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Template-Type: ReDIF-Paper 1.0
Title: Structural Models of Interest Rate Determination and Portfolio Behavior in the Corporate and Government Bond Markets
Author-Name: Benjamin M. Friedman
Author-Name: V. Vance Roley
Note: ME
Number: 0205
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0205
File-URL: http://www.nber.org/papers/w0205.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. and Roley, V. Vance. "Models of Long-Term Interest Rate Determination." The Journal of Portfolio Management, Vol. 6, No. 3, (Spring 1980), pp. 35-45.
Abstract: This paper summarizes some recent work in which we have modeled long-term interest rate determination in an explicit demand-supply context, using multi-equation structural models and directly contrasts such models with unrestricted reduced-form models. Wholly apart from questions of disaggregation and institutional detail, the explicitly structural nature of demand-supply models necessitates additional theoretical constructs beyond those required by unrestricted reduced-form models. Some of these conceptual inputs are already available from established portfolio theory, and others represent objects of current or prospective research. Experience to date with structural models of long-term interest rate determination suggests, however, that the exploitation of the richer theoretical framework yields not only insights about portfolio behavior but, very likely, improved interest rate models as well.
Handle: RePEc:nbr:nberwo:0205
Template-Type: ReDIF-Paper 1.0
Title: Family Size and the Distribution of Per Capita Income
Author-Name: Edward P. Lazear
Author-Person: pla64
Author-Name: Robert T. Michael
Note: CH
Number: 0230
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0230
File-URL: http://www.nber.org/papers/w0230.pdf
File-Format: application/pdf
Publication-Status: published as Lazear, Edward P. and Michael, Robert T. "Family Size and the Distributionof Real Per Capita Income." The American Economic Review, Vol. 70, No. 1, ( March 1980), pp. 91-107.
Abstract: This paper is another contribution to the vast literature which addresses this issue: comparison of household income per capita among households of different structures requires judgment about the relationship between real income and family size. Our work uses a revealed preference approach in which household size/structure variables are included in empirical demand studies and the estimated coefficients on these variables are used to infer equivalence; it differs from many of the other studies not in basic concept but in its empirical strategy. While most studies build family composition effects into a relatively formal structural model of demand and impose considerable restriction in order to obtain an estimable system, we use a reduced-form approach which requires much less of the data.
Handle: RePEc:nbr:nberwo:0230
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Taxation on the Selling of Corporate Stock and the Realization of Capital Gains
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Joel Slemrod
Author-Person: psl10
Author-Name: Shlomo Yitzhaki
Author-Person: pyi12
Note: PE
Number: 0250
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0250
File-URL: http://www.nber.org/papers/w0250.pdf
File-Format: application/pdf
Publication-Status: published as "The Effects of Taxation on the Selling of Corporate Stock and the Realization of Capital Gains" The Quarterly Journal of Economics, Vol. CXIV No. 4, pp. 777-791, (June 1980). (NOTE: Reprint 147 is based on BOTH W0250 and W0257).
Abstract: This study provides the first econometric analysis of the effect of taxation on the realization of capital gains. The analysis thus extends and complements the earlier study by Feldstein and Yitzhaki [1978] of the effect of taxation on the selling of corporate stock. The present analysis, using a large, new body of data obtained from individual tax returns, supports the earlier finding that corporate stock sales are quite sensitive to tax rates and then shows that the effect on the realization of capital gains is even stronger.
Handle: RePEc:nbr:nberwo:0250
Template-Type: ReDIF-Paper 1.0
Title: The 1971-1974 Controls Program and The Price Level: An Econometric Post-Mortem
Author-Name: Alan S. Blinder
Author-Person: pbl41
Author-Name: William J. Newton
Note: EFG
Number: 0279
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0279
File-URL: http://www.nber.org/papers/w0279.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. and Newton, William J. "The 1971-1974 Controls Program andthe Price Level: An Econometric Post-Mortem." Journal of Monetary Economics, Vol. 8, No. 1, (July 1981), pp. 1-23.
Abstract: This paper provides new empirical evidence on the effects of the Nixon wage-price controls on the price level. The major new wrinkle is that the controls are treated as a quantitative (rather than just a qualitative) phenomenon through the use of a specially-constructed series indicating the fraction of the economy that was controlled. According to the estimates, by February 1974controls had lowered the non-food non-energy price level by 3-4 percent. After that point, and especially after controls ended in April 1974, a period of rapid 'catch up' inflation eroded the gains that had been achieved, leaving the price level from zero to 2 percent below what it would have been in the absence of controls. The dismantling of controls can thus account for most of the burst of 'double digit' inflation in non-food and non-energy prices during 1974.
Handle: RePEc:nbr:nberwo:0279
Template-Type: ReDIF-Paper 1.0
Title: Tests of Equilibrium Macroeconomics Using Contemporaneous Monetary Data
Author-Name: John F. Boschen
Author-Name: Herschel I. Grossman
Note: EFG
Number: 0558
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0558
File-URL: http://www.nber.org/papers/w0558.pdf
File-Format: application/pdf
Publication-Status: published as Boschen, John F. and Grossman, Herschel I. "Tests of Equilibrium Macroeconomics Using Contemporaneous Monetary Data." Journal of Monetary Economics, Vol. 10 (1982), pp. 309-333.
Abstract: This paper uses contemporaneous monetary data to carry out econometric tests of the "equilibrium" approach to modeling the relation between monetary disturbances and macroeconomic fluctuations. The theoretical analysis introduces into an equilibrium macroeconomic model the availability of preliminary data on current monetary aggregates and the process of accumulation of revised monetary data. The econometric analysis tests two hypotheses derived from this extended model. One hypothesis concerns the neutrality of perceived monetary policy. The other hypothesis concerns the nonneutrality of errors in preliminary monetary data. The econometric results imply rejection of both of these hypotheses. These tests provide strong evidence against the reality of the equilibrium approach.
Handle: RePEc:nbr:nberwo:0558
Template-Type: ReDIF-Paper 1.0
Title: Is the Maximum Tax on Earned Income Effective?
Author-Name: Lawrence B. Lindsey
Note: PE
Number: 0613
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0613
File-URL: http://www.nber.org/papers/w0613.pdf
File-Format: application/pdf
Publication-Status: published as NTJ, Vol. 34, no. 2 (1981): 249-256.
Abstract: The Tax Reform Act of 1969 included a provision intended to set at 50 percent the tax rate on all personal service income above the 50 percent bracket amount. The current law fails to meet this objective for the vast majority of these taxpayers. This paper explains why the current law is ineffective, simulates our current experience with the law using the National Bureau of Economic Research TAXSIM model, and considers options to the present law.
Handle: RePEc:nbr:nberwo:0613
Template-Type: ReDIF-Paper 1.0
Title: Asset Holdings and the Life Cycle
Author-Name: Mervyn A. King
Author-Name: Louis Dicks-Mireaux
Note: PE
Number: 0614
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0614
File-URL: http://www.nber.org/papers/w0614.pdf
File-Format: application/pdf
Publication-Status: published as King, M. A. and Dicks-Mireaux, L-D. L. "Asset Holdings and the Life Cycle." Economic Journal, Vol. 92, No. 366 (June 1982), pp. 247-267.
Abstract: Empirical studies of the life cycle savings model have tended to rej ect the hypothesis of a "hump-shaped" pattern for the wealth-age profile. In this paper we show, using new data on net worth for 12,734 families, that there is evidence that wealth declines after retirement provided that we control for differences in permanent income and take account of sample selection bias. The estimated rates of decumulation are consistent with a life cycle model in which there is uncertainty about the date of death.
Handle: RePEc:nbr:nberwo:0614
Template-Type: ReDIF-Paper 1.0
Title: Variations in Infant Mortality Rates among Counties in the United States: The Roles of Social Policies and Programs
Author-Name: Michael Grossman
Author-Person: pgr107
Author-Name: Steven Jacobowitz
Note: EH
Number: 0615
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0615
File-URL: http://www.nber.org/papers/w0615.pdf
File-Format: application/pdf
Publication-Status: published as Grossman Michael and Jacobowitz, Steven. "Variations in Infant Mortality Rates among Counties of the United States: The Roles of Public Policies and Programs." Demography, Vol. 18, No. 4, (November 1981), pp. 695-713.
Abstract: The purpose of this paper is to shed light on the causes of the rapid decline in the infant mortality rate in the United States in the period after 1963. The roles of four public policies are considered: Medicaid, subsidized family planning services for low-income women, maternal and infant care projects, and the legalization of abortion. The most striking finding is that the increase in the legal abortion rate is the single most important factor in reductions in both white and nonwhite neonatal mortality rates. Not only does the growth in abortion dominate the other public policies, but it also dominates schooling and poverty.
Handle: RePEc:nbr:nberwo:0615
Template-Type: ReDIF-Paper 1.0
Title: The Elusive Incidence of the Corporate Income Tax: The State Case
Author-Name: Charles E. McLure, Jr.
Author-Person: pmc33
Note: PE
Number: 0616
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0616
File-URL: http://www.nber.org/papers/w0616.pdf
File-Format: application/pdf
Publication-Status: published as McLure, Charles E., Jr. "The Elusive Incidence of the Corporate Income Tax: The State Case." Public Finance Quarterly, Vol. 9, No. 4, (October 1981),pp. 395-413.
Abstract: A recurring theme in the literature on taxation has been uncertainty about the incidence of the corporate income tax. The answer may be even more elusive for state taxes than for federal taxes. As seen by one state, a cor- porate income tax levied on the basis of formula apportionment of total income is a composite of taxes levied on whatever factors enter the state's apportion- ment formula. Such a tax is likely to be borne primarily by residents of the taxing state, as consumers, immobile workers, and owners of land and immobile capital. Substantial shifting to consumers or capitalists throughout the nation is unlikely.
Handle: RePEc:nbr:nberwo:0616
Template-Type: ReDIF-Paper 1.0
Title: Black-White Earnings Ratios Since the Civil Rights Act of 1964: The Importance of Labor Market Dropouts
Author-Name: Charles Brown
Author-Person: pbr341
Note: LS
Number: 0617
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0617
File-URL: http://www.nber.org/papers/w0617.pdf
File-Format: application/pdf
Publication-Status: published as Brown, Charles. "Black-White Earnings Ratios Since the Civil Rights Act of 1964: The Importance of Labor Market Dropouts." The Quarterly Journal of Economics, Vol. 99, No. 1, (February 1984), pp. 33-44.
Abstract: Previous analyses of postwar black/white earnings ratios have found a more rapid rate of increase in the period since 1964 than before. The reason for this acceleration is unresolved. One view is that federal equal-employment activities have increased the relative demand for black labor. An alternative view is that rising relative earnings reflects (1) reductions in relative supply and (2) the "statistical" effect of low earners raising median earnings by withdrawing from the labor market. This study differs from previous work on the subject in two ways. First, the restrictions on the universe from which published median earnings data by race are calculated are discussed explicitly. The restrict ion most commonly addressed in previous work (having positive earnings in the year in question) is found to be less important than an undiscussed restriction (being employed as a wage and salary worker the following March). Second, data on the distribution of earnings are used to determine the effect of labor market dropouts on median earnings, instead of trying to estimate this effect (as well as demand and supply effects) from time series data. This permits comparison of "corrected" and "uncorrected" post-1964 trends. For males, about half of the "uncorrected" trend remains after the relative earnings variable is corrected for labor market withdrawals. For females, between half and four fifths remains.
Handle: RePEc:nbr:nberwo:0617
Template-Type: ReDIF-Paper 1.0
Title: The Role of Seniority at U.S. Work Places: A Report on Some New Evidence
Author-Name: James L. Medoff
Author-Name: Katharine G. Abraham
Author-Person: pab32
Note: LS
Number: 0618
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0618
File-URL: http://www.nber.org/papers/w0618.pdf
File-Format: application/pdf
Abstract: This study discusses newly collected data concerning the role played by seniority in U.S. firms' termination and promotion decisions. The new information, based on 561 usable responses to a nation-wide survey of companies conducted by the authors, sheds light on two key questions: For what percentage of U.S. private sector employees (outside of agriculture and construction) is seniority -- per se (that is, seniority independent of current performance) rewarded in promotion decisions? For what percentage does protection against job loss grow with seniority even when current value to the firm does not? While there appear to be important differences for hourly versus salaried employees and for those covered by collective bargaining versus those not so covered, the new evidence presented strongly supports the claim that seniority independent of productivity plays a major role in the compensation and termination decisions affecting all employee groups at most U.S. workplaces.
