levels and as a result, in periods which are dominated by news' which alter expectations, exchange rates are likely to be much more volatile than national price levels and departures from PPP are likely to be the rule rather than the exception. Finally, section 6 concludes the paper with some policy implications.
Handle: RePEc:nbr:nberwo:0569
Template-Type: ReDIF-Paper 1.0
Title: Wage and Employment Determinants under Trade Unionism: The InternationalTypographical Union
Author-Name: James N. Dertouzos
Author-Name: John H. Pencavel
Author-Person: ppe335
Note: LS
Number: 0570
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0570
File-URL: http://www.nber.org/papers/w0570.pdf
File-Format: application/pdf
Publication-Status: published as Dertouzos, James N. and Pencavel, John H. "Wage and Employment Determination under Trade Unionism: The International Typographical Union." Journal of Political Economy, Vol. 89, No. 6, (December, 1981), pp. 1162-1181.
Abstract: This paper represents the first empirical application of a model of trade union behavior that has been discussed in the literature for over thirty years. The wages and employment o typographers are examined to see whether they can be usefully characterized as the outcome of a process by which the union maximizes an objective function containing wages and employment and is constrained by a trade-off between these two variables as represented by the employer's labor demand function. Our functional form assumptions permit investigation of some familiar special cases of union behavior. We find the parameter implications of both the wage bill maximization hypothesis and the rent maximization hypothesis to provide inferior explanations of the movement of wages and employment of these workers compared with our more general formulation.
Handle: RePEc:nbr:nberwo:0570
Template-Type: ReDIF-Paper 1.0
Title: International Trade, Indebtedness, and Welfare Repercussions among Supply-Constrained Economies under Floating Exchange Rates
Author-Name: Bryce Hool
Author-Name: J. David Richardson
Note: ITI IFM
Number: 0571
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0571
File-URL: http://www.nber.org/papers/w0571.pdf
File-Format: application/pdf
Publication-Status: published as Hool, Bryce and Richardson, J. David. "International Trade, Indebtedness, and Welfare Repercussions among Supply-Constrained Economies under Floating Exchange Rates." Economic Interdependence and Flexible Exchange Rates, ed. J.S. Bhandari and B.H. Putnam. Cambridge, MA: M.I.T. Press, 1983.
Abstract: Almost all developed economies at some time during the 1970s seemed supply-constrained. Even much of measured excess capacity was arguably redundant due to energy price shocks, environmental policy, and other structural flux of the 1970s. Little analytical work has been carried out on the macroeconomics of open economies under such supply constraints. This paper attempts a beginning. Its focus is on the international transmission of various macroeconomic shocks, and on their implications for the current account, capital account, and exchange rate. The paper captures both the foreign repercussions and the terms-of-trade effects of various shocks. Conclusions are based on an analytical model that assigns behavior to each of two regions relating to one nontradeable input, one tradeable output, and one tradeable financial asset. International exchange between the two regions is characterized by sequential "temporary equilibria," each consistent with economically and institutionally constrained optimization, yet each simultaneously consistent with failure of output and input markets to clear. International transactions take place in capital markets and through a foreign exchange market that do clear continuously through flexible exchange rates. The abstract reduced form of the model is derived, then applied empirically, using parameters and initial values that incorporate data and consensus beliefs about the U.S. and the rest of the world in the 1970s. The most important conclusions of the exercise are:(1) Floating exchange rates fail to insulate either supply-constrained economy from unanticipated shocks in the other. International transmission is direct -- the impacts on the two regions of any shock have the same sign.(2)Exchange rates and the terms of trade between the supply-constrained economies are moderately sensitive to incomes policies and changes in technology/productivity trends (elasticities of 0.5 to 1.5 in absolute value) and relatively insensitive to fiscal policy and distributionally neutral wage-price guidelines. Wage-favoring incomes policies, liquidity-financed fiscal expansion, tighter wage-price guidelines, and slackening of technology/productivity growth all cause depreciation of the domestic currency and deterioration of the terms of trade.(3)These same shocks all promote "internationalization" of commodity and financial markets. Export volume, import volume, claims on foreigners, and indebtedness to them all grow as a result, sometimes by significant amounts (elasticities as high as 1.5 in response to each shock taken independently of the others, and larger elasticities in response to combinations of shocks).
Handle: RePEc:nbr:nberwo:0571
Template-Type: ReDIF-Paper 1.0
Title: Accumulation and Growth in a Two-Country Model: A Simulation Approach
Author-Name: David Lipton
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 0572
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0572
File-URL: http://www.nber.org/papers/w0572.pdf
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Publication-Status: published as with D. Lipton, Journal of International Economics, 15(1/2), 135-159 August 1983
Publication-Status: published as Lipton, David and Jeffrey Sachs. "Accumulation and Growth in a Two-Country Model: A Simulation Approach." Journal of Economic Literature, Vol. 22, No. 1, (March 1984).
Publication-Status: published as David Lipton & Jeffrey Sachs, 1983. "Accumulation and growth in a two-country model," Journal of International Economics, vol 15(1-2), pages 135-159.
Abstract: This paper analyzes saving and capital accumulation in a two-good growth model of two market economies in which economic agents optimize with perfect foresight. The goal is to present a model in which short-run dynamics and the steady-state are soundly integrated. We stress the importance of asset markets as the linkage that transmits disturbances both internationally and intertemporally. While many components of the model described below can be found in the literature on optimal consumption, investment and international growth models, we provide a consistent synthesis. Our framework permits the analysis of structural adjustment in the global economy, and the dynamic effects of a wide range of public policies.
Handle: RePEc:nbr:nberwo:0572
Template-Type: ReDIF-Paper 1.0
Title: Consistent Simple Sum Aggregation over Assets
Author-Name: David S. Jones
Note: ME
Number: 0573
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0573
File-URL: http://www.nber.org/papers/w0573.pdf
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Abstract: This paper discusses the issue of consistent simple sum aggregation over assets within the context of expected utility maximizing investors. The first part of the paper extends the Hicks and Leontief aggregation theorems of consumer choice theory to the portfolio choice problem. Next, necessary and sufficient conditions for consistent simple sum aggregation are derived for Nerton's (1973) continuous-time trading model of investor behavior. Results relating to the construction of consistent rate of return indices for simple sum composite assets are also presented.
Handle: RePEc:nbr:nberwo:0573
Template-Type: ReDIF-Paper 1.0
Title: Symmetric Substitution Matrices in Asset Demand Systsems
Author-Name: David S. Jones
Note: ME
Number: 0574
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0574
File-URL: http://www.nber.org/papers/w0574.pdf
File-Format: application/pdf
Abstract: In this paper, necessary and sufficient conditions for an asset substitution matrix to be symmetric for all distributions of rates of return are derived. It is found that symmetry in this context is essentially equivalent to the proposition that the von Neumann-Morgenstern utility function displays either constant absolute or constant relative risk aversion, depending upon whether the substitution matrix is defined in terms of arithmetic or geometric rates of return.
Handle: RePEc:nbr:nberwo:0574
Template-Type: ReDIF-Paper 1.0
Title: Monetary and Fiscal Policies in an Open Economy
Author-Name: Jacob A. Frenkel
Author-Name: Michael L. Mussa
Note: ITI EFG IFM
Number: 0575
Creation-Date: 1980-10
Order-URL: http://www.nber.org/papers/w0575
File-URL: http://www.nber.org/papers/w0575.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. and Mussa, Michael L. "Monetary and Fiscal Policies in an Open Economy." The American Economic Review, Vol. 71, No. 2, (May 1981), pp. 253-258.
Abstract: The central theme of this paper is that international linkages between national economies influence, in fundamentally important ways, the effectiveness and proper conduct of national macroeconomic policies. Specifically, our purpose is to summarize the implications for the conduct of macroeconomic policies in open economies of both the traditional approach to open economy macroeconomics (as developed largely by James Meade, Robert Mundell, and J. Marcus Fleming) and of more recent developments. Our discussion is organized around three key linkages between national economies: through commodity trade; through capital mobility; and through exchange of national monies. These linkages have important implications concerning the effects of macroeconomic policies in open economies that differ from the effects of such policies in closed economies. Recent developments in the theory of macroeconomic policy have established conditions for the effectiveness of policies in influencing output and employment which emphasize the distinction between anticipated and unanticipated policy actions, the importance of incomplete information, and the consequences of contracts that fix nominal wages and prices over finite intervals. In this paper, we shall not analyze how these conditions are modified in an open economy. However, since our concern is with macro-economic policy, a principal objective of which is to influence output and employment, we shall assume that requisite conditions for such influence are satisfied.
Handle: RePEc:nbr:nberwo:0575
Template-Type: ReDIF-Paper 1.0
Title: Taxation and Corporation Finance
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Burton G. Malkiel
Note: PE
Number: 0576
Creation-Date: 1980-11
Order-URL: http://www.nber.org/papers/w0576
File-URL: http://www.nber.org/papers/w0576.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Roger H. and Malkiel, Burton G. "Corporation Finance." How Taxes Affect Economic Behavior, edited by Henry J. Aaron and Joseph A. Pechman, pp. 131-192. Washington, D.C.: The Brookings Institution, 1981.
Abstract: This paper analyzes the effects of the federal tax structure on corporate financial and investment behavior. We first develop a model of corporate behavior given taxes, taking into account both uncertainty and costs of bankruptcy. Simpler models abstracting from bankruptcy costs had clear counterfactual implications. The forecasts from our model proved to be consistent with both the observed cross-sectional variation in debt-equity ratios and the time series pattern of debt-equity ratios (data that were constructed in the paper). We then attempted to measure the efficiency costs created by corporate tax distortions as implied by the model. The forecasted efficiency cost of the distortion favoring debt finance seemed to be quite large, while the tax distortion affecting investment seemed to be less important than others have claimed. The paper concludes with a study of the efficiency implications of various proposed corporate tax changes.
Handle: RePEc:nbr:nberwo:0576
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Tax Rules, and Investment: Some Econometric Evidence
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0577
Creation-Date: 1980-11
Order-URL: http://www.nber.org/papers/w0577
File-URL: http://www.nber.org/papers/w0577.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Inflation, Tax Rules, and Investment: Some Econometric Evidence." Econometrica, Vol. 50, No. 4 (July 1982), pp. 825-862.
Publication-Status: published as Inflation, Tax Rules, and Investment: Some Econometric Evidence, Martin Feldstein. in Inflation, Tax Rules, and Capital Formation, Feldstein. 1983
Abstract: This paper presents econometric evidence on the effect of tax incentives on business Investment in the United States in the period from 1953 through1978. The analysis emphasizes that the Interaction of inflation and existing tax rules has contributed substantially to the decline of business investment since the late 1960's.Because the investment process is far too complex for any simple econometric model to be convincing, I have estimated three quite different models of investment behavior. The strength of the empirical evidence rests on the fact that all three specifications support the same conclusion. More generally, the analysis and evidence show that theoretical models of macroeconomic equilibrium should specify explicitly the role of distortionary taxes, especially taxes on capital income. The failure to include such tax rules can have dramatic and misleading effects on the qualitative as well as the quantitative properties of macroeconomic theories. This paper was presented as the Fisher-Shultz Lecture at the Fourth World Congress of the Econometric Society, 29 August 1980, in Aix-en-Province.
Handle: RePEc:nbr:nberwo:0577
Template-Type: ReDIF-Paper 1.0
Title: The Reservation Wage of Unemployed Persons in the Federal Republic of Germany: Theory and Empirical Tests
Author-Name: Wolfgang Franz
Note: LS
Number: 0578
Creation-Date: 1980-11
Order-URL: http://www.nber.org/papers/w0578
File-URL: http://www.nber.org/papers/w0578.pdf
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Publication-Status: published as Franz, W. and K. Konig. "The Nature And Causes Of Unemployment In The Federal Republic Of Germany Since The 1970s: An Empirical Investigation," Economica, 1986, v53(210S), S219-S244
Abstract: This study examines the determinants of the reservation wage of unemployed persons in the Federal Republic of Germany in 1976. The theoretical section presents the derivation of an optimal reservation wage and shows the source of an ambiguity of some explanatory variables. The data basis are unemployed persons leaving the unemployment register within a given sample week. For a subset of them, we know their reservation wage and a set of personal characteristics. Other variables, such as the wage offer distribution and demand side variables, are obtained by employing other data. Methodological problems, such as as a sample selection bias, are taken into account. As a result, individual characteristics and the wage offer distribution are dominant causes of the reservation wage, but demand side variables and the entitlement to unemployment compensation play minor roles.
Handle: RePEc:nbr:nberwo:0578
Template-Type: ReDIF-Paper 1.0
Title: Social Security, Induced Retirement, and Aggregate Capital Accumulation:A Correction and Updating
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0579
Creation-Date: 1980-11
Order-URL: http://www.nber.org/papers/w0579
File-URL: http://www.nber.org/papers/w0579.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Social Security and Private Saving: Reply." Journal of Political Economy, Vol. 90, No. 3 (June, 1982), pp.630-642.
Abstract: In a 1974 paper in the Journal of Political Economy I discussed the theoretical ambiguity of the effect of social security on private saving and presented statistical evidence that social security does on balance depress saving. Recently, an error was detected in the computer program that was used to construct the "social security wealth" variable. I have now corrected that error and re estimated the original consumer expenditure equation. I have also updated the analysis by including the five years of additional data that have become available since the original study was completed. The new estimates, presented in the current note, continue to indicate that social security substantially depresses private saving. The point estimates of this effect are somewhat lower than before but nevertheless simply that social security depresses saving by about fifty percent of its current value. The estimated reduction in saving is more than two-thirds of the concurrent "contributions" of employees and employers to the social security retirement and survivors fund.
Handle: RePEc:nbr:nberwo:0579
Template-Type: ReDIF-Paper 1.0
Title: The Role of Economic Policy after the New Classical Macroeconomics
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ITI IFM
Number: 0580
Creation-Date: 1980-11
Order-URL: http://www.nber.org/papers/w0580
File-URL: http://www.nber.org/papers/w0580.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. "The Macroeconomics Of Dr Pangloss: Critical Survey Of The New Classical Macroeconomics," Economic Journal, 1980, v90(357), 34-50.
Publication-Status: published as Buiter, Willem H. "The Role of Economic Policy after the New Classical Macroeconomics." Macroeconomic Analysis, edited by D. Currie, R. Nobay, and D.A . Peel, London, (1981), pp. 233-295.
Abstract: The paper considers the implications of the rational expectations New Classical Macroeconomics revolution for the 'rules versus discretion' debate. The following issues are covered: 1) The ineffectiveness of anticipated stabilization policy, 2) Non-clausal models and rational expectations, 3) Optimal control in non-causal models -- the inconsistency of optimal plans. I established the robustness of the proposition that contingent (closed-loop or feedback) rules dominate fixed (open-loop)rules. The optimal contingent rule in non-causal models -- the innovation or disturbance-contingent feedback rule -- is quite different from the state-contingent feedback rule derived by dynamic stochastic programming.