Handle: RePEc:nbr:nberwo:0618
Template-Type: ReDIF-Paper 1.0
Title: Social Security, Bequests, and the Life Cycle Theory of Saving: Cross-Sectional Tests
Author-Name: Alan S. Blinder
Author-Person: pbl41
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Donald E. Wise
Note: EFG
Number: 0619
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0619
File-URL: http://www.nber.org/papers/w0619.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S., Roger H. Gordon and Donald E. Wise. "Social Security, Bequests, and the Life Cycle Theory of Savings Cross Sectional Tests." Determinants of National Savings and Wealth, edited by Franio Modigliani and Richard Hemming, International Economic Association, 1983.
Abstract: This paper studies the asset holdings of white American men near retirement age. Assets as conventional defined show no tendency to decline with age, in apparent contradiction of the life-cycle theory of saving. However, a broadened concept of assets which includes expected future pension benefits (both public and private) and expected future earnings ("human wealth") does decline more or less as predicted by the theory. No matter how they are defined, assets are a decreasing function of the number of children--which casts doubt on the strength of the bequest motive. Finally, financial assets and social security wealth fail to exhibit the inverse relationship suggested by Feldstein's displacement hypothesis. To investigate these issues econometrically, an equation for assets is developed from the strict life-cycle theory. The specification is generalized to allow for (a) a bequest motive, proxied by the number of children; (b) displacement of private wealth by social security wealth that is not exactly dollar-for-dollar; (c) a level of consumption late in life that differs systematically from what the strict life-cycle theory implies. The equation is estimated by nonlinear least squares on a rich cross- sectional data set containing over 4300 observations. The results show that the life-cycle model has little ability to explain cross-sectional variability in asset holdings. The model's key parameters are poorly identified, despite the large sample size and considerable cross-sectional variation in most variables. According to the estimates, consumption late in Life is on average only about half of what the strict life-cycle theory predicts; each dollar of social security wealth displaces about 3% (with a large standard error) of private wealth; and the bequest motive, while present, is quite weak.
Handle: RePEc:nbr:nberwo:0619
Template-Type: ReDIF-Paper 1.0
Title: Inventories and Sticky Prices: More on the Microfoundations of Macroeconomics
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 0620
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0620
File-URL: http://www.nber.org/papers/w0620.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. "Inventories and Sticky Prices: More on the Microfoundations of Macroeconomics." The American Economic Review, Vol. 72, No. 3 (June 1982), pp. 334-348.
Abstract: The role of inventories in making prices "sticky" is studied by analyzing a dynamic linear-quadratic model of a monopoly firm facing stochastic demand, but able to store its finished goods in inventory. It is shown that, in contrast to the usual presumption, firms that exhibit the smallest output responses to demand fluctuations may also exhibit the smallest price fluctuations. Specifically, firms which have very flexible inventory storage facilities or are subjected to very transitory demand shocks will rely on inventories as buffers, and will change neither production nor price very much. On the other hand, firms which have very inflexible storage facilities or whose demand shocks are quite permanent will display large swings in both price and output. The standard assumption about inventory carrying costs that has been used in the literature (that they are linear) is shown to imply that production is impervious to fluctuations in demand. It is also established that prices may respond more strongly to positive demand shocks than to negative ones if it is impossible to hold negative inventories (i.e., to have unfilled orders). The model offers an explanation for "stickiness" in relative prices. However, under certain circumstances, it may help explain the persistence of inflation
Handle: RePEc:nbr:nberwo:0620
Template-Type: ReDIF-Paper 1.0
Title: Output Fluctuations and Gradual Price Adjustment
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 0621
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0621
File-URL: http://www.nber.org/papers/w0621.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Robert J. "Output Fluctuations and Gradual Price Adjustment." Journal of Economic Literature, Vol. XIX, No. 2, (June 1981), pp. 493-530.
Abstract: This paper reviews the leading ideas that have emerged within two paradigms of price adjustment. Neither, it appears, provides a satisfactory theoretical scheme when taken in isolation. This paper concludes that an attempt to merge the more convincing elements of each is needed, and some suggestions for such a merger are put forward.
Handle: RePEc:nbr:nberwo:0621
Template-Type: ReDIF-Paper 1.0
Title: The Real Interest Rate: An Empirical Investigation
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG
Number: 0622
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0622
File-URL: http://www.nber.org/papers/w0622.pdf
File-Format: application/pdf
Publication-Status: published as Mishkin, Frederic S. "The Real Interest Rate: An Empirical Investigation." The Costs and Consequences of Inflation, Carnegie-Rochester Conference Series on Public Policy, Vol. 15, (Autumn 1981), pp. 151-200 and 21 3-218.
Abstract: This paper is an empirical exploration of real interest rate movements in the United States over the last fifty years. It focuses on several questions which have repeatedly arisen in the literature. How valid is the hypothesis associated with Fama (1975) that the real rate of interest is constant? Does the real rate decline with increases in expected inflation? Are cyclical movements in real variables correlated with real rate movements? How reliable is the Fishei (1930) effect where nominal interest rates reflect changes in expected inflation? What kind of variation in real interest rates have we experienced in the last fifty years? Have real rates turned negative in the 1970s, as is commonly believed, and were they unusually high in the initial stages of the Great Depression? In pursuing these questions, this paper first outlines in section II the methodology and theory used in the empirical analysis. The empirical results then follow in section III, and a final section contains the concluding remarks.
Handle: RePEc:nbr:nberwo:0622
Template-Type: ReDIF-Paper 1.0
Title: Wage-Employment Contracts (Replaced by W0675)
Author-Name: Jerry R. Green
Author-Person: pgr476
Note: EFG
Number: 0623
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0623
File-URL: http://www.nber.org/papers/w0623.pdf
File-Format: application/pdf
Publication-Status: published as Green, Jerry and Charles M. Kahn. "Wage-Employment Contracts," Quarterly Journal of Economics, 1983, v98(Supp), 173-188.
Abstract: This paper studies the efficient agreements about the dependence of workers' earnings on employment, when the employment level is controlled by firms. Under plausible assumptions, such agreements will cause employment to diverge from efficiency as a byproduct of their attempt to mitigate risk. However, employment is above rather than below the efficient level when the conditions of profitability are worse than average. Such a one- period implicit contracting model cannot, therefore, be used to "explain" unemployment as it is traditionally conceived.
Handle: RePEc:nbr:nberwo:0623
Template-Type: ReDIF-Paper 1.0
Title: An Intertemporal Analysis of Taxation and Work Disincentives: An Analysis of the Denver Income Maintenance Experiment
Author-Name: Thomas E. MaCurdy
Note: LS
Number: 0624
Creation-Date: 1981-01
Order-URL: http://www.nber.org/papers/w0624
File-URL: http://www.nber.org/papers/w0624.pdf
File-Format: application/pdf
Abstract: This paper formulates an empirical model of consumption and labor supply that explicitly incorporates income taxes in a multiperiod setting. This model relies on few assumptions and provides a robust framework for estimating parameters needed to predict the response of consumption and hours of work to changes in a consumer's lifetime resource constraints. The empirical specifications developed here apply when a consumer is uncertain about future prices, taxes, income, and tastes, and the estimation of these specifications does not require explicit modeling of either a consumer's expectations or the history of a consumer. The empirical model accommodates both progressive and regressive tax schemes. Estimation of the model involves no complicated procedures; a full set of parameter estimates can be obtained with the application of standard two-stage least squares techniques. The final sect ion of the paper estimates a particular specification of the model using data from the Denver Income Maintenance Experiment. The empirical formulations proposed here are particularly well suited to deal with the kinds of tax schemes used in NIT experiments and the limited duration of those programs.
Handle: RePEc:nbr:nberwo:0624
Template-Type: ReDIF-Paper 1.0
Title: Explanations of Exchange Rate Volatility and Other Empirical Regularities in Some Popular Models of the Foreign Exchange Market
Author-Name: Robert P. Flood
Author-Person: pfl25
Note: ITI IFM
Number: 0625
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0625
File-URL: http://www.nber.org/papers/w0625.pdf
File-Format: application/pdf
Publication-Status: published as Flood, Robert P. "Explanations of Exchange-Rate Volatility and Other Empirical Regularities in Some Popular Models of the Foreign Exchange Market." Carnegie-Rochester Conference Series on Public Policy, Vol. 15, The Costs and Consequences of Inflation, pp. 219-249, (Autumn 1981).
Abstract: The present paper is intended to accomplish two tasks. First, models predicting overshooting and magnification, respectively, will be checked for their consistency with two key empirical regularities: A. The observed pattern of price level vs. exchange-rate volatility. B. The observed pattern of spot exchange-rate vs. forward exchange-rate volatility. Second, a widely neglected reason for exchange-rate volatility, activist monetary policy, will be studied.
Handle: RePEc:nbr:nberwo:0625
Template-Type: ReDIF-Paper 1.0
Title: A Model of Stochastic Process Switching
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Peter M. Garber
Author-Person: pga124
Note: ITI IFM
Number: 0626
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0626
File-URL: http://www.nber.org/papers/w0626.pdf
File-Format: application/pdf
Publication-Status: published as Flood, Robert P. and Peter M. Garber. "A Model of Stochastic Process Switching." Econometrica, Vol. 51, No. 3, (May 1983), pp. 537-552.
Abstract: In this paper we develop a rational expectations exchange rate model which is capable of confronting explicitly agents' beliefs about a future switch in exogenous driving processes. In our set-up the agents know with certainty both the initial exogenous process and the new process to be adopted when the switch occurs. However, they do not know with certainty the timing of future switch as it depends on the path followed by the (stochastic) exchange rate. The model is discussed in terms of the British return to pre-war parity, in 1925. However, our results are applicable to a variety of situations where process switching depends on the motion of a key endogenous variable.
Handle: RePEc:nbr:nberwo:0626
Template-Type: ReDIF-Paper 1.0
Title: The Adequacy of Savings
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 0627
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0627
File-URL: http://www.nber.org/papers/w0627.pdf
File-Format: application/pdf
Publication-Status: published as Kotlikoff, Laurence, Avia Spivac, and Lawrence H. Summers. "The Adequacy of Safings." American Economic Review, Vol. 72, No. 5 (December 1982), pp. 10 56-1069.
Abstract: This paper uses newly available data from the Social Security Administration's Retirement History Survey to examine the adequacy of saving. This data source is particularly rich; survey data for respondents covering the ydars 1969, 197 1( and 1953 have been matched with Social Security earnings records covering the years dating back to 1951. In addition to information on the path of lifetime earnhngs, the survey contains extensive data on individual asset holdings. The evidence indicates that surprisingly few couples currantly suffer significant reductions in their standard of living in their old age. This appears due, in large part, to our compulsory savings institutions, the Social Security and private pension systems. These institutions have succeeded in redistributing the lifetime consumption of private individuals from their youth to their old age.
Handle: RePEc:nbr:nberwo:0627
Template-Type: ReDIF-Paper 1.0
Title: Trade Policy and Import Competition under Fluctuating Prices
Author-Name: Paul Strebel
Author-Name: Shabtai Donnenfeld
Note: ITI IFM
Number: 0628
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0628
File-URL: http://www.nber.org/papers/w0628.pdf
File-Format: application/pdf
Publication-Status: published as Donnenfeld, Shabtai & Strebel, Paul, 1983. "Industry structure and trade policy under fluctuating import prices," European Economic Review, Elsevier, vol. 23(2), pages 203-215.
Abstract: When subsidies and tariffs are applied to imports with fluctuating prices, it is shown that the output response of domestic producers depends on market structure and their attitude toward risk. The domestic industry response is contrasted under two types of market structure, a monopoly and a competitive industry. Some unanticipated results suggest caution in the implementation of trade policy.
Handle: RePEc:nbr:nberwo:0628
Template-Type: ReDIF-Paper 1.0
Title: The Real Price of Oil and the 1970s World Inflation
Author-Name: Michael R. Darby
Note: ITI IFM
Number: 0629
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0629
File-URL: http://www.nber.org/papers/w0629.pdf
File-Format: application/pdf
Publication-Status: published as Darby, Michael R. "The Price of Oil and World Inflation and Recession." The American Economic Review, Vol. 72, No. 4 (September 1982), pp. 738-751.
Abstract: This paper shows that the effects on real income and the price level of the 1973-1974 oil price increase are quite ambiguous on both theoretical and empirical grounds. The theoretical analysis reviews standard results and extends them to analyze the steady-state equilibrium and endogenous monetary policy reaction functions. It is shown that standard models and parameter values imply trivial reductions in real income and ambiguously signed changes in the price level. It is noted, however, that other special models can rationalize empirical findings of large effects. Direct real- oil-price effects in an extended Barro-Lucas real income equation are estimated for eight countries. Although statistically significant and substantial direct effects are found for about half the countries, it is noted that these coincided with countries undergoing price decontrol during 1973- 1974. Thus price-control biases in real GNP data provide an acceptable alternative explanation for the estimated effects. Simulation experiments in an international model illustrate the wide range of real income and price level effects which are consistent with the data. Further research is proposed to narrow the range of possible effects.