Handle: RePEc:nbr:nberwo:0580
Template-Type: ReDIF-Paper 1.0
Title: International Effects on the U.S. Capital Market
Author-Name: David G. Hartman
Note: ME CF
Number: 0581
Creation-Date: 1980-11
Order-URL: http://www.nber.org/papers/w0581
File-URL: http://www.nber.org/papers/w0581.pdf
File-Format: application/pdf
Abstract: This paper presents evidence bearing on the question of international influences on the U.S. capital market. Both the examination of relative magnitudes of international asset holdings and the estimation of a simple partial-equilibrium capital market model indicate that such influences are potentially quite important. In particular, we find that the effects on international flows on the long-term new-issue corporate bond rate in the U.S. are highly significant. Since this interest rate is often seen as crucial in domestic investment decisions, the paper provides reason to believe that investment in the U.S. is significantly influenced by international capital transactions.
Handle: RePEc:nbr:nberwo:0581
Template-Type: ReDIF-Paper 1.0
Title: Energy and Growth under Flexible Exchange Rates: A Simulation Study
Author-Name: Jeffrey D. Sachs
Note: ITI IFM EEE
Number: 0582
Creation-Date: 1980-11
Order-URL: http://www.nber.org/papers/w0582
File-URL: http://www.nber.org/papers/w0582.pdf
File-Format: application/pdf
Publication-Status: published as Sachs, Jeffrey. "Energy and Growth under Flexible Exchange Rates: A Simulation Study." Economic Interdependence and Flexible Exchange Rates, edited by J. S. Bhandari and B. H. Putnam, pp. 191-220. Cambridge: MIT Press, 1983.
Abstract: This paper offers a theoretical framework for studying the inter-actions of energy prices and economic growth. The incorporation of energy prices and quantities in a macroeconomic setting focuses on (1)the aggregate technology; (2) the interdependence of energy producers and consumers in the world economy; and (3) the asset markets as the channel through which energy price changes affect output and capital accumulation. While several existing studies consider aspects of these issues, none provides a synthesis. In this analysis, a theoretically sound model of an oil price increase in the world economy is presented, carefully treating topics (1) - (3).The model is solved with computer simulation, as it is far too complex to yield analytical solutions.
Handle: RePEc:nbr:nberwo:0582
Template-Type: ReDIF-Paper 1.0
Title: Modeling Alternative Solutions to the Long-Run Social Security Funding Problem
Author-Name: Michael J. Boskin
Author-Name: Marcy Avrin
Author-Name: Kenneth Cone
Note: PE
Number: 0583
Creation-Date: 1980-11
Order-URL: http://www.nber.org/papers/w0583
File-URL: http://www.nber.org/papers/w0583.pdf
File-Format: application/pdf
Publication-Status: published as Boskin, Michael J., Marcy Avrin and Kenneth Cone. "Modeling Alternative Solutions to the Long-Run Social Security Funding Problem." Chapter 7 in Behavioral Simulation Methods in Tax Policy Analysis, ed. Martin Feldstein. Chicago: UCP, (1983), pp. 211-246.
Publication-Status: published as Modeling Alternative Solutions to the Long-Run Social Security Funding Problem, Michael J. Boskin, Marcy Avrin, Kenneth Cone. in Behavioral Simulation Methods in Tax Policy Analysis, Feldstein. 1983
Abstract: This paper develops a Social Security simulation model. Combining data from the 1975 Social Security Exact Match File, which merges individual records from the1975 Current Population Survey with OASI earnings and benefit records, with a model of income growth, retirement and labor force participation patterns, life expectancy, age-earnings profiles, etc., we present estimates of a variety of types of information concerning the long-run financial status of the OASI system. Estimates are developed for current legislation and a variety of possible reforms of the aggregate real present value of benefits, taxes and deficit; and expected benefits, taxes and net transfers for different population groups by age and income. Among the more important findings of the first in a series of analyses using the simulation model are the following: 1. Under OASI alone, the long-run deficit amounts to $632 billion in 1977dollars. This is roughly the size of the regular privately held national debt. This occurs primarily because of the impending large increase in the ratio of retirees to workers early in the next century and in spite of already legislated impending large payroll tax increases. 2. The long-run deficit is quite sensitive to assumptions concerning productivity growth and the length of the retirement period. For example, a one year increase in the latter (perhaps due to a gain in life expectancy) increases the real present value of the deficit by about$250 billion.3. Current retirees and older workers will be receiving a large multiple of taxes paid plus interest. Younger workers ultimately will not even break even. The overall pattern of benefits, taxes and transfers will depend heavily upon the time pattern of responses to the deficit and the form the response takes.4. Several types of options exist for eliminating the deficit and even for freeing up resources for other purposes. Delaying retirement by three years on average relative to current patterns will eliminate the deficit (mainly reducing total benefits paid); and separating the transfer and annuity components of the system also offers potentially large deficit reductions (but implies part of the sum will be used to finance an expanded transfer payment system from general revenues).
Handle: RePEc:nbr:nberwo:0583
Template-Type: ReDIF-Paper 1.0
Title: Self-Employment and Labor Force Participation of Older Males (Revised)
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: LS
Number: 0584
Creation-Date: 1980-11
Order-URL: http://www.nber.org/papers/w0584
File-URL: http://www.nber.org/papers/w0584.pdf
File-Format: application/pdf
Publication-Status: published as Fuchs, Victor R. "Self-Employment and Labor Force Participation of Older Males," The Journal of Human Resources, Vol. XVII, No. 3 (Summer 1982), pp. 3 39-357.
Abstract: This longitudinal analysis of the labor market behavior of older, urban white males in 1969, 1971, and 1973 focuses on changes from wage-and-salary to self-employment and changes from working to non-working status. In each two-year transition approximately four percent of wage-and-salary workers switched to self-employment. They were primarily men who were previously self-employed or who were in wage-and-salary occupations with characteristics similar to self-employment, e.g., managers and salesmen. For a blue collar worker employed forty hours per week the predicted probability of switching was close to zero. Controlling for a large number of economic and demographic variables, the self-employed were significantly more likely to continue to work, partly by reducing their workweek to under 35 hours. Other significant predictors of continuing to work are good health, years of schooling, white collar occupation, no expectation of a private pension, and a workweek longer than fifty hours. Age is also important, especially at the eligibility ages set by social security.
Handle: RePEc:nbr:nberwo:0584
Template-Type: ReDIF-Paper 1.0
Title: International Transmission under Pegged and Floating Exchange Rates: An Empirical Comparison
Author-Name: Michael R. Darby
Note: ITI IFM
Number: 0585
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0585
File-URL: http://www.nber.org/papers/w0585.pdf
File-Format: application/pdf
Publication-Status: published as Darby, Michael R. "International Transmission under Pegged and Floating Exchange Rates: An Empirical Comparison." Economic Interdependence and Flexible Exchange Rates, edited by J.S. Bhandari and B.H. Putnam. Cambridge, MA: M.I.T. Press, (1983), pp. 427-471.