Handle: RePEc:nbr:nberwo:0629
Template-Type: ReDIF-Paper 1.0
Title: Monetarist Principles and the Money Stock Growth Rule
Author-Name: Bennett T. McCallum
Note: EFG
Number: 0630
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0630
File-URL: http://www.nber.org/papers/w0630.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "Monetarist Principles and the Money Stock Growth Rule ." The American Economic Review, Vol. 71, No. 2, (May 1981), pp. 134-138.
Abstract: Given the influence of Milton Friedman ,it is hard to keep from identifying "monetarisms" with the advocacy of a policy rule that would require the money stock to grow at a constant rate and prohibit cyclical adjustments in government spending or in tax schedules. This identification is somewhat inaccurate since Karl Brunner and Allan Meltzer, the other two leading proponents of monetarism, have not always been advocates of a constant money growth rate. It may nevertheless he useful to relate one's thoughts about monetarism to Friedman's rule, as will be done in this paper. But the question that immediately arises is, what more fundamental beliefs about the economy give rise to the idea that such a rule would be socially desirable. At this more basic level there may he more agreement among monetarists than about the rule itself. in any event, it appears that there are two basic monetarist propositions that are of crucial importance, as follows. (i) Cyclical and secular movements in nominal income are primarily attributable to movements in the stock of money relative to capacity output. (ii) There is no permanent tradeoff between unemployment and inflation or any other characteristic of the path of the price level -- that is, the natural rate of unemployment hypothesis is valid.
Handle: RePEc:nbr:nberwo:0630
Template-Type: ReDIF-Paper 1.0
Title: When Is a Positive Income Tax Optimal?
Author-Name: Fischer Black
Note: PE
Number: 0631
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0631
File-URL: http://www.nber.org/papers/w0631.pdf
File-Format: application/pdf
Abstract: When will the optimal mix of a constant income tax with a constant consumption tax involve a positive income tax? The assumptions of the model in which this question is asked include (1) identical individuals with coincident lifetimes who work in every period; (2) initial endowments of physical capital; (3) fixed government expenditures; and (4) government borrowing (or lending) that goes to zero when the world ends. In a model like this, we can ignore the transition problem. If we allow the constant tax on income from capital and the constant tax on wage income to be at different rates, we can ask a further question. When will the optimal mix of all three taxes (including the consumption tax) involve a positive tax on either income from capital or wage income?
Handle: RePEc:nbr:nberwo:0631
Template-Type: ReDIF-Paper 1.0
Title: Self-Selection and Pareto Efficient Taxation
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 0632
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0632
File-URL: http://www.nber.org/papers/w0632.pdf
File-Format: application/pdf
Publication-Status: published as Stiglitz, Joseph E. "Self-Selection and Pareto Efficient Taxation." Journal of Public Economics, Vol. 17, No. 2 (March 1982), pp. 213-240.
Abstract: This paper analyzes the set of Pareto efficient tax structures. The formulation of the problem as one of self-selection not only shows more clearly the similarity between this problem and a number of other problems (such as optimal pricing of a monopolist) which have recently been the subject of extensive research, but also allow the derivation of a number of new results. We establish (i) under fairly weak conditions, randomization of tax structures is desirable; (ii) if different individuals are not perfect substitutes for one another, then the general equilibrium effects -- until now largely ignored in the literatures -- of changes in the tax structure may be dominant in determining the optimal tax structure; in particular if relative wages of high ability and low ability individuals depends on the relative supplies of labor, the optimal tax structure entails a negative marginal tax rate on the high ability individuals, and a positive marginal tax rate on the low ability individuals (the magnitude of which depends on the elasticity of substitution); (iii) if individuals differ in their preferences, Pareto efficient taxation may entail negative marginal tax rates for high incomes; while (iv) if wage income is stochastic, the marginal tax rate at the upper end may be 100%.Our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic.
Handle: RePEc:nbr:nberwo:0632
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Unions on the Labor Market for White and Minority Youth
Author-Name: Harry J. Holzer
Author-Person: pho162
Note: LS
Number: 0633
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0633
File-URL: http://www.nber.org/papers/w0633.pdf
File-Format: application/pdf
Publication-Status: published as Holzer, Harry J. "Unions and the Laobr Market Status of White and Minority Youth," Industrial and Labor Relations Review, Vol. 35, No. 3, pp 392-405, April 1982.
Abstract: This paper presents estimates of the effects of unions on the wages of young black and white males who are both union and nonunion workers. It also presents estimates of union effects on employment for these groups, as well as their union membership rates. While unions have a very substantial, positive effect on the wages of young union workers, particularly for young blacks, they have a negative effect on the wages of young blacks who are not unionized. The effects of unions on employment are negative for both groups and especially for blacks. As for the relative access to unionized employment, young blacks within the labor force have membership rates that are roughly comparable to those of young whites. However, rates for young blacks appear to be somewhat lower after accounting for differences in rates of labor force participation between young blacks and whites. Young blacks also continue to be under-represented in the crafts and construction industries, which are heavily unionized, while being overrepresented in the relatively nonunionized, low-wage service sector. These results suggest that increasing the access of young blacks to unionized employment would improve their positions in the labor market.
Handle: RePEc:nbr:nberwo:0633
Template-Type: ReDIF-Paper 1.0
Title: Involuntary Terminations under Explicit and Implicit Employment Contracts
Author-Name: James L. Medoff
Author-Name: Katharine G. Abraham
Author-Person: pab32
Note: LS
Number: 0634
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0634
File-URL: http://www.nber.org/papers/w0634.pdf
File-Format: application/pdf
Abstract: This study investigates where and when last-in-first-out permanent layoff policies seem to go hand in hand with compensation policies under which the net value of senior workers appears to be less than that of their junior peers. The investigation relies upon both the approximately 260 usable responses to a survey we mailed out to a sample of U.S. firms and microdata from the computerized personnel files of a major U.S. corporation. Our findings for U.S. companies outside of agriculture and construction lead us to the following three conclusions: (1) For most employees, it appears that protection against job loss grows with seniority, although net value to the firm does not.(2) While a very sizeable percentage of nonunion workers may be covered by implicit employment contracts which give more protection against termination to those with more seniority, a much higher percentage of workers covered by collective bargaining agreements seem to enjoy such protection; and (3) The job protection afforded senior nonunion personnel, especially exempt employees, appears to be less strong than that provided to union members.
Handle: RePEc:nbr:nberwo:0634
Template-Type: ReDIF-Paper 1.0
Title: Process Consistency and Monetary Reform: Further Evidence and Implications
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Peter M. Garber
Author-Person: pga124
Note: EFG
Number: 0635
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0635
File-URL: http://www.nber.org/papers/w0635.pdf
File-Format: application/pdf
Publication-Status: published as Flood, Robert P. and Peter M. Garber. "Process Consistency and Monetary Reform: Some Further Evidence." Journal of Monetary Economics, Vol. 12, No. 2,(August 1983), pp. 279-296.
Abstract: In this paper we provide additional evidence that process consistency may have materialized as a restrictive constraint on the money generation process. In addition to recomputing the time series of process consistency probabilities using new data from the German case, we also supply our empirical technique to the data from the other hyperinflations studied by Cagan. We interpret our results as evidence hearing on the type of transversality condition studied by Brock or by Brock and Scheinkman as a sufficient condition to insure a unique equilibrium in optimizing models with perfect foresight and money.
Handle: RePEc:nbr:nberwo:0635
Template-Type: ReDIF-Paper 1.0
Title: On the Predictability of Tax-Rate Changes
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 0636
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0636
File-URL: http://www.nber.org/papers/w0636.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J. (ed.) Macroeconomic policy. Cambridge, MA and London: Harvard University Press, 1990.
Abstract: Some previous analyses have suggested that the smoothing of tax rates over time would be a desirable guide for public debt management. One implication of this viewpoint is that future changes in tax rates would be unpredictable based on current information. This proposition is tested by examining the behavior of U.S. federal and total government tax (and "non-tax")receipts relative to GNP. The sample for the federal government goes back to1879, while that for total government starts in 1929. Some econometric problems with using time-averaged data are discussed. The main empirical results accord with the theoretical analysis -- in particular, there is first, little indication of drift in the tax rates; second, insignificant relations of tax-rate changes to the own history of changes; and third, little explanatory value for tax-rate changes from a vector of lagged variables, which include the behavior of government spending and real output. If the findings are sustained, they imply that the existing IJ.S. time series data do not isolate periods in which current overall tax rates would be perceived as high or low relative to expected future rates. Accordingly, it may be impossible to use these data to evaluate policies that entail intertemporal manipulation of aggregate tax rates.
Handle: RePEc:nbr:nberwo:0636
Template-Type: ReDIF-Paper 1.0
Title: Issues in the Design of Saving and Investment Incentives
Author-Name: David F. Bradford
Note: PE
Number: 0637
Creation-Date: 1981-02
Order-URL: http://www.nber.org/papers/w0637
File-URL: http://www.nber.org/papers/w0637.pdf
File-Format: application/pdf
Publication-Status: published as Bradford, David F. "Issues in the Design of Saving and Investment Incentives." Depreciation and the Taxation of Income from Capital, edited by Charles R. Hulten, pp. 13-47. Washington, D.C.: The UrbanInstitute Press, 1981.
Abstract: This paper examines the characteristics of and interactions among measures to effect saving and investment incentives ("S-I incentives")in the context of an income tax system that is inadequately indexed for inflation. Examples are proposals for more rapid depreciation of buildings and equipment and proposals to exempt larger amounts of interest income. SI incentives are classified into "consumption tax" and "direct grant" types, and it is shown that these differ in their influence on portfolio choices, in their sensitivity to inflation and in the design problems they present. Stress is placed on requirements for neutrality with respect to asset durability and portfolio composition. A new result is the derivation of the reduction in interest taxation yielding neutrality in the presence of partial expensing of real investment or equivalent investment incentive.
Handle: RePEc:nbr:nberwo:0637
Template-Type: ReDIF-Paper 1.0
Title: Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation
Author-Name: Edward J. Kane
Author-Person: pka853
Note: ME
Number: 0638
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0638
File-URL: http://www.nber.org/papers/w0638.pdf
File-Format: application/pdf
Publication-Status: published as Kane, Edward J. "Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation." The Journal of Finance, Vol. XXXVI, No. 2, (May 1981), pp. 355-367.
Abstract: To explain the evolution of U.S. deposit institutions and markets in the 1960sand 1970s, we feed into the regulatory dialectic assumptions about the objectives of federal banking regulation and about outside forces that disturb the adjustment process. The disturbing exogenous forces are accelerating change in the technological and market environment of commercial banking and increasing uncertainty concerning the future speed of enviromental change. We hypothesize that, in the face of these environmental changes, the adaptive efficiency shown on average by deposit-institution managers is greater than that shown by managers of the several competing banking agencies. Incorporating this differential adaptive capacity into the regulatory dialectic helps us to understand how increases in the pace of environmental change and in the degree of environmental uncertainty led regulatee responses to come more quickly and regulatory responses to come more slowly. The bottom line is that, when the environment changes rapidly and becomes more uncertain, traditional forms of U.S. banking regulation can be overwhelmed by technological and regulation-induced innovation.
Handle: RePEc:nbr:nberwo:0638
Template-Type: ReDIF-Paper 1.0
Title: Nested Tests of Alternative Term-Structure Theories
Author-Name: Edward J. Kane
Author-Person: pka853
Note: ME
Number: 0639
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0639
File-URL: http://www.nber.org/papers/w0639.pdf
File-Format: application/pdf
Publication-Status: published as Kane, Edward J. "Nested Tests of Alternative Term-Structure Theories." Review of Economics and Statistics, Vol. 65, No. 1, (February 1983), pp. 115-12 3.
Abstract: Controversies in term-structure theory center around the existence and variability of term premia in securities yields. In this paper, the term premium on a default-free n-period bond is defined as the difference between its observable yield to maturity and the average expected per-annum rate of return on an n-period strip of rollover investments in one-period bonds. To test alternative term-structure theories without introducing ex post proxies for expectational variables, this paper uses a set of cross-section interest-rate forecasts collected jointly with Burton Malkiel of Princeton University from a population of large institutional lenders at four different phases of a single interest-rate cycle. Statistical tests strongly confirm the existence of nonzero term premia at each survey date, thereby rejecting the pure-expectations theory of the term structure. Additional tests are unable to reject restrictions implied by the liquidity-premium hypothesis that term premia should be positive and increase with maturity. Finally, contrary to the martingale hypothesis, ex ante term-premium data vary significantly overtime and show a positive association with the level of interest rates.