Abstract: This paper continues the investigation of the surprisingly slow and weak international transmission of inflation indicated by the Mark III International Transmission Model. The Mark IV Simulation Model is presented. This is a simplified version of the Mark III Model which retains the transmission channels found significant in the Mark III and is suitable for simulation experiments. Separate versions of the Mark IV model describe the pegged and (dirty) floating exchange regimes. In order to be consistent with the stochastic processes governing policy variables in the sample period, policy experiments involved one percentage point increases in the disturbances of those processes for a single quarter with the behavior thereafter governed by the estimated process. U.S. money shocks were immediately mimicked (in accord with the monetary approach) in Germany but only with a lag (specie-flow mechanism) in the Netherlands. Canada and the U.K. showed only Keynesian absorption transmission. Weaker transmission is generally found under floating exchange rates with a J-curve important in the dynamics. No significant international transmission was found in experiments involving money shocks in the U.K. and Germany and real government spending shocks in the U.S., U.K., and Germany. The money shock experiments indicated short-run money control in U.K. and Germany, although less under pegged than floating rates.
Handle: RePEc:nbr:nberwo:0585
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Federal Debt Management Policy on Corporate Bond and Equity Yields
Author-Name: V. Vance Roley
Note: ME CF
Number: 0586
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0586
File-URL: http://www.nber.org/papers/w0586.pdf
File-Format: application/pdf
Publication-Status: published as Roley, V. Vance. "The Effect of Federal Debt-Management Policy on Corporate Bond and Equity Yields," Quarterly Journal of Economics, Vol. 97, No. 4, ( November 1982), pp. 645-668.
Abstract: In theory, Federal debt management policy potentially plays an important role in determining Treasury and private security yields. However, empirical studies have been unable to detect any significant effects from Federal debt management. In large part the insignificance of relative asset supply effects associated with Federal debt management policy may result from the use of unrestricted reduced- form models of interest rate determination. Using a disaggregated structural model of the markets for corporate bonds, equities, and four distinct maturity classes of Treasury securities. Federal debt management policy is found to significantly affect Treasury and private security yields. Furthermore, the yields on corporate bonds and equities are influenced disproportionately.
Handle: RePEc:nbr:nberwo:0586
Template-Type: ReDIF-Paper 1.0
Title: Effects of Shifting Saving Patterns on Interest Rates and Economic Activity
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0587
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0587
File-URL: http://www.nber.org/papers/w0587.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Effects of Shifting Saving Patterns on Interest Rates and Economic Activity." The Journal of Finance, Vol. 37, No. 1, (March 1982), pp. 37-62.
Abstract: Individuals in the United States consistently do most of their saving through financial intermediaries, but over time there have been and continue to be major shifts in people's reliance on specific kinds of intermediary institutions. In recent years, for example, individual savers have relied progressively more on pensions and thrift institutions and progressively less on life insurance companies. Moreover, legislative and regulatory actions currently under discussion would further alter the pattern of individuals' saving flows. This paper assesses the potential effects on interest rates, and via interest rates (and asset prices and yields more generally) on nonfinancial economic activity, of four specific shifts in saving behavior: additional pension contributions financed by individuals, additional pension contributions financed by businesses, additional purchases of life insurance by individuals, and additional deposits in thrift institutions by individuals. The paper's results indicate that such shifts, in plausible magnitudes, would have significant effects not only on interest rates and asset-liability flows but also on both the level and the composition of nonfinancial economic activity. In particular, although the specific effects differ from one shift to another, each would disproportionately stimulate capital formation in comparison to other forms of spending.
Handle: RePEc:nbr:nberwo:0587
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Taxation, and Corporate Behavior
Author-Name: Roger H. Gordon
Author-Person: pgo95
Note: PE
Number: 0588
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0588
File-URL: http://www.nber.org/papers/w0588.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Roger H. "Inflation, Taxation, and Corporate Behavior." Quarterly Journal of Economics, Vol. 99, No. 2, May 1984, pp. 313-327.
Abstract: During the past decade, the inflation rate has been very high by historical standards, yet the U.S. tax law has yet to adjust to this fact. The purpose of this paper is to investigate to what degree the lack of indexing of the corporate and personal income taxes by itself ought to have resulted in a change in corporate investment and financial policy, and in capital gains or losses to existing owners of corporate equity. In studying these questions, the paper models corporate financial and real decisions simultaneously, unlike other recent studies. The principle conclusions of the paper are: 1) the doubling of corporate debt-value rations can easily be rationalized solely by the interaction of inflation and the tax laws, 2) the stock market and the level of investment behaved much less favourably than would have been forecast focusing solely on the increased inflation rate, and 3) more pessimistic expectations, perhaps in combination with increased riskiness, would provide a consistent rationale for observed behaviour.
Handle: RePEc:nbr:nberwo:0588
Template-Type: ReDIF-Paper 1.0
Title: Unanticipated or Actual Changes in Aggregate Demand Variables: A Cross-Country Analysis
Author-Name: Michael R. Darby
Note: ITI IFM
Number: 0589
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0589
File-URL: http://www.nber.org/papers/w0589.pdf
File-Format: application/pdf
Publication-Status: published as Proceedings of Fourth West Coast Academic/Federal Reserve Economic Research Seminar (Fall 1980), Supplement.
Abstract: This paper generalizes the Barro approach to explaining real income growth as the solution of a Lucas aggregate supply function and an aggregate demand function with nominal money, real government spending, and real exports as arguments. The resulting real income equation involves lagged transitory income and short distributed lags on the shocks (innovations) in the three aggregate demand variables. This equation was estimated using quarterly data from 1957 through 1976 for the United States, United Kingdom, Canada, France, Germany, Italy, Japan and the Netherlands. While the data are not inconsistent with the model's restrictions, it is found that with the exception of the United States, unanticipated and actual changes in aggregate demand variables are about equally poor as explanations of real income growth. Although these results can be rationalized by greater measurement errors in the foreign data, they are sufficiently surprising to warrant further investigation and cautious application of at least Barro's approach to the Lucas aggregate supply function.
Handle: RePEc:nbr:nberwo:0589
Template-Type: ReDIF-Paper 1.0
Title: A Model of the Black Market for Dollars
Author-Name: Rudiger Dornbusch
Author-Name: Daniel Valente Dantas
Author-Name: Clarice Pechman
Author-Name: Roberto de Rezende Rocha
Author-Name: Demetrio Simoes
Note: ITI IFM
Number: 0590
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0590
File-URL: http://www.nber.org/papers/w0590.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger; Dantas, Daniel Valente; Pechman; Rocha, Roberto de Rezende; and Simoes Demetrio. "A Model of the Black Market for Dollars." The Quarterly Journal of Economics, (February 1983).
Abstract: The paper develops an analytical framework to discuss the determinants of the premium in the black market for dollars in Brazil. While the specific details of the model were chosen with the Brazilian case in mind, the structure of the model is quite general and suitable for application to black markets for currency elsewhere. The building blocks of the model are three. A capital asset pricing approach is used to derive an asset demand for dollars, or equivalently a real yield premium in market equilibrium. The current account of the black market is specified in terms of the sources and uses in the flow market for dollars, mainly smuggling proceeds and flows associated with tourism. The model is closed by a model of official exchange rate policy and the assumption of rational expectations. In comparative static applications the model has the properties of current account oriented models of the exchange rate. Unanticipated current account improvements due, for example, to increased export taxes that promote smuggling, lead to a decline in the premium. Asset market disturbances, such as increased inflation uncertainty or increased variability in the official real exchange rate policy are shown to have ambiguous effects on the premium. In applying the distinction between anticipated and unanticipated disturbances it is shown that the current expectation of a future maxi-devaluation leads to an immediate rise in the premium, with a subsequent decline when the maxi actually takes place. The paper concludes with a discussion of seasonal patterns in the premium. It is shown-that for "always" anticipated disturbances there is no jump in the premium, but a gradual adjustment that precedes the actual seasonal in the current account.
Handle: RePEc:nbr:nberwo:0590
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy and International Competitiveness
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Marcus H. Miller
Author-Person: pmi133
Note: ITI IFM
Number: 0591
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0591
File-URL: http://www.nber.org/papers/w0591.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. and Miller, Marcus H. "Monetary Policy and Internationalmpetitiveness: The Problems of Adjustment." Oxford Economic Papers, Vol. 33 , (July 1981, Supplement), pp. 143-175.
Abstract: A model of Dornbusch is adapted to analyze the consequences for output and competitiveness of certain aspects of the U.K. government's medium term financial strategy and some other policy actions. This includes the announcement of a sequence of reductions in the target rate of monetary growth, an increase in VAT and a move to make the U.K. banking system more competitive. The impact of a discovery of domestic oil is also modeled. We consider the consequences of varying the degree of inertia in the underlying rate of inflation and of different rates of international capital mobility. A real interest rate equalization tax stabilizes the real exchange rate but not the level of output. Once and for all changes in the level of the nominal money stock to accommodate changes in the demand for real money balances prevent 'overshooting' of the real exchange rate and fluctuations in output. It may, however, undermine the credibility of an announced policy of monetary disinflation.
Handle: RePEc:nbr:nberwo:0591
Template-Type: ReDIF-Paper 1.0
Title: Oil, Disinflation, and Export Competitiveness: A Model of the "Dutch Disease"
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Douglas D. Purvis
Note: ITI IFM
Number: 0592
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0592
File-URL: http://www.nber.org/papers/w0592.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. and Purvis, Douglas. "Oil, Disinflation and Export Competitiveness: A Model of the "Dutch Disease."" Economic Interdependence and Flexible Exchange Rates, ed. J.S. Bhandari and B.H. Putnam, pp. 221-248. Cambridge: Massachusetts Institute of Technology Press, 1983.
Abstract: This paper examines three possible sources of "de-industrialization" in an open economy: monetary disinflation, an increase in the international price of oil, and a 'domestic oil discovery. The analysis is conducted using a model which incorporates different speeds of adjustment in goods and asset markets; domestic goods prices respond only sluggishly to excess demand while the exchange rate (and hence the price of imported goods) adjusts quickly. Monetary disinflation leads to reduced real balances, higher interest rates, and a lower nominal exchange rate. In the short-run this causes a real appreciation and a decline in domestic manufacturing output. Perhaps surprisingly, an increase in world oil prices can create similar effects even for a country which is a net exporter of oil. Although the direct effect of an oil price increase for such a country is an increase in the demand for the domestic manufacturing good, that effect may be swamped by a real appreciation created by the increased demand for the home currency. This corresponds rather closely to the recent experiences of several oil and gas exporting countries, and is commonly referred to as the "Dutch-Disease". In our analysis, however, this is only a transitional phenomenon. Domestic oil discoveries, though necessarily finite in nature, generate permanent income effects in demand which last beyond the productive life of the new oil reserve. Initially, current income is above permanent income, leading to an improvement in the trade account; this is eventually reversed when permanent income exceeds current income. A wide variety of output response patterns are possible.
Handle: RePEc:nbr:nberwo:0592
Template-Type: ReDIF-Paper 1.0
Title: Symmetry Restrictions in a System of Financial Asset Demands: A Theoretical and Empirical Analysis
Author-Name: V. Vance Roley
Note: ME
Number: 0593
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0593
File-URL: http://www.nber.org/papers/w0593.pdf
File-Format: application/pdf
Publication-Status: published as Roley, V. Vance. "Symmetry Restrictions in a System of Financial Asset Demands: A Theoretical and Empirical Results." The Review of Economics and Statistics, Vol. 65, No. 1, (February 1983) pp. 124-130.
Abstract: The symmetry restriction in a system of financial asset demands has frequently been employed to reduce the number of independent parameters to be estimated. The theoretical implications of the symmetry restriction are examined in this paper, and it is found that symmetry implies a particular type of risk averse portfolio behavior. The symmetry restriction is also examined empirically, and the evidence supports symmetry only in cases where coefficients on cross-asset yields are insignificantly different from zero.
Handle: RePEc:nbr:nberwo:0593
Template-Type: ReDIF-Paper 1.0
Title: Taxes and Corporate Capital Structure in an Incomplete Market
Author-Name: Robert A. Taggart, Jr.
Note: ME
Number: 0594
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0594
File-URL: http://www.nber.org/papers/w0594.pdf
File-Format: application/pdf
Publication-Status: published as Taggart, Robert A. "Taxes and Corporate Capital Structure in an Incomplete Market." Journal of Finance, Vol. 35, No. 3, (June 1980), pp. 645-659.
Abstract: This paper extends Merton Miller's 1977 analysis of corporate capital structure decisions to the incomplete capital markets case. As in Miller's model, aggregate demand for corporate leverage is curtailed as interest rates on taxable bonds rise. Unlike Miller's model, however, capital structure is not a matter of indifference to all equilibrium shareholders. Market incompleteness and tax arbitrage restrictions combine to prevent marginal rates of substitution from being equalized for all investors and hence their preferences are not unanimous. In addition, costs associated with debt induce a tendency for lower cost firms to issue a larger proportion of total corporate debt.
Handle: RePEc:nbr:nberwo:0594
Template-Type: ReDIF-Paper 1.0
Title: On Expectations, Term Premiums and the Volatility of Long-Term Interest Rates
Author-Name: James E. Pesando
Author-Person: ppe278
Note: ME
Number: 0595
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0595
File-URL: http://www.nber.org/papers/w0595.pdf
File-Format: application/pdf
Publication-Status: published as Pesando, James E. "On Expectations, Term Premiums and the Volatility of Long-Term Interest Rates." Journal of Monetary Economics, Vol. 12, No. 3, (September 1983), pp. 467-74.
Abstract: The paper first identifies how large must be the range in which ex ante yields on long-relative to short-term bonds vary if term premiums -- are to account for a significant fraction of the variance of the holding- period yields on long-term bonds. This paper then extends Shiller's bound to the case of a time-varying term premium and readily identifies the variance in the term premium necessary to salvage the efficient markets model if the variance of these holding-period yields exceeds the bound implied by the rational expectations model. The role of transactions costs is noted and the possibility explored that evidence of excess volatility need not imply the existence of unexploited profit opportunities under the rational expectations model.
Handle: RePEc:nbr:nberwo:0595
Template-Type: ReDIF-Paper 1.0
Title: Accelerated Depreciation and the Efficacy of Temporary Fiscal Policy: Implications for an Inflationary Economy
Author-Name: Andrew B. Abel
Author-Person: pab10
Note: EFG
Number: 0596
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0596
File-URL: http://www.nber.org/papers/w0596.pdf
File-Format: application/pdf
Publication-Status: published as Abel, Andrew B. "Accelerated Depreciation and the Efficacy of Temporary Fiscal Policy: Implications for an Inflationary Economy." Journal of Public Economics, Vol. 19, (1982), pp. 23-47.