Handle: RePEc:nbr:nberwo:0639
Template-Type: ReDIF-Paper 1.0
Title: Deregulation, Savings and Loan Diversification, and the Flow of Housing Finance
Author-Name: Edward J. Kane
Author-Person: pka853
Note: ME
Number: 0640
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0640
File-URL: http://www.nber.org/papers/w0640.pdf
File-Format: application/pdf
Publication-Status: published as Kane, Edward J. "Deregulation, Savings and Loan Diversification and the Flow of Housing Finance." Savings and Loan Asset Management under Deregulation , pp. 80-109. San Francisco: Federal Home Loan Bank, 1981. (Proceedingsof Sixth Annual Conference.)
Abstract: This paper assesses the probable impact on S&Ls' profitability and participation in mortgage markets of The Depository Institutions Deregulation and Monetary Control Act of 1980. It tracks inflation-induced secular declines in the value of S&L mortgage holdings between 1965 and 1979 and argues(contrary to conventional wisdom) that deposit-rate ceilings proved no more than a minor and temporary source of help to S&Ls. Analysis presented shows that Federal Savings and Loan Insurance Corporation guarantees, not deposit-rate ceilings, kept the industry afloat in recent years. Further analysis centers on federal and state restrictions on S&L loan opportunities and on mortgage lenders' ability to design and to price mortgage instruments for an environment marked by accelerating inflation and increasing inflation uncertainty. Since S&Ls were free to raise whatever amount of funds they wished through large certificates of deposit, restrictions on S&L lending opportunities had to lie responsible for the much-publicized bouts of disintermediation these institutions suffered near post-1965 business-cycle peaks.
Handle: RePEc:nbr:nberwo:0640
Template-Type: ReDIF-Paper 1.0
Title: Foreign Takeovers of Swedish Firms
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Birgitta Swedenborg
Note: ITI IFM
Number: 0641
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0641
File-URL: http://www.nber.org/papers/w0641.pdf
File-Format: application/pdf
Abstract: The examination of foreign takeovers is a way of distinguishing between the characteristics of f inns and industries that encourage takeovers and the effects of foreignness or of takeovers per se. Foreigners have tended to take over Swedish firms that are of above average size within each industry. 'Very .few takeovers are of the smallest groups of firms: those with fewer than 20 employees or even those with fewer than 200. However, the firms taken over are not large compared to Swedish companies of 200 employees or more. In fact, they are well below average size within that group. The firms taken over are more skill-oriented or technology-oriented than Swedish-owned firms in the same industries. However, takeovers are not particularly prevalent in industries in which firms in general are large or skill-oriented or technology-oriented. Thus the select ion of firms for takeover is based on f inn characteristics, not industry characteristics. After takeover by foreigners, firms grow somewhat faster than Swedish-owned firms in the same industries. The technological characteristics of the firms, by the crude measurements we have been able to apply so far, do not seem to be affected in any consistent way by takeover.
Handle: RePEc:nbr:nberwo:0641
Template-Type: ReDIF-Paper 1.0
Title: The Relation between Vocational Training in High School and Economic Outcomes
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 0642
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0642
File-URL: http://www.nber.org/papers/w0642.pdf
File-Format: application/pdf
Publication-Status: published as Gustman, Alan L. and Steinmeier, Thomas L. "The Relation between Vocational Training in High School and Economic Outcomes." Industrial and Labor Relations Review, Vol. 36, No. 1 (October 1982), pp. 73-87.
Abstract: The examination of foreign takeovers is a way of distinguishing between the characteristics of f inns and industries that encourage takeovers and the effects of foreignness or of takeovers per se. Foreigners have tended to take over Swedish firms that are of above average size within each industry. 'Very .few takeovers are of the smallest groups of firms: those with fewer than 20 employees or even those with fewer than 200. However, the firms taken over are not large compared to Swedish companies of 200 employees or more. In fact, they are well below average size within that group. The firms taken over are more skill-oriented or technology-oriented than Swedish-owned firms in the same industries. However, takeovers are not particularly prevalent in industries in which f inns in general are large or skill-oriented or technology-oriented. Thus the select ion of this paper examines estimated relationships between economic outcomes and vocational training in high school. We find that these relationships are relatively robust with respect to variation in the way that type and quality of vocational training is measured as well as with respect to a number of other variations in specification. None of the evidence we have developed supports a view that vocational training for male students in high school produces any special skills that are valued by firms beyond those that are produced by a general high school education. The evidence does suggest that in the early 70's commercial-business programs taken by young women did produce such valued skills. But the evidence pertaining to later years is inconclusive firms for takeover is based on f inn characteristics, not industry characteristics. After takeover by foreigners, firms grow somewhat faster than Swedish-owned firms in the same industries. The technological characteristics of the firms, by the crude measurements we have been able to apply so far, do not seem to be affected in any consistent way by takeover.
Handle: RePEc:nbr:nberwo:0642
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Risk on Interest Rates: A Synthesis of the Macroeconomic and Financial Views
Author-Name: Pentti J.K. Kouri
Note: ITI IFM
Number: 0643
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0643
File-URL: http://www.nber.org/papers/w0643.pdf
File-Format: application/pdf
Publication-Status: published as Kouri, Pentti J.K. "The Effect of Risk on Interest Rates: A Synthesis of the macroeconomic and Financial Views." Research in International Business & Finance: A research Annual. The Internationalization of Financial Markets & National Economic Policy, ed. by R.G. Hawkins & R.M. Levich, Vol. 3, 1983.
Publication-Status: published as Kouri, Pentti J. K. "The Effect Of Risk And Interest Rates: A Synthesis Of The Macroeconomic And Financial Views," Research in International Business and Finance, 1983, v3(1), 301-320.
Abstract: This paper analyzes the effects of real income and price level uncertainty on equilibrium interest rates. It is demonstrated that even if there are no outside nominal assets, the interest rate on nominal bonds contains a risk premium, or as the case may be, a risk discount. The sign, and the magnitude, of the deviation from the Fisher parity depends on the covariance between the purchasing power of money on the one hand and real income on the other. The second part of the paper extends the model into a model of two countries, two monies and two bonds denominated in these two monies. It is shown, in contrast with statements made in the literature, that the 'efficiency' of international financial markets does not imply equality of expected real interest rates on bonds denominated in different currencies, nor does it imply that the forward exchange rate should be an unbiased predictor of the future spot exchange rate. This is again true even when there are no outside nominal assets in the world economy.
Handle: RePEc:nbr:nberwo:0643
Template-Type: ReDIF-Paper 1.0
Title: Balance of Payments and the Foreign Exchange Market: A Dynamic Partial Equilibrium Model
Author-Name: Pentti J.K. Kouri
Note: ITI IFM
Number: 0644
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0644
File-URL: http://www.nber.org/papers/w0644.pdf
File-Format: application/pdf
Publication-Status: published as Kouri, Pentti J. K. "Balance of Payments and the Foreign Exchange Market: A Dynamic Partial Equilibrium Model." Economic Interndependence and Flexible Exchange Rates, edited by Jagdeep S. Bhandari andBulford H. Putnam, pp. 11 6-156, Cambridge: MIT Press, 1983.
Abstract: This paper develops a dynamic partial equilibrium model of the foreign exchange market extending the standard textbook model in two respects. First, capital account transactions are explicitly incorporated into the model, and secondly, 'rational' speculative behaviour is also introduced. At a point in time, or in a given day, exchange rate fluctuations are dominated by 'new information' that leads to revision of speculative expectations, as well as by other disturbances on the capital account. In the long run, fundamental factors, such as divergences of inflation rates and real changes influencing the trade balance, become relevant in determining the 'trend' of the exchange rate. A variety of exercises, and numerical simulations, illustrate the usefulness of the dynamic supply-demand model in understanding the behaviour of floating exchange rates in a world of high capital mobility.
Handle: RePEc:nbr:nberwo:0644
Template-Type: ReDIF-Paper 1.0
Title: The Relative Stability of Money and Credit "Velocities" in the United States: Evidence and Some Speculations
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0645
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0645
File-URL: http://www.nber.org/papers/w0645.pdf
File-Format: application/pdf
Abstract: Is credit as closely related to income as is money? Results presented in the first half of this paper, based on a variety of methodological approaches, consistently indicate that the aggregate of outstanding credit liabilities of all nonfinancial borrowers in the United States bears as close a relationship to U.S. nonfinancial activity as do the more familiar asset aggregates like the money stock (however measured) or the monetary base. In contrast to the asset aggregates, however, which exhibit little overall difference among themselves in this context, total nonfinancial indebtedness appears to be unique among credit aggregates in bearing this close relationship to income. Moreover, additional evidence of offsetting movements of the public and private components of total nonfinancial indebtedness further substantiates the case for stability in the aggregate. The second half of the paper suggests three hypotheses that provide internally consistent potential explanations for this phenomenon:(1) an "ultrarationality" hypothesis which emphasizes acute perceptions and offsetting actions on the part of the private sector, (2) a "capital leveraging" hypothesis which emphasizes borrowing limitations and the need for tangible collateral, and (3) an "asset demand" hypothesis which emphasizes the private sector's role as a net lender. Initial efforts to match these hypotheses against data for the U.S. household and corporate business sectors yield only mixed results, however. The stability of the credit-to-income relationship remains for the present a major puzzle, therefore, although these three hypotheses do look sufficiently promising to warrant a much closer investigation.
Handle: RePEc:nbr:nberwo:0645
Template-Type: ReDIF-Paper 1.0
Title: Multiple Time-Serie3 Models Applied to Panel Data
Author-Name: Thomas E. MaCurdy
Note: LS
Number: 0646
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0646
File-URL: http://www.nber.org/papers/w0646.pdf
File-Format: application/pdf
Abstract: This study presents a general methodology for fitting multiple time series models to panel data. The basic statistical framework considered here consists of a dynamic simultaneous equation model where disturbances follow a permanent-transitory scheme with transitory components generated by a multivariate autoregressive-moving average process. This error scheme admits a wide variety of autocovariance patterns and provides a flexible framework for describing the dynamic characteristics of longitudinal data with a minimal number of parameters. It is possible within this framework to consider generally specified rational distributed lag structures involving both exogenous and endogenous variables which includes infinite order lag relationships. This paper outlines the generalizations of standard time series models that are possible when using panel data, and it identifies those instances in which procedures found in the time series literature cannot be directly applied to analyze longitudinal data. Data analysis techniques in the tine series literature are adapted for panel data analysis. These techniques aid in the choice of a time series model and prevent one from choosing a specification that is broadly inconsistent with the data. Several estimation procedures are proposed that can be used to estimate all the parameters of a multiple tine series model including both regression coefficients and parameters of the covariance matrix. The techniques developed here are robust in the sense that they do not rely on any specific distributional assumptions for their asymptotic properties, and in many cases their implementation requires only standard computer packages.
Handle: RePEc:nbr:nberwo:0646
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Behavior under Full Monetary Equilibrium: An Empirical Analysis
Author-Name: John H. Makin
Note: ME ITI IFM
Number: 0647
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0647
File-URL: http://www.nber.org/papers/w0647.pdf
File-Format: application/pdf
Abstract: This paper aims to remedy difficulties with some extant empirical tests of the monetary approach to exchange rate determination. Four problems are addressed: explication of and allowance for real exchange rate changes; imposition of interest parity; use of the forward rate as an unbiased predictor of the spot rate; and modeling implications of official intervention in foreign exchange markets and of possible efforts to sterilize effects of intervention in the monetary base. Empirical tests conducted with monthly data on the dollar-DM exchange rate from March, 1973 -December,1979 do not permit rejection of the complex joint hypothesis represented by equations estimated to test the monetary approach. Still, there remained unexplained a large portion of the behavior of the dollar-DM exchange rate in the 1973-79 monthly sample employed. This result suggests that exchange rates may be viewed as prices determined in asset markets where a large and unsystematic flow of information, not captured by monetary or other variables, produces large, unsystematic movements.
Handle: RePEc:nbr:nberwo:0647
Template-Type: ReDIF-Paper 1.0
Title: International Capital Flows under Full Monetary Equilibrium: An Empirical Analysis
Author-Name: John H. Makin
Note: ME ITI IFM
Number: 0648
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0648
File-URL: http://www.nber.org/papers/w0648.pdf
File-Format: application/pdf
Abstract: This paper develops a theory of international capital flows based upon a monetary-equilibrium, rational-expectation theory of exchanged rate determination extended to include the official intervention and possible sterilization of its effects upon the monetary base that are part of the post-1973 system of limited flexibility of exchange rates. Capital flows are shown to depend only on the current expectation of a future relative excess money supplies once all arbitrage conditions are imposed along with rationality. Empirical testing reveals that U.S. international capital flows respond with persistent, damped oscillations to growth of relative excess money. This phenomenon is a quantity adjustment corollary of '"overshooting" of exchange rates in response to changes in relative excess money supply. Inclusion of a relative interest rate term along with measures of growth of relative excess money supply results in rejection of the hypothesis that such a variable provides any additional explanatory power regarding behavior of U.S. international capital flows.