Abstract: The effect on investment of temporary tax rate changes depends on the age profile of depreciation deduct ions. If the depreciation allowance schedule is accelerated, then temporary cuts in the corporate tax rate could reduce investment. Inflation causes the age profile of real depreciation deductions to become accelerated and thus could make temporary tax cuts have a contractionary effect on investment. Two currently proposed reforms are shown to exacerbate this effect. Under these proposals, temporary tax cuts are likely to have opposite effects on investment in short-lived and long-lived capital, thereby complicating the conduct of countercyclical fiscal policy.
Handle: RePEc:nbr:nberwo:0596
Template-Type: ReDIF-Paper 1.0
Title: Variable Cost Functions and the Rate of Return to Quasi-Fixed Factors: An Application to R and D in the Bell System
Author-Name: M. Ishaq Nadiri
Author-Name: Mark Schankerman
Note: PR
Number: 0597
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0597
File-URL: http://www.nber.org/papers/w0597.pdf
File-Format: application/pdf
Publication-Status: published as Nadiri, M. Ishaq and Mark Schankerman. "A Test of Static Equilibrium Modelsand Rates of Return to Quasi-Fixed Factors, with and Application to the Bell System," Journal of Econometrics, Vol. 33, 1986, pp. 97-118.
Abstract: We formulate a variable cost function model in which certain inputs are treated as quasi-fixed, and develop a simple statistical test of whether optimization occurs for the quasi-fixed inputs. It is shown how to retrieve characteristics of the long-run cost function from the variable cost parameters, with specific reference to the cost elasticity and the elasticities of substitution. We also present a model of the I returns to R & D in the context of a regulated firm and show how to I estimate the net rate of return to R & D from the variable cost function. A translog version of the model is estimated for the Bell System for the period 1947-1976. The empirical results suggest substantial long-run economies of scale at the aggregate level. The formal envelope test indicates that the Bell System's use of capital and R & D was cost- minimizing during the post-war period, but the conclusion is seriously qualified by evidence that the power of the test in this application is low. Finally, we estimate the net rate of return to R & D in the Bell System in the range of 25-40 percent, which is somewhat higher than available estimates for manufacturing industries.
Handle: RePEc:nbr:nberwo:0597
Template-Type: ReDIF-Paper 1.0
Title: The International Financial Market and U.S. Interest Rates
Author-Name: David G. Hartman
Note: ME ITI IFM
Number: 0598
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0598
File-URL: http://www.nber.org/papers/w0598.pdf
File-Format: application/pdf
Publication-Status: published as Hartman, David G. "The International Financial Market and U.S. Interest Rates." Journal of International Money and Finance. Vol. 3, (April 1984), pp . 91-103.
Abstract: This paper examines the linkages between the Eurodollar and U.S. domestic financial markets. Despite the fact that these markets are characterized by rapid arbitrage of interest rate differentials, it is shown that using weekly data allows the isolation of significant fluctuations being transmitted between markets in both directions. That is, financial markets in the U.S. are affected significantly by foreign events and the Eurodollar market is significantly affected by events occurring in the U.S. Since a moderate amount of arbitrage occurs within a week's time and because there is no way to determine the source of any disturbances which affect both interest rates simultaneously, it is impossible to reach precise conclusions about the causes of historical variation in the rates. However, this paper provides evidence that at most forty percent of the variation in Eurodollar interest rates over the 1975-1978 period can be traced to domestic U.S. sources and that between about one-fifth and two-thirds of the variation in domestic rates can be traced to foreign sources.
Handle: RePEc:nbr:nberwo:0598
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0599
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0599
File-URL: http://www.nber.org/papers/w0599.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation." Journal of Political Economy, Vol. 89, No. 6, (December 1981), pp. 1142-1161.
Abstract: The paper develops a model of exchange-rate and current-account determination for a small economy peopled by infinitely lived, utility-maximizing households. In this setting, a central-bank purchase of foreign exchange has no real effects when central-bank foreign reserves earn interest at the world rate and the proceeds are returned to the public. In contrast, an increase in the monetary growth rate does have real effects, even in the long run. The model developed here implies that an increase in government spending may lead to a surplus on current account. The external adjustment process predicted by the model is one in which consumption, real balances, anti external assets all rise or fall simultaneously.
Handle: RePEc:nbr:nberwo:0599
Template-Type: ReDIF-Paper 1.0
Title: Social Insurance and Consumption: An Empirical Inquiry
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 0600
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0600
File-URL: http://www.nber.org/papers/w0600.pdf
File-Format: application/pdf
Publication-Status: published as Hamermesh, Daniel S. "Social Insurance and Consumption: An Empirical Inquiry." The American Economic Review, Vol. 72, No. 1, (March 1982).
Abstract: The main stated purposes of social insurance programs have been the maintenance of consumption by people suffering from misfortunes, and the stabilization of employment. Despite this, most recent research on unemployment insurance (UI) and Old Age Insurance has focused on secondary labor-market effects, with only a few studies looking at stabilization, and none considering effects on consumption. In this study we examine how UI will affect the consumption of recipients. For some individuals UI will help remove the constraints on consumption during periods of reduced income that arise from insufficient savings and imperfect capital markets, while for others the UI benefits merely augment the entire lifetime consumption stream. The model enables us to estimate what fractions of the population fall into these two categories. If individuals are also constrained in the allocation of their reduction consumption, consumption propensities out of UI will differ from those out of nonrecipients' income. The model is tested on aggregate time-series data covering 41 consumption categories for 1959-1978:II, and on over 14,000 individuals from the 1972-73 Consumer Expenditure Survey. In both data sets we find no more than half of UI benefits are consumed as if the recipients' consumption were constrained during times of unemployment. In both samples spending out of UI benefits is disproportionately on luxuries, though UI recipients spend greater shares of their income on necessities. The results imply that a large part of social insurance payments does not go to prevent serious imbalances in individuals' lifetime consumption profiles.
Handle: RePEc:nbr:nberwo:0600
Template-Type: ReDIF-Paper 1.0
Title: Real Effects of Anticipated and Unanticipated Money: Some Problems of Estimation and Hypothesis Testing
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ITI IFM
Number: 0601
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0601
File-URL: http://www.nber.org/papers/w0601.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. "Real Effects of Anticipated and Unanticipated Money. Some Problems of Estimation and Hypothesis Testing." Journal of Monetary Economics, Vol. 11 (1983), pp. 207-224.
Abstract: The paper addresses two issues that arise in estimation of testing of the real effects of anticipated and unanticipated money. First it is shown that identification of the effects of unanticipated (or unperceived) monetary growth on real output is possible only if the a priori restrict ion is imposed that monetary growth does not depend on unanticipated (or unperceived) output. Second, it is shown that anticipated money can enter "semi-reduced form" output equations of the kind estimated by Barro, through three additional channels not allowed for in existing empirical work. These are 1) past and present anticipations of future monetary growth (the inflation tax channel), 2) expectations of monetary growth in a given period conditioned at various preceding dates (the Fischer-Phelps-Taylor effect) and 3) past and present revisions in forecasts of monetary growth (the Turnovsky-Weiss effect). The presence of the first of these would mean that alternative open-loop monetary growth rules have real effects. The presence of the other two implies that monetary feedback rules can have real effects.
Handle: RePEc:nbr:nberwo:0601
Template-Type: ReDIF-Paper 1.0
Title: International Price Behavior and the Demand for Money
Author-Name: Arthur E. Gandolfi
Author-Name: James R. Lothian
Note: ITI IFM
Number: 0602
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0602
File-URL: http://www.nber.org/papers/w0602.pdf
File-Format: application/pdf
Publication-Status: published as Economic Inquiry, Vol. 21, no. 3 (1983): 295-311.