Handle: RePEc:nbr:nberwo:0648
Template-Type: ReDIF-Paper 1.0
Title: Dividend Yields and Stock Returns: A Test for Tax Effects
Author-Name: Patrick J. Hess
Note: PE
Number: 0649
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0649
File-URL: http://www.nber.org/papers/w0649.pdf
File-Format: application/pdf
Publication-Status: published as JB, Vol. 56, no. 4 (1983): 537-554.
Abstract: This paper examines the empirical relation between stock returns and dividend yields. Several equilibrium pricing models incorporating differential taxation of dividends and capital gains are nested as systems of time series regressions. Estimates of these models and tests of parameter restrictions implied by the models are conducted within the context of Zellner's seemingly unrelated regression. It is concluded that the data fail to support these models as well as the hypothesis that dividends are neutral. The inability to distinguish between these competing hypotheses suggests the need for further research before definitive conclusions are reached regarding the tax impacts of dividends.
Handle: RePEc:nbr:nberwo:0649
Template-Type: ReDIF-Paper 1.0
Title: Some Theoretical Aspects of Base Control
Author-Name: Charles Freedman
Note: ME
Number: 0650
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0650
File-URL: http://www.nber.org/papers/w0650.pdf
File-Format: application/pdf
Publication-Status: published as Freedman, Charles. "Some Theoretical Aspects of Base Control." The Canadian Balance of Payments: Perspectives and Policy Issues, edited by Douglas Purvis. Institute for Research on Public Policy Montreal Canada, (1983).
Abstract: This paper focuses on the implications of using the monetary base or bank reserves as an instrument to control a monetary aggregate. Following analysis of a series of theoretical models of increasing complexity, it is concluded that in a system with either institutional or structural lags base control may entail very sharp and possibly undamped oscillations of short-term interest rates. The shorter the time period over which the authorities choose to bring the monetary aggregate back to its target, the more volatile will be the movements of interest rates. Furthermore, there is an asymmetry in the U.S. institutional structure such that rigid implementation of the base control system will under certain circumstances lead to a decline in short-term interest rates to very low levels. The final section of the paper is devoted to the examination of the Canadian institutional structure emphasizing the differences between the U.S. and Canadian systems.
Handle: RePEc:nbr:nberwo:0650
Template-Type: ReDIF-Paper 1.0
Title: Consumption Preferences, Asset Demands, and Distribution Effects in International Financial Markets
Author-Name: Paul R. Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 0651
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/w0651
File-URL: http://www.nber.org/papers/w0651.pdf
File-Format: application/pdf
Abstract: This paper is an attempt to examine some of the microeconomic foundations of this last view of the link between current accounts and exchange rata. Several authors, especially Kouri and de Macedo (1978), but also more recently Dornbusch (1980), have sought to justify the portfolio approach in terms of finance theory, deriving asset demands from a mean-variance framework and arguing that differences in the portfolios of different countries explain why changes in the world distribution of wealth affect exchange rates. What I will do in this paper is to argue that, even under seemingly favorable assumptions, these distribution effects nay run the wrong way; that if they run the right way, they will be very weak; and that the incentives for inter-national, portfolio diversification are in any case small, and can be swamped by quite modest transaction costs or other costs to diversification.
Handle: RePEc:nbr:nberwo:0651
Template-Type: ReDIF-Paper 1.0
Title: The Federal Minimum Wage, Inflation, and Employment
Author-Name: John F. Boschen
Author-Name: Herschel I. Grossman
Note: EFG LS
Number: 0652
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0652
File-URL: http://www.nber.org/papers/w0652.pdf
File-Format: application/pdf
Publication-Status: published as Boschen, John F. and Grossman, Herschel I. "The Federal Minimum Wage, Employment, and Inflation. Report of the Minimum Wage Study Commission, Vol. VI,(June 1981), pp. 19-43.
Abstract: This study investigates the effects of Federal minimum wage policy on mini-mum wage employment, aggregate employment, and average wage rates. The theoretical analysis focuses on the possible effect of the Federal minimum wage in constraining wages and employment in a subset of labor markets, on the possible responses of labor suppliers to these constraints, and on the possible role of the policy of presetting the nominal minimum wage in making monetary policy nonneutral. Among the elements of the theoretical framework that are both distinctive and important are the assumptions that both the demands and supplies of labor services in the subset of constrained markets depend on the expected relative minimum wage in the near and distant future, as well as on the current relative minimum wage and on past levels of employment, and that the relevant expectations of both workers and employers about relative minimum wages are "rational."
Handle: RePEc:nbr:nberwo:0652
Template-Type: ReDIF-Paper 1.0
Title: Indexation of the Minimum Wage with Rational Expectations
Author-Name: Herschel I. Grossman
Note: EFG LS
Number: 0653
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0653
File-URL: http://www.nber.org/papers/w0653.pdf
File-Format: application/pdf
Abstract: This paper considers the possible employment effects of reforming minimum-wage policy to incorporate indexation of the nominal minimum wage .The analysis assumes that both the demand for the labor services of minimum-wage workers and the setting of the nominal minimum wage rate under existing policy depend in part on rational expectations of future average wage rates. The analysis implies that, if the indexation ratio of the nominal minimum wage to the recent-past average wage rate were large relative both to the level and trend of the expected rate of average wage inflation and to the existing relative minimum-wage target, indexation would decrease the average level over time of minimum-wage employment. The analysis also implies that, if the year-to-year variation in expected wage inflation were large relative to the year-to-year variation in unexpected wage inflation, indexation would increase the year-to-year variation in minimum-wage employment.
Handle: RePEc:nbr:nberwo:0653
Template-Type: ReDIF-Paper 1.0
Title: Early Retirement Pension Benefits
Author-Name: Jeremy I. Bulow
Note: PE
Number: 0654
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0654
File-URL: http://www.nber.org/papers/w0654.pdf
File-Format: application/pdf
Abstract: Early retirement options alter the accrual of pension benefits, increasing the fraction of total benefits accrued in the early years of work. This is true regardless of whether de facto no worker exercises the early retirement option. No currently used actuarial method correctly calculates the cost of an early retirement option. Early retirement options must be considered in calculating age/compensation profiles. Furthermore, the early retirement option can effectively be used to encourage less productive older workers to retire, without the firm having to reduce the nominal salary of such workers.
Handle: RePEc:nbr:nberwo:0654
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Government Regulation on Teenage Smoking
Author-Name: Eugene M. Lewit
Author-Name: Douglas Coate
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 0655
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0655
File-URL: http://www.nber.org/papers/w0655.pdf
File-Format: application/pdf
Publication-Status: published as Lewit, Eugene M.; Coate, Douglas; and Grossman, Michael. "The Effects of Government Regulation on Teenage Smoking." Journal of Law and Economics, Vol. XXIV, No. 3, (December 1981), pp. 273-298.
Abstract: We examine the impact of three sets of government regulations on the demand for cigarettes by teenagers in the United States. These are: (1) the excise tax on cigarettes, (2) the Fairness Doctrine of the Federal Communications Commission, which resulted in the airing of anti-smoking messages on radio and television from July 1, 1967 to January 1, 1971,and (3) the Public Health Cigarette Smoking Act of 1970, which banned pro-smoking cigarette advertising on radio and television after January 1, 1971.Teenage price elasticities of demand for cigarettes are substantial and much larger than the corresponding adult price elasticities. The teenage smoking participation elasticity equals -1.2, and the quantity smoked elasticity equals -1.4. It follows that, if future reductions in youth smoking are desired, an increase in the Federal excise tax is a potent policy to accomplish this goal. The contention of the proponents of the advertising ban that the Fairness Doctrine failed in the case of teenagers is incorrect. According to our results, the doctrine had a substantial negative impact on teenage smoking participation rates. Extrapolations suggest that the advertising ban was no better or worse a policy than the Fairness Doctrine.
Handle: RePEc:nbr:nberwo:0655
Template-Type: ReDIF-Paper 1.0
Title: Minimum Wages and the Demand for Labor
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 0656
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0656
File-URL: http://www.nber.org/papers/w0656.pdf
File-Format: application/pdf
Publication-Status: published as Hamermesh, Daniel S. "Minimum Wages and the Demand for Labor," Economic Inquiry, Vol. XX, No. 3 (July 1982), pp. 365-380.
Abstract: I formulate measures of the effective minimum wage, based on broad definitions of the labor costs that face employers, and use these measures in reestimating some simple equations relating the relative employment of youths and adults to the U.S. minimum wage using aggregate data for 1954-78.I then ground the model more closely in the theory of factor demand, first by adding the relative wages of youths and adults to the equation describing their relative employment, and then by specifying a complete system of demand equations for these two types of labor. Teen employment responds quite robustly to changes in the effective minimum in these specifications, with an elasticity of -0.1. A translog cost function defined over young workers, adults, and capital shows that the effective minimum wage reduces employers' ability to substitute other factors for young workers. Using both sets of results, I find that a subminimum wage for youths would have increased their employment with at most a small loss of jobs among adults.
Handle: RePEc:nbr:nberwo:0656
Template-Type: ReDIF-Paper 1.0
Title: Housing Behavior and the Experimental Housing Allowance Program: What Have We Learned?
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 0657
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0657
File-URL: http://www.nber.org/papers/w0657.pdf
File-Format: application/pdf
Publication-Status: published as Rosen, Harvey S. "Housing Behavior and the Experimental Housing Allowance Program: What Have We Learned?" Social Experimentation, edited by Jerry A . Hausman and David A. Wise. Chicago: University of Chicago Press, (1985) , pp. 55-75.
Publication-Status: published as Housing Behavior and the Experimental Housing-Allowance Program: What Have We Learned?, Harvey S. Rosen. in Social Experimentation, Hausman and Wise. 1985
Abstract: The purpose of this paper is to evaluate the Experimental Housing Allowance Program (EHAP). My focus is on what the experimental data have taught us that could not have been learned from more traditional sources of information. I review the major problems that confronted investigators using non-experimental data, and for each problem discuss whether or not it was mitigated by the availability of EHAP data .I conclude that if the goal was to obtain improved estimates of the behavioral response to housing allowances, a social experiment was not necessary.
Handle: RePEc:nbr:nberwo:0657
Template-Type: ReDIF-Paper 1.0
Title: Real Exchange Rate Adjustment and the Welfare Effects of Oil Price Decontrol
Author-Name: Paul R. Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 0658
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0658
File-URL: http://www.nber.org/papers/w0658.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Differences In Income Elasticities and Trends in Real Exchange Rates") European Economic Review, Vol. 33, no. 5 (1989):1031-1046.
Abstract: Conventional analysis of the welfare effects of U.S. oil price regulation in the 1970's focuses on the deadweight losses in the oil market. This paper argues that such analysis substantially understates the benefits from decontrolling prices, because decontrol will lead to an improvement in the U.S. terms of trade with respect to other oil importing countries. A simple model of the relationship between oil decontrol and the terms of trade is developed, and the impact is calculated for plausible parameter values. The results suggest that the terms of trade benefits are several times larger than the benefits as conventionally measured.
Handle: RePEc:nbr:nberwo:0658
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Social Security on Retirement in the Early 1970s
Author-Name: Michael D. Hurd
Author-Person: phu137
Author-Name: Michael J. Boskin
Note: PE
Number: 0659
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0659
File-URL: http://www.nber.org/papers/w0659.pdf
File-Format: application/pdf
Publication-Status: published as Hurd, Michael D. and Michael J. Boskin. "The Effect of Social Security on Retirement in the Early 1970s." Quarterly Journal of Economics, (November 1984), pp. 767-790.
Abstract: Improved understanding of retirement behavior is a key to better understanding of many important economic problems. In as close as we can come to a general "social experiment," real Social Security benefits were increased substantially for the period we study the retirement patterns of a cohort of white males: 28% on average between 1970 and 1972, with the maximum benefit increased by over 50% in real terms between 1968 and 1976. Other important structural changes in the method of computing benefits were also made. Hence, we have extremely detailed longitudinal data on a cohort of people spanning the years of most active retirement behavior (ages 58-67) over a period of abrupt change in the economic incentives surrounding their retirement . We have analyzed these data in a variety of ways to examine the impact of the changes in Social Security, as well as other factors, on retirement probabilities. The most simple to the most sophisticated analyses reveal the same set of inferences: 1. The acceleration in the decline in the labor force participation of elderly men over the period 1969-73 was primarily due to the large increase in real Social Security benefits; our probability equations estimate effects of changes in real benefits combined with the actual changes to predict declines in participation rates virtually identical to actual observed changes from independent data. 2. Social Security wealth interacts with other assets. A substantial fraction of the elderly appear to have few other assets and this group shows a markedly larger propensity to retire early, e.g., at age 62 when Social Security benefits become available. We find strong evidence of this liquidity constraint effect for an important subgroup of the elderly. 3. The magnitude of the induced retirement effect is large enough that if it is ignored in estimating the direct fiscal implications of major changes in benefit provisions, these may be substantially underestimated . 4. We interpret our results in the historical context of a particular cohort undergoing a major, unanticipated transfer of wealth via larger real benefits. We make no attempt to distinguish these from the long- run effects if the system were to remain unchanged for many years or if future changes were readily predictable.
Handle: RePEc:nbr:nberwo:0659
Template-Type: ReDIF-Paper 1.0
Title: Raw Materials, Profits, and the Productivity Slowdown (Rev)
Author-Name: Michael Bruno
Note: PR ITI IFM
Number: 0660
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0660
File-URL: http://www.nber.org/papers/w0660.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, vol.99, no. 1, pp1-29, February 1987.
Abstract: A factor-price frontier framework is used to clarify the analogy of an increase (decrease) in raw material prices with that of autonomous technological regress (progress). Factor-price profiles estimated for the United States, the United Kingdom, Germany, and Japan bring out the major role of raw materials in the profit and product wage squeeze after 1972, with some differences between countries. The production model, in conjunction with estimates obtained from the factor-price frontier, attributes almost all the slowdown in total productivity to the rise in relative raw material prices. It is also shown that part of the apparent productivity riddle has to do with the common use of double-deflated national accounting measures of value added, which have an inherent measurement bias.
Handle: RePEc:nbr:nberwo:0660
Template-Type: ReDIF-Paper 1.0
Title: Taxation and Corporate Pension Policy
Author-Name: Irwin Tepper
Note: PE
Number: 0661
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0661
File-URL: http://www.nber.org/papers/w0661.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 36, no. 1 (1981): 1-13.
Abstract: Section I introduces the material in the context of existing research. In Section II the effects of the tax structure on the desirability of having pension plans and on the funding and investment policies of such plans is discussed. Section III discusses the discrepancies between the prescriptions presented above and current practice. The Appendix contains a detailed analysis of each of the two tax provisions that apply to corporate pension plans.
Handle: RePEc:nbr:nberwo:0661
Template-Type: ReDIF-Paper 1.0
Title: Suit and Settlement vs. Trial: A Theoretical Analysis under Alternative Methods for the Allocation of Legal Costs
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 0662
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0662
File-URL: http://www.nber.org/papers/w0662.pdf
File-Format: application/pdf
Publication-Status: published as Shavell, Steven. "Suit and Settlement vs. Trial: A Theoretical Analysis under Alternative Methods for the Allocation of Legal Costs." Journal of Legal Studies, Vol. 11, No. 1 (January 1982) pp. 55-81.
Abstract: Will a party who believes that he has a legally admissible claim for money damages decide to bring suit? if so, will he subsequently settle with the opposing party or will he go ahead to trial? These questions are analyzed under four methods for allocating legal costs, namely, under the American system, whereby each side bears its own costs; under the "indemnity" or British system, whereby the losing side bears all costs; under the system favoring the plaintiff whereby the plaintiff pays only his own costs if he loses and nothing otherwise; and under the system favor the defendant, whereby the defendant pays only his own costs if he loses and nothing otherwise. Following the analysis, two brief illustrations are considered and comments are made on the relative social desirability of the methods of allocating legal costs.
Handle: RePEc:nbr:nberwo:0662
Template-Type: ReDIF-Paper 1.0
Title: Distributional Implications of Imperfect Capital Markets
Author-Name: Joon Koo Lee
Note: LS
Number: 0663
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0663
File-URL: http://www.nber.org/papers/w0663.pdf
File-Format: application/pdf
Abstract: The primary aim of this study is to analyze the impact of imperfections in capital markets on individuals' lifetime allocation plans and the resulting implications for income distribution. The model builds upon Samuelson's overlapping generation model with human capital and bequest motives playing central roles. The model developed here introduces a limit on the individual's ability to borrow. One of the most important consequences of this constraint is that human investment falls short of the level where its marginal return is equal to that of non-human investment. The comparative static results show that an individual who has been subject to the borrowing constraint would increase human investment unambiguously if he were allowed to borrow freely against future earnings. Discussions of the distributive implications of this result suggest that the elimination of the borrowing constraint has a potential of enhancing both intragenerational income equality and intergenerational mobility. The simulation results show that the elimination of the borrowing limit would bring about a significant improvement in income distribution without having an adverse effect on efficiency.
Handle: RePEc:nbr:nberwo:0663
Template-Type: ReDIF-Paper 1.0
Title: Profitability and Stability in International Currency Markets
Author-Name: John F. O. Bilson
Note: ITI IFM
Number: 0664
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0664
File-URL: http://www.nber.org/papers/w0664.pdf
File-Format: application/pdf
Abstract: A number of recent empirical studies have rejected the hypothesis that forward exchange rates are unbiased forecasts of future spot exchange rates. This result implies that there have been opportunities for speculative profit during the post Bretton Woods period. Observers of the floating rate system have also noted that exchange rates have been more volatile than they were anticipated to be in the 1960's. In this paper, the link between the volatility of exchange rates and the existence of opportunities for speculative profit is explored. The question answered in the paper is the following: if there were no opportunities for speculative profit, would exchange rates have been more stable? The answer is yes. This answer implies that speculation (intervention) based upon the forecasting equation described in the paper would be both profitable and stabilizing.
Handle: RePEc:nbr:nberwo:0664
Template-Type: ReDIF-Paper 1.0
Title: Business Cycles and Growth: Some Reflections and Measures
Author-Name: Victor Zarnowitz
Note: EFG
Number: 0665
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0665
File-URL: http://www.nber.org/papers/w0665.pdf
File-Format: application/pdf
Publication-Status: published as Zarnowitz, Victor. "Business Cycles and Growth: Some Reflections and Measures." Wirtschaftstheorie und Wirtschaftspolitik: Gedenkschrift fur Erich Preiser, edited by Wolfgang J. Muckl and Alfred E. Ott, pp. 475-508. Passau: Passavia Universitatsverlag, 1981.
Abstract: Is the long-term trend of the economy -- growth -- substantially influenced by the short-term movements -- business cycles -- and, if so, how? Are business cycles subject to major secular changes? Are these fluctuations the natural way growth takes in private enterprise economies or are they mainly due to some outside shocks that could be avoided or reduced? Should their analysis be based on trend-unadjusted or on trend-adjusted time series data? These are major questions that have received considerable attention in economic literature, but they are difficult and still debated. I cannot hope to resolve any of them in this paper, of course, but I shall attempt to contribute to the discussion of some aspects of how business cycles and growth are related.
Handle: RePEc:nbr:nberwo:0665
Template-Type: ReDIF-Paper 1.0
Title: Currency Baskets and Real Effective Exchange Rates
Author-Name: William H. Branson
Author-Name: Louka T. Katseli
Note: ITI IFM
Number: 0666
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0666
File-URL: http://www.nber.org/papers/w0666.pdf
File-Format: application/pdf
Publication-Status: published as Branson, William H. and Louka T. Katseli. "Currency Baskets and Real Effective Exchange Rates." The Theory and Experience of Economic Development, edited by M. Gersovitz et al, George Allen and Irwin,Essays in Honor of Sir W. Arthur Lewis, (London 1982).
Abstract: With the major currencies continuously moving (if not floating freely) against each other, a country that does not choose to float must decide what to peg to. If it pegs to the SDR it floats against all currencies. Thus in the system begun in the early 1970s the very concept of a fixed exchange rate is unclear. In this situation many countries have chosen to peg their currencies to a basket, or a weighted average of other currencies. The analysis of this paper is focused on fluctuations in real exchange rates. We first show that pegging to a currency basket is the same as holding constant a real effective exchange rate that uses a specific set of weights depending on a chosen policy target. We also show the weights that correspond to particular targets for stabilization policy. Next we discuss several problems involved in choosing and computing optimal weights or the equivalent real effective rate. It is shown that the index formula itself aggregates countries that are in a currency area, so that monetary authorities should use weights based on trade with countries rather than on currency denomination of trade. Finally, we report on an initial empirical investigation of pegging practices in Greece, Portugal, and Spain. These are all countries that have moved to basket pegs, with geographically diversified trade. We present initial estimates of the implicit weights in their baskets, and find that all three countries experienced real appreciation relative to the basket during the l970s.
Handle: RePEc:nbr:nberwo:0666
Template-Type: ReDIF-Paper 1.0
Title: Expected Interruptions in Labor Force Participation and Sex Related Differences in Earnings Growth
Author-Name: Yoram Weiss
Note: LS
Number: 0667
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0667
File-URL: http://www.nber.org/papers/w0667.pdf
File-Format: application/pdf
Publication-Status: published as Weiss, Yoram and Gronau, Reuben. "Expected Interruptions in Labor Force Participation and Sex Related Differences in Earnings Growth." Review of Economic Studies, Vol. 48, No. 154, (October 1981), pp. 607-620.
Abstract: The paper analyzes the joint determination of wives' earnings and labor force participation over the life cycle given the interruptions in wives' work careers. The interruptions affect the profitability of the investment in human capital, which in turn determines earnings. The earnings prospects feed back into the participation decision, namely, the decision whether and for how long to drop out of the labor force. The formal analysis compares the age-earnings profiles of persons who drop out of the labor force with those who do not during the pre- and post-interruption period. The comparison is carried out where interruptions are assumed to be exogenous and when they are endogenous. The effect of productivity at home, the initial stock of human capital and its rental value on the length of the interruption is investigated.
Handle: RePEc:nbr:nberwo:0667
Template-Type: ReDIF-Paper 1.0
Title: Wives' Labor Force Participation, Wage Differentials and Family Income Inequality: The Israeli Experience
Author-Name: Reuben GRonau
Author-Person: pgr333
Note: LS
Number: 0668
Creation-Date: 1981-04
Order-URL: http://www.nber.org/papers/w0668
File-URL: http://www.nber.org/papers/w0668.pdf
File-Format: application/pdf
Publication-Status: published as Gronau, Reuben. "The Inequality of Family Income--Do Wife's Earnings Matter?" Population and Development Review, Vol. 8, Supplement, pp. 119-136, (Sept. 1982).
Abstract: Recent decades have witnessed a sharp increase in the labor force participation of married women. The paper investigates the effect of wives' earnings on family income distribution. This effect depends on the in-equality of women's earnings as compared with other sources of income, on the correlation between the two and on the woman's share in total income. These in turn depend on participation patterns, labor supply and sex related wage differentials. In general, only the correlation between the various sources of income has an unambiguous effect on inequality, the effects of the other factors depending on the specific values of the parameters. In Israel where there are sharp differences in participation rates of married women and in sex related earnings differentials by schooling group, wives' earnings reduce total family income inequality, increasing at the same time the between-group (ethnic and schooling group) variability. The paper examines the effect of changes in the participation rate and the wife-husband earnings gap on family income inequality. It compares the effect of wives' earnings with other income sources (e.g., transfers) and examines the implication of separate tax returns for inequality.
Handle: RePEc:nbr:nberwo:0668
Template-Type: ReDIF-Paper 1.0
Title: The Federal Attack on Labor Market Discrimination: The Mouse that Roared?
Author-Name: Charles Brown
Author-Person: pbr341
Note: LS
Number: 0669
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0669
File-URL: http://www.nber.org/papers/w0669.pdf
File-Format: application/pdf
Publication-Status: published as Brown, Charles. "The Federal Attack on Labor Market Discrimination: The Mouse that Roared?" Research in Labor Economics, Vol. 5 (1982), pp. 33-68.
Abstract: The purpose of this paper is to review available evidence on the impact of federal equal employment opportunity programs. While Title VII of the Civil Rights Act of 1964 and Executive Order 11246 have been in effect for over 15 years, the lag in data collection and evaluation means that little can be said regarding the last few years' experience. In particular, evidence on the impact of recent administrative changes in the agencies responsible for enforcement is unavailable. In general, time series studies find significant improvements in the relative labor market position of blacks compared with whites since 1965. While several arguments have been advanced that these gains are illusory, the most plausible interpretation is that much of the apparent progress is real. Cross-sectional studies of the impacts of the Office of Federal Contract Compliance Programs (which enforces the nondiscrimination and affirmative action requirements of the Executive Order) and the Equal Employment Opportunity Commission (which enforces Title VII) have been much less conclusive. Half of the major studies of the OFCCP find that the program had the intended effects on the relative position of blacks -- or at least black males. Unfortunately, variations in conclusions among studies are not readily explained, even after a careful look at the competing data and methods. Equally disturbing is the inability of studies producing positive results to associate such impacts with the "levers" by which OFCCP might exert influence. Studies of EEOC impacts are more vulnerable to problems of identifying the appropriate control group, since Title VII covers contractor and noncontractor firms. Apart from evidence that relative black employment grew considerably faster in firms which must report to EEOC (firms with over 15 employees are subject to Title VII, but only those with 100 or more must report to EEOC), available studies have not produced consistent evidence of EEOC impact. Besides the lack of strong cross-sectional support for the time series conclusions, three puzzles emerge: (1) What caused the decline in black male labor force participation which began about the same time as the federal antidiscrimination effort? (2) Why did black females advance more rapidly than black males since the federal effort began? (3) Why did advantaged blacks advance more rapidly than less advantaged blacks?