Publication-Status: published as International Price Behavior and the Demand for Money, Arthur E. Gandolfi, James R. Lothian. in The International Transmission of Inflation, Darby, Lothian, Gandolfi, Schwartz, and Stockman. 1983
Abstract: Oil prices, commodity prices and American monetary policy, the last operating through a variety of channels, have all figures prominently in explanations of the international inflation process in the last 1960s and early '70s. Our major purpose in this paper is to test these various hypotheses. We do so in the context of a reduced-form rational-expectations price equation which we estimate for the United States and seven other industrial countries using quarterly data for the period 1955 through 1976. The principal conclusion that emerges from this exercise is that movements in domestic money in these countries served as the key link in the inflation process. The factors that produced these monetary changes, however, differed among countries. Price shocks of various sorts were clearly of secondary importance. The other important set of conclusions concerns the demand for money. In place of a traditional stock adjustment model, we used, GLS with a second- order correct ion for autocorrelation. We believe this produced more plausible estimates of the parameters of the long-run demand function and of the adjustment process it self.
Handle: RePEc:nbr:nberwo:0602
Template-Type: ReDIF-Paper 1.0
Title: How Close to an Auction Is the Labor Market? Employee Risk Aversion, Income Uncertainty, and Optimal Labor Contracts
Author-Name: James N. Brown
Note: LS
Number: 0603
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0603
File-URL: http://www.nber.org/papers/w0603.pdf
File-Format: application/pdf
Abstract: Section I of this paper develops a model of income insurance in the labor market. The model differs from those of previous analyses in its focus on quantitative implications regarding the degree to which wages diverge from marginal value products, both in time-series and in cross-section data. Sections II and III present empirical evidence consistent with these implications. The main empirical finding is that of short-term divergence, but long-term equality between wages and marginal value products. The labor market appears to differ from an auction market only in the short run, but this short-run divergence considerably reduces the potential variability of employees' realized wealth.
Handle: RePEc:nbr:nberwo:0603
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Taxation, and Corporate Investment: A q-Theory Approach
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE EFG
Number: 0604
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0604
File-URL: http://www.nber.org/papers/w0604.pdf
File-Format: application/pdf
Publication-Status: published as Summers, Lawrence H. "Taxation and Corporate Investment: A q-Theory Approach." Brookings Papers on Economic Activity, 1:1981, pp. 67-127.
Abstract: This paper presents an analysis of the effects of tax policy on capital accumulation and valuation based on James Tobin's q theory of investment. As Tobin has explained, aggregate investment can be expected to depend in a stable way on q, the ratio of the stock market valuation of existing capita1 to its replacement cost. For example, increases in the rate of return on physical capital raise its market value and cause increased investment until equilibrium is restored. Although models linking the stock market to investment have been estimated, they have not previously been used to examine the impact of tax policies. The basic idea underlying the approach taken here can be described quite simply. It is generally assumed that the stock market valuation of corporate capital represents the present value of its future dividend stream. In the model of this paper, the effects of tax changes on future profits are used to estimate the impact of those changes on the stock market. These estimates in turn are used as a basis for gauging the impact of the tax changes on capital formation. This approach, working through q, can provide estimates of the effects of policy announcements and of personal tax reforms as well as estimates of the distributional impact of alternative reforms. A distinct feature of the model developed here is that it is rooted in a microeconomic theory that integrates the interests of the corporation and its shareholders.
Handle: RePEc:nbr:nberwo:0604
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy and Corporate Investment
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE EFG
Number: 0605
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0605
File-URL: http://www.nber.org/papers/w0605.pdf
File-Format: application/pdf
Publication-Status: published as Summers, Lawrence H. "Tax Policy and Corporate Investment," The Supply-Side Effects of Economic Policy, pp. 115-148. St. Louis: Federal Reserve Bank of St. Louis, 1981.
Publication-Status: published as Lawrence H. Summers, 1981. "Tax Policy and Corporate Investment," Review, vol 63.
Abstract: This paper overviews the issues connected with proposals to spur investment using tax incentives. There are four main conclusions: (1) The rate of net capital formation in the U.S. has declined very substantially. This decline has been associated with a sharp fall in the after tax return to investors in the corporate sector. (2) Increasing the share of output devoted to business capital formation would not have a large effect on the rate of productivity growth, inflation or employment. However, it would contribute substantially to intertemporal economic efficiency. The welfare gains achievable through investment incentives approach $100 billion. (3) Measures to spur investment are likely to have substantial effects. The lags are, however, very long. For example, it is estimated that the elimination of capital gains taxes would raise the capital stock by 29 percent in the long run, but by only 4 percent within five years. (4) Through judicious design of tax policy, it is possible to spur investment with only a small revenue cost. It is crucial to take account of the effect of anticipated policy on the level of investment. Traditional Keynesian econometric approaches are ill-suited to this goal.
Handle: RePEc:nbr:nberwo:0605
Template-Type: ReDIF-Paper 1.0
Title: Inflation, the Stock Market, and Owner-Occupied Housing
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 0606
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0606
File-URL: http://www.nber.org/papers/w0606.pdf
File-Format: application/pdf
Publication-Status: published as Summers, Lawrence H. "Inflation, the Stock Market, and Owner-Occupied Housing." The American Economic Review, Vol. 71, No. 2, (May 1981), pp. 429-434.
Abstract: This paper suggests that to a large extent. the increases in the value of housing and decreases in the value of corporate capital may have a common explanation, the inter- action of inflation and a nonindexed tax system. The acceleration of inflation has sharply increased the effective rate of taxation of corporate capital income, while reducing the effective taxation of owner- occupied housing. These changes have been capitalized in the form of changing asset prices. In the long run, they will lead to significant changes in the size and composition of the capital stock. The first section of the paper describes in more detail the nonneutralities caused by inflation. A simple model showing how inflation and taxation interact to determine asset prices is presented in the second section. The third section presents some crude empirical tests suggesting that increases in the expected rate of inflation may account for a significant part of the asset price changes which have been observed. A final section concludes the paper by commenting on some implications of the results.
Handle: RePEc:nbr:nberwo:0606
Template-Type: ReDIF-Paper 1.0
Title: Does Purchasing Power Parity Work?
Author-Name: Michael R. Darby
Note: ITI IFM
Number: 0607
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0607
File-URL: http://www.nber.org/papers/w0607.pdf
File-Format: application/pdf
Publication-Status: published as Michael R. Darby, 1981. "Does purchasing power parity work?," Proceedings, Federal Reserve Bank of San Francisco, pages 136-173.
Abstract: The logarithm of the purchasing power ratio (PPR) is shown for seven countries and three alternative price indices to follow a stationary and invertible process in the first differences. This means that permanent shifts in the parity value accumulate over time. Therefore, as the prediction interval lengthens, the variance of the level of the PPR goes towards infinity while the variance of its average growth rate goes to zero. Since the variance of the permanent shifts is substantial: (1) Harmonized money growth cannot maintain constant exchange rates; reserve flows feedback is required. (2) Economic explanations of the permanent shifts are an important research topic.
Handle: RePEc:nbr:nberwo:0607
Template-Type: ReDIF-Paper 1.0
Title: On Functions, Quality, and Timeliness of Economic Information
Author-Name: Victor Zarnowitz
Note: EFG
Number: 0608
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0608
File-URL: http://www.nber.org/papers/w0608.pdf
File-Format: application/pdf
Publication-Status: published as Zarnowitz, Victor. "On Functions, Quality, and Timeliness of Economic Information." The Journal of Business, Vol. 55, No. 1, (January 1982), pp. 87-11 9.