Handle: RePEc:nbr:nberwo:0669
Template-Type: ReDIF-Paper 1.0
Title: Indexing and Inflation
Author-Name: Stanley Fischer
Note: EFG
Number: 0670
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0670
File-URL: http://www.nber.org/papers/w0670.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley. "Indexing and Inflation." Journal of Monetary Economics, Vol. 12, (1983), pp. 519-541.
Abstract: Much of the opposition to indexation as a means of adapting to on going inflation arises from the view that indexation is itself inflationary. This paper examines the basis for that view in a simple macroeconomic model in which budget deficits are in part financed through the printing of money. It is shown that all aspects of indexing -- wage indexation, bond indexation, and tax indexation -- tend to increase the impact on the price level of any inflationary shock. However, this association between indexation and inflation is in large part a consequence of the monetary and fiscal policies being followed by the government. Evidence from a cross-section of forty countries on the effects of indexation on the inflationary impact of the oil price shock of 1974 suggests that indexation did not in general increase the inflationary impact of the oil shock. However, the impact of the oil shock was significantly stronger in those countries that had adopted bond indexation.
Handle: RePEc:nbr:nberwo:0670
Template-Type: ReDIF-Paper 1.0
Title: Training, Tenure, and Productivity
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Note: PR LS
Number: 0671
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0671
File-URL: http://www.nber.org/papers/w0671.pdf
File-Format: application/pdf
Abstract: There is substantial evidence from the literature on individual wage determination that length of service to the firm is an important determinant of earnings and thus of labor productivity, holding constant employee at-tributes such as age, sex, and education. Earnings growth associated with increased tenure is usually interpreted as a reflection of firm-specific on-the-job training (OJT). In this paper a model of producer technology consistent with the hypothesis of firm-specific OJT is formulated and estimated. Empirical implementation of the model on data for U.S. manufacturing provides the basis for estimation of the marginal productivity of workers classified by length of service to the firm, i.e., of the tenure-productivity profile. The parameter estimates also enable us to determine the effect of recent changes in the tenure distribution (due to changes in labor turnover behavior) on manufacturing productivity performance.
Handle: RePEc:nbr:nberwo:0671
Template-Type: ReDIF-Paper 1.0
Title: A Competitive Theory of Monopoly Unionism
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: LS
Number: 0672
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0672
File-URL: http://www.nber.org/papers/w0672.pdf
File-Format: application/pdf
Publication-Status: published as Lazear, Edward P. "A Competitive Theory of Monopoly Unionism." The American Economic Review, Vol. 73, No. 4. (September 1983) pp. 631-643. Journal ofterature, Vol. 22, No. 1, (March 1984) Abstract only, p. 479.
Abstract: This paper sets up a microeconomic theory of labor unions. It discusses their formation and goals, their hierarchical structure, and the nature of rent distribution. The theory provides predictions for the probability that an industry or occupation will be unionized, the proportion of that industry that will be unionized, and observed wage differentials within that industry. It discusses the way that those values change in response to changes in the supply of labor, demand for labor, cost of organizing the union, and cost of defeating the union. Institutions such as featherbedding, fringe benefits, and seniority are rationalized in this framework. The model is consistent with competitive factor and product markets.
Handle: RePEc:nbr:nberwo:0672
Template-Type: ReDIF-Paper 1.0
Title: A Reexamination of Tax Distortions in General Equilibrium Models
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Roger H. Gordon
Author-Person: pgo95
Note: PE
Number: 0673
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0673
File-URL: http://www.nber.org/papers/w0673.pdf
File-Format: application/pdf
Publication-Status: published as Fullerton, Don and Gordon, Roger H. "A Reexamination of Tax Distortions in General Equilibrium Models." Behavioral Simulation Methods in Tax Policy Analysis, edited by Martin Feldstein. Chicago: University of Chicago Press, (1983), pp. 369-462.
Publication-Status: published as A Reexamination of Tax Distortions in General Equilibrium Models, Don Fullerton, Roger H. Gordon. in Behavioral Simulation Methods in Tax Policy Analysis, Feldstein. 1983
Abstract: General equilibrium models have recently been used to simulate the effects of many proposed tax changes. However, in modeling the effects of the government on the economy, these models have assumed for simplicity that marginal tax rates equal the observed average tax rates, and that marginal benefit rates are zero. The main purpose of this paper is to derive improved estimates of various marginal tax and benefit rates. Most importantly, we include in the model recent theories concerning the effects of combined corporate and personal taxes on corporate financial and investment decisions. The conclusions previously derived concerning the effects of corporate tax integration are then reexamined in light of the proposed changes.
Handle: RePEc:nbr:nberwo:0673
Template-Type: ReDIF-Paper 1.0
Title: Have Angels Done More? The Steel Industry Consent Decree
Author-Name: Casey Ichniowski
Note: LS
Number: 0674
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0674
File-URL: http://www.nber.org/papers/w0674.pdf
File-Format: application/pdf
Publication-Status: published as Ichniowski, Casey. "Have Angels Done More? The Steel Industry Consent Decree." Industrial and Labor Relations Review, Vol. 36, No. 2 (January 1983), pp. 182-198.
Abstract: This study analyzes the Consent Decree of the United States' basic steel industry which reformed plant seniority systems to accommodate issues of equal employment opportunity. The plant-by-plant litigation brought under Title VII and Executive Order 11246 is shown to be the main catalyst which brought representatives of the steel industry, of the United Steel Workers of America, and of the appropriate government agencies to negotiate this industry-wide solution. The principal terms of the steel industry Consent Decree are: the establishment of a mechanism to implement the Decree; the uniform institution of plant-wide seniority; the retention of pay rates after transfer to a position that provides a lower pay rate than the previous position; the establishment of goals for minority representation in trade and craft jobs; and a back pay settlement. The analysis of these provisions reveals two related points. Black representation in trade and craft jobs increased in the four year period after the Decree, with an indication that the increase was greater than pre-1974 employment trends would have predicted. However, 1978 black/white employment figures indicate that underutilization of blacks in these positions still persists.
Handle: RePEc:nbr:nberwo:0674
Template-Type: ReDIF-Paper 1.0
Title: Wage-Employment Contracts: Global Results
Author-Name: Jerry R. Green
Author-Person: pgr476
Author-Name: Charles M. Kahn
Author-Person: pka119
Note: EFG
Number: 0675
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0675
File-URL: http://www.nber.org/papers/w0675.pdf
File-Format: application/pdf
Publication-Status: published as Green, Jerry R. and Kahn, Charles M. "Wage-Employment Contracts: Global Results." Quarterly Journal of Economics, Vol. 98, Supplement, (1983), pp. 173-188.
Abstract: This paper studies the efficient agreements about the dependence of workers' earnings on employment, when the employment level is controlled by firms. The firms ' superior information about profitability conditions is responsible for this form of contract governance. Under plausible assumptions, such agreements will cause employment to diverge from efficiency as a byproduct of their attempt to mitigate risk. It is shown that, if leisure is a normal good and firms are risk neutral, employment is always above the efficient level. Such a one-period implicit contracting model cannot, therefore, be used to "explain" unemployment as a rational byproduct of risk sharing between workers and a risk neutral firm under conditions of asymmetric information.
Handle: RePEc:nbr:nberwo:0675
Template-Type: ReDIF-Paper 1.0
Title: Quantity and Elasticity Spillovers onto the Labor Market: Theory and Evidence on Sluggishness
Author-Name: Allan Drazen
Author-Person: pdr25
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Author-Name: Norman P. Obst
Note: LS
Number: 0676
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0676
File-URL: http://www.nber.org/papers/w0676.pdf
File-Format: application/pdf
Publication-Status: published as Drazen, Allan, Daniel S. Hamermesh, and Norman P. Obst. "The Variable Employment Elasticity Hypothesis: Theory and Evidence." Research in Labor Economics, Vol. 6 , (1984), pp. 287-309.
Abstract: Firms' beliefs that they may be unable to sell as much as they would like at the market price leads not only to a quantity spillover (even when prices are flexible) but also to a spillover of product demand elasticity onto the elasticity of labor demand. Hence, optimal firm behavior can be expected to produce a negative correlation between the (absolute value of) the wage elasticity and the unemployment rate. This hypothesis is tested on three sets of data. 1) For low-skilled workers in the United States in 1969 there is weak support for this hypothesis; 2) In time-series data for the U.S. there is no evidence for the hypothesis (there is essentially no cyclical variability in the elasticity); and 3) In time-series data for the United Kingdom there is fairly strong evidence supporting it. We also find that, in both the U.S. and the U.K., the demand elasticity for labor decreased in the 1970s to an extent that does not appear to be explained by changes in other factor prices.
Handle: RePEc:nbr:nberwo:0676
Template-Type: ReDIF-Paper 1.0
Title: Estimated Output, Price, Interest Rate, and Exchange Rate Linkages amongCountries
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: EFG ITI IFM
Number: 0677
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0677
File-URL: http://www.nber.org/papers/w0677.pdf
File-Format: application/pdf
Publication-Status: published as Fair, Ray C. "Estimated Output, Price, Interest Rate, and Exchange Rate Linkages among Countries." Journal of Political Economy, Vol. 90, No. 3, (June 1982), pp. 507-535.
Abstract: This paper provides quantitative estimates of the output, price, interest rate, and exchange rate linkages among a number of countries. The econometric model that is used for this purpose is described in Fair (1981), and the present paper is an extension of this work. The linkages are examined by changing various policy variables and observing the resulting change in the endogenous variables. The model is also used to estimate what is called the "exchange rate effect" on inflation. One of the ways in which monetary and fiscal policies may affect a country's inflation rate is by first influencing its exchange rate, which in turn influences import prices, which in turn influences domestic prices. The model allows this exchange rate effect on in£ lat ion to be estimated. The results in the paper give a good indication of the properties of the model. The linkages among countries are complicated and there are few unambiguous effects with respect to sign. This is true not just in principle but also in fact. Depreciation, for example, increases GNP for Japan, but decreases it for Germany and the U.K. A spending in- crease leads to a depreciation in Japan, but to an appreciation in Germany and the U.K. A spending increase in the U.S. has noticeably different effects on different countries. The results also show the importance of price, interest rate, and exchange rate linkages among countries as well as the usual trade linkages.
Handle: RePEc:nbr:nberwo:0677
Template-Type: ReDIF-Paper 1.0
Title: Information and Capital Markets
Author-Name: Joseph E. Stiglitz
Note: ME
Number: 0678
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0678
File-URL: http://www.nber.org/papers/w0678.pdf
File-Format: application/pdf
Publication-Status: published as Stiglitz, Joseph E. "Information and Capital Markets." In Financial Economics: Essays in Honor of Paul Cootner, ed. W.F. Sharpe and C.M. Cootner, pp. 118-158. New Jersey: Prentice-Hall, 1982.
Abstract: This paper provides the foundations of a general theory of information and the capital market. We show that in a pure gambling market, even with asymmetric information, there cannot exist an equilibrium with trade with rational individuals. We argue that although a pure exchange stock market is not a pure gambling market, most of the trade on the stock market arises from irrationality on the part of some investors and the rational response on the part of other investors to take advantage of that irrationality. We show that the private returns to information acquisition and dissemination differ markedly from social returns and as a result the market equilibrium is not a (constrained) Pareto optimum. Moreover, we show how firms' actions, e.g. the fraction of shares retained by the original entrepreneurs, the debt equity ratio, and the level of investment, may convey information about firm characteristics. This in turn affects the behavior of firms. As a result, the original owners of firms will be incompletely diversified, firms will not take actions which maximize their stock market value, and, in particular, they may behave in a risk averse manner, paying attention to own risk (which traditional theory suggests that the only risk firms should care about is the correlation with the market).
Handle: RePEc:nbr:nberwo:0678
Template-Type: ReDIF-Paper 1.0
Title: Has the Rate of Investment Fallen?
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: EFG
Number: 0679
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0679
File-URL: http://www.nber.org/papers/w0679.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Has the Rate of Investment Fallen?" The Review of Economics and Statistics, Vol. 65, No. 1 (February 1983), pp. 144-149.