Abstract: The flow of production and use of economic information consists of the collection and processing of primary data, the reporting of the resulting measures, and the transformation of the latter into signals or messages that presumably aid knowledge or decision-making. Each stage contributes to the return and costs, quality and errors of the information. The processes involved on the micro and macro levels show important similarities and interact ions. The uncertainty about economic information increases with the probability of error in the underlying data and their processing and interpretation. Many errors cannot be promptly detected and eliminated but can be gradually reduced over time, as attested by the revisions in economic statistics. This paper presents substantial evidence on the accuracy of provisional estimates of quarterly and monthly changes in eighteen important variables. Measures of several aspects of data quality and of average lags of data release and signal detection are provided for a collection of 110 widely used economic indicators. These materials help identify the location of the more serious measurement errors by variable and period, and they show that informational lags of five and more months are frequent. The errors and lags of information may lead to apparently "systematic" but not readily detectable and removable errors in expectations. This is likely to happen, in particular, in times of great surprises and shocks when measurement of short-term changes in the economy is most difficult and current signals are often misread. Some illustrations are drawn from the events of 1970-75.
Handle: RePEc:nbr:nberwo:0608
Template-Type: ReDIF-Paper 1.0
Title: Physical Disabilities and Post-Secondary Educational Outcomes
Author-Name: Robert A. Shakotko
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 0609
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0609
File-URL: http://www.nber.org/papers/w0609.pdf
File-Format: application/pdf
Publication-Status: published as Shakotko, Robert A. and Grossman, Michael "Physical Disabilities and Post-Secondary Education;al Choices." Economic Aspects of Health, edited by Victor R. Fuchs, pp. 185-202. Chicago: University of Chicago Press, 1982.
Publication-Status: published as Physical Disabilities and Post-secondary Educational Choices, Robert A. Shakotko, Michael Grossman. in Economic Aspects of Health, Fuchs. 1982
Abstract: This paper is an empirical investigation of the effect of poor early life-cycle health on post-secondary educational choices and outcomes. We use panel data for a sample of 10,430 individuals who were high school seniors in the spring of 1972, and who were re-surveyed in October of each year through 1976. Various health information was collected in the base year of the survey, and we use these base year reports as measures of health which are predetermined with respect to educational behavior in the subsequent five years. We examine individuals' choices of post-secondary activities (which include different types of post-secondary education and no post-secondary education), and the rate at which individuals leave educational activities, in an effort to determine if the behavior of disabled individuals differs from healthy individuals, and if these differences could be attributable to health problems.
Handle: RePEc:nbr:nberwo:0609
Template-Type: ReDIF-Paper 1.0
Title: Income and Payroll Tax Policy and Labor Supply
Author-Name: Jerry A. Hausman
Author-Person: pha893
Note: PE
Number: 0610
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0610
File-URL: http://www.nber.org/papers/w0610.pdf
File-Format: application/pdf
Publication-Status: published as Hausman, Jerry A. "Income and Payroll Tax Policy and Labor Supply." The Supply Side Effects of Economic Policy, edited by L. Mayer. St. Louis: Centerfor the Study of American Business, 1981.
Publication-Status: published as Jerry Hausman, 1981. "Income and Payroll Tax Policy and Labor Supply," Review, vol 63.
Abstract: This paper considers both theoretical quest ions and empirical measures of the effects of various policies of income and payroll taxation on labor supply. It emphasizes deadweight loss as the correct criterion of taxation evaluation, rather than merely output effects. Distributional issues are also discussed. Simulations are done for the Kemp-Roth tax reform proposals to calculate both revenue effects and changes in deadweight loss. Deadweight loss calculations are also done for an equal yield progressive linear income tax.
Handle: RePEc:nbr:nberwo:0610
Template-Type: ReDIF-Paper 1.0
Title: Healthiness, Education, and Marital Status
Author-Name: Paul J. Taubman
Author-Name: Sherwin Rosen
Note: EH
Number: 0611
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0611
File-URL: http://www.nber.org/papers/w0611.pdf
File-Format: application/pdf
Publication-Status: published as Taubman, Paul and Rosen, Sherwin. "Healthiness, Education, and Marital Status." Economic Aspects of Health, edited by Victor R. Fuchs, pp. 121-140. Chicago: University of Chicago Press, 1982.
Publication-Status: published as Healthiness, Education, and Marital Status, Paul Taubman, Sherwin Rosen. in Economic Aspects of Health, Fuchs. 1982
Abstract: In this paper we use data from the Retirement History Survey (RHS) to examine the relationship of some sociodemographic and economic variables to morbidity and mortality. Since the RHS is a longitudinal survey, we are able to study current health conditioned on prior health as well as the more usual unconditioned estimates. We find that health is related to education and marital status though the marital effects are much weaker when we condition for prior health. These effects persist when we control for income and use of medical facilities. An interesting finding is that married men seem to persist in the state of poor health rather than dying.
Handle: RePEc:nbr:nberwo:0611
Template-Type: ReDIF-Paper 1.0
Title: The Choice of Health Policies with Heterogeneous Populations
Author-Name: Richard J. Zeckhauser
Author-Person: pze7
Author-Name: Donald S. Shepard
Note: EH
Number: 0612
Creation-Date: 1980-12
Order-URL: http://www.nber.org/papers/w0612
File-URL: http://www.nber.org/papers/w0612.pdf
File-Format: application/pdf
Publication-Status: published as Shephard, Donald S. and Zeckhauser, Richard J. The Choice of Health Policies with Heterogeneous Populations." Economic Aspects of Health, edited By Victor R. Fuchs, pp. 255-297. Chicago: University of Chicago Press, 1982.
Publication-Status: published as The Choice of Health Policies with Heterogeneous Populations, Donald S. Shepard, Richard J. Zeckhauser. in Economic Aspects of Health, Fuchs. 1982
Abstract: Deciding whether to fund a given health program involves both statistical and ethical issues. Traditional statistical methods of measuring program effectiveness may give misleading results unless careful attention is paid to the question of population heterogeneity. Even within particular age and sex categories, members of a population typically differ in both their mortality rate and the extent to which they would benefit from a given medical intervention. It may or may not be possible to identify the risk factors (e. g., weight, smoking behavior) that explain these differences. If an intervention confers unequal benefit on different risk groups, it will change their mixture within the population over time. If those helped most are those at greatest risk, a "traditional assessment" will overstate intervention benefits. Greater accuracy can be achieved through a "standardized assessment, " which calculates intervention benefits separately for each distinctive risk group of the population. For example, a traditional assessment of pneumococcal pneumonia vaccine probably overstates program benefits and underestimates costs. Failure to recognize population heterogeneity also creates pitfalls in interpreting the results of clinical trials of new drugs, as illustrated by the example of sulfinpyrazone. As more sophisticated statistical methods improve our understanding of differential program benefits, they will also raise ethical problems. Use of a standardized assessment, for instance, may make it clear that it is cost-effective to give an intervention to certain groups (e.g., nonsmokers, the elderly) but not others. Considering this problem from an "original position" may reveal an ethically acceptable basis for making such decisions on the basis of efficiency. We believe that if people were unaware of which risk group they themselves would fall into, they would elect to allocate resources according to the principle of cost-effectiveness.
Handle: RePEc:nbr:nberwo:0612