Abstract: Although the ratio of gross fixed nonresidential investment to GNP has decreased very little since the late 1960rs, the corresponding net investment ratio declined by nearly 40 percent between the second half of the 1960's and the second half of the 1970's. Four-fifths of this decline was due to the increased ratio of depreciation to GNP and only one-fifth to the decreased ratio of gross investment to GNP. The increased ratio of depreciation to GNP was in turn due in equal amounts to the higher ratio of capital to GNP and to the higher rate of depreciation. Nearly half of the higher depreciation rate was due to the increased rate of depreciation of equipment and nearly half to the increased share of equipment in the capital stock.
Handle: RePEc:nbr:nberwo:0679
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Capital Taxation, and Monetary Policy
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: EFG
Number: 0680
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0680
File-URL: http://www.nber.org/papers/w0680.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Inflation, Capital Taxation, and Monetary Policy." Inflation: Causes and Effects, edited by Robert E. Hall, pp. 153-167. Chicago: University of Chicago Press, (1982).
Publication-Status: published as Inflation, Capital Taxation, and Monetary Policy, Martin Feldstein. in Inflation: Causes and Effects, Hall. 1982
Abstract: This paper discusses the effects of the interaction between inflation and the taxation of capital income. The principal conclusions are: (1) Inflation substantially increases the total effective tax rate on the income from capital used in the nonfinancial corporate sector. The total effective tax rate has risen from less than 60 percent in the mid-1960's to more than 70 percent in the late 1970's. (2) The higher effective tax rate reduces the real net rate of return to those who provide investment capital. In the late 19701s, the real net rate of return averaged less than three percent. (3) The interact ion between inflation and existing tax rules contributed to the fall in the ratio of share prices to real pretax earnings, or, equivalently, to the rise in the real cost to the firm of equity capital. (4) By reducing the real net return to investors and by widening the gap between the firms' cost of funds and the maximum return that they can afford to pay, the interaction between tax rates and inflation has depressed the rate of net investment in business fixed capital. (5) The failure to consider correctly the effects of the fiscal structure has caused observers to underestimate the expansionary character of monetary policy in the past two decades. (6) The goal of increasing investment while maintaining price stability can be achieved with tight money, a high real interest rate, and tax incentives for investment. A high real net-of-tax interest rate could reduce residential investment and other forms of consumer spending while the tax incentives offset the monetary effect for investment in business capital.
Handle: RePEc:nbr:nberwo:0680
Template-Type: ReDIF-Paper 1.0
Title: Alternative Tax Rules and Personal Savings Incentives: Microeconomic Data and Behavioral Simulations
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Daniel Feenberg
Author-Person: pfe56
Note: PE
Number: 0681
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0681
File-URL: http://www.nber.org/papers/w0681.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Alternative Tax Rules and Personal Savings Incentives: Microeconomic Data and Behavioral Simulations." Behavioral Simulation Methods in Tax Policy Analysis, edited by Martin Feldstein. Chicago: University of Chicago Press, (1983), pp. 173-209.
Publication-Status: published as Alternative Tax Rules and Personal Saving Incentives: Microeconomic Data and Behavioral Simulations, Martin S. Feldstein, Daniel R. Feenberg. in Behavioral Simulation Methods in Tax Policy Analysis, Feldstein. 1983
Abstract: This study examines the potential effects on personal savings of alternative types of tax rules. The analysis makes use of two extensive samples of information on individual savings and financial income: the 1972 Consumer Expenditure Survey and a stratified random sample of 26,000 individual tax returns for that year. The first type of tax rule that we consider would permit all tax-payers to make tax deductible contributions to individual savings accounts. The interest and dividends earned in these accounts would also accumulate untaxed. A potential problem with any such plan is that Individuals could in principle obtain tax deductions without doing any additional saving merely by transferring pre-existing assets into the special accounts. The evidence that we have examined indicates that this Is not likely to be important in practice since most taxpayers currently have little or no financial assets with which to make such transfers. For example, a plan permitting contributions of 10 percent of wages up to $2000 a year would exhaust all the pre-existing assets of 75 per-cent of households in just 2 years. Our evidence also shows that a ceiling on annual contributions of 10 percent of wages still leaves an increased saving incentive for more than 80 percent of households since fewer than 20 percent of households currently save as much as 10 percent a year. Specific simulations of a variety of such proposals show that even when income and substitution effects balance for a representative taxpayer (implying no change in his consumption) aggregate saving would rise considerably. The second type of tax rule that we examine would increase the current $200 interest and dividend exclusion. In 1972, among families with incomes of $20,000 to $30,000, 55 percent had more than $200 of interest and dividends; for those with incomes of at least $30,000, 82 percent had more than $200 of interest and dividends. For such families, the$200exclusion provides no incentive for additional saving. Our analysis considers four ways of strengthening the saving incentive while limiting the reduction in tax revenue:(1) a limit of $1000 on the interest and dividend exclusion; (2) a 51) percent exclusion of interest and dividends up to a $1000 limit; (3) exclusion of interest and dividends in excess of 5 percent of income over$10,000with an exclusion limit of $1000;and (4)exclusion of 20 percent of interest and dividend income without any limit. The revenue effects of all of these options were found to be quite small. But even with quite modest elasticities of current consumer spending with respect to the relative prices of present and future consumption, these plans could increase saving by significantly more than the reduction in tax revenue.
Handle: RePEc:nbr:nberwo:0681
Template-Type: ReDIF-Paper 1.0
Title: Simulating Nonlinear Tax Rules and Nonstandard Behavior: An Application to the Tax Treatment of Charitable Contributions
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Lawrence B. Lindsey
Note: PE
Number: 0682
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0682
File-URL: http://www.nber.org/papers/w0682.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin and Lindsey, Lawrence. "Simulating Nonlinear Tax Rules and Nonstandard Behavior: An Application to the Tax Treatment of Charitable Contributions." Behavioral Simulation Methods in Tax Policy Analysis, edited by Martin Feldstein. Chicago: UCP, (1983), pp. 139-167.
Publication-Status: published as Simulating Nonlinear Tax Rules and Nonstandard Behavior: An Application to the Tax Treatment of Charitable Contributions, Martin S. Feldstein, Lawrence Lindsey. in Behavioral Simulation Methods in Tax Policy Analysis, Feldstein. 1983
Abstract: This paper examines how the tax simulation method can be extended to incorporate nonlinear budget constraints and nonstandard economic behavior. We simulate the effect of extending the charitable deduction to nonitemizers and study the effect of alternative "floors". The specific simulations indicate that the econometric evidence on charitable giving implies that extending the charitable deduction to nonitemizers would raise individual giving by about 12 percent of the existing total amount or $4.5 billion at 1977 levels. The extension would reduce tax revenue by slightly less, about $4.1 billion. A floor of $300 or 3 percent of AGI would reduce the revenue loss by 30 to 40 percent, even if there is significant bunching. The effect of the floor on increased giving depends critically on whether taxpayers' behavior is guided by conventional demand principles or by the net altruism rule. A reasonable conclusion is that a floor would reduce giving by less than the increased revenue but that the difference between them would not be very large.
Handle: RePEc:nbr:nberwo:0682
Template-Type: ReDIF-Paper 1.0
Title: The Decline in Black Teenage Employment: 1950-1970
Author-Name: John F. Cogan
Note: LS
Number: 0683
Creation-Date: 1981-05
Order-URL: http://www.nber.org/papers/w0683
File-URL: http://www.nber.org/papers/w0683.pdf
File-Format: application/pdf
Publication-Status: published as Cogan, John F. "The Decline in Black Teenage Employment: 1950-1970." The American Economic Review, Vol. 72 (1982), pp. 621-638.
Abstract: This paper examines the causes of the decline in black male teenage employment from 1950 to 1970. During this period, the employment-to-population ratio of black youth (age 16-19) declined from 46.8 percent to 27 percent. The white teenage employment ratio, in contrast, remained constant. The primary source of the decline is traced to the virtual demise of the market for low-skilled agricultural labor. All of the black teenage employment decline during this period occurs in the South. The employment ratio among those living outside the South actually increases. Within the South, the entire decline in employment is accounted for by a reduction in agricultural employment. This study argues that technological progress is the principal cause of the agricultural employment decline among black youths. Spurred by the rapid advance and adoption of labor-saving technology, southern agricultural production was transformed from a relatively labor intensive process to a highly capital intensive one. As a result, the demand for low-skilled agricultural labor plummeted. By 1970, a formerly important source of black youth employment virtually ceased to exist. Black teenagers who were displaced from agricultural work were not absorbed by the nonagricultural sector. An additional finding of this paper is that the federal minimum wage acted as an important barrier to nonagricultural employment in the South. The raw data reveal significant reductions in black teenage employment growth in precisely those industries where coverage of the minimum wage was increased : retail trade, construct ion, and the service sector. Regression estimates indicate a quantitatively large minimum wage effect.
Handle: RePEc:nbr:nberwo:0683
Template-Type: ReDIF-Paper 1.0
Title: On Non-Uniqueness in Rational Expectations Models: An Attempt at Perspective
Author-Name: Bennett T. McCallum
Note: EFG
Number: 0684
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0684
File-URL: http://www.nber.org/papers/w0684.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "On Non-Uniqueness in Rational Expectations Models: An Attempt at Perspective." Journal of Monetary Economics, Vol. 11, No. 2, (March 1983) pp. 139-168.
Abstract: Many macroeconomic models involving rational expect at ions give rise to an infinity of solution paths, even when the models are linear in all variables. Some writers have suggested that this non-uniqueness constitutes a serious weakness for the rational expectations hypothesis. One purpose of the present paper is to argue that the non-uniqueness in question is not properly attributable to the rationality hypothesis but, instead, is a general feature of dynamic models involving expectations. It is also argued that there typically exists, in a very wide class of linear rational expectations models, a single solution that excludes "bubble" or "bootstrap" effects -- ones that occur only because they are arbitrarily expected to occur. A systematic procedure for obtaining solutions free from such effects is introduced and discussed. In addition, this procedure is used to interpret and reconsider several prominent examples with solution multiplicities, including ones developed by Fischer Black and John B. Taylor.
Handle: RePEc:nbr:nberwo:0684
Template-Type: ReDIF-Paper 1.0
Title: Relative Prices, Employment, and the Exchange Rate in an Economy with Foresight
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0685
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0685
File-URL: http://www.nber.org/papers/w0685.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "Relative Prices, Employment, and the Exchange Rate in an Economy with Foresight." Econometrica, Vol. 50, No. 5, September 1982, pp . 1219-1242.
Abstract: This paper studies the effects of monetary policy in a small, open economy with a floating exchange rate, sticky wages, and rational expectations in both the asset and labor markets. The model developed emphasizes the link between exchange-rate depreciation and nominal wage inflation, embodying it in an expectations-augmented Phillips curve. The economy studied produces both traded and non-traded goods, and thus provides a framework in which to explore the connection between the dynamic behavior of the exchange rate and the supply structure and degree of openness of the economy. In addition, the paper examines the "vicious circle" hypothesis, showing how an explosive cycle of exchange-rate depreciation and wage-price inflation may arise in response to an expected monetary expansion.
Handle: RePEc:nbr:nberwo:0685
Template-Type: ReDIF-Paper 1.0
Title: Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0686
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0686
File-URL: http://www.nber.org/papers/w0686.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect." The Quarterly Journal of Economics, (May 1982), pp. 251-270.
Abstract: This paper investigates the spending and current-account effects of permanent terms-of-trade shifts in a model where households maximize utility over an infinite planning period. In the framework we adopt, an economy specialized in production must experience a fall in aggregate spending and a current surplus when the terms of trade permanently deteriorate The model thus provides a counter-example to the argument of Laursen and Idetzler (1950) and Harberger (1950) that a permanent worsening in the terms of trade must produce a current-account deficit.
Handle: RePEc:nbr:nberwo:0686
Template-Type: ReDIF-Paper 1.0
Title: Taxation of Corporate Capital Income: Tax Revenues vs. Tax Distortions
Author-Name: Roger H. Gordon
Author-Person: pgo95
Note: PE
Number: 0687
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0687
File-URL: http://www.nber.org/papers/w0687.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Roger H. "Taxation of Corporate Capital Income: Tax Revenues vs. Tax Distortions." Quarterly Journal of Economics, Vol. 100, No. 1, Feb. 1985,pp. 1-27.
Abstract: Since the average tax rate on corporate capital income is very high, economists often conclude that taxes have caused a substantial fall in corporate investment, a movement of capital into noncorporate uses, and a fall in personal savings. The combined efficiency costs of these distortions are believed to be very important. This paper attempts to show that when uncertainty and inflation are taken into account explicitly, taxation of corporate income leaves corporate investment incentives basically unaffected, in spite of the sizable tax revenues collected. In addition, in some plausible situations, such taxes can result in a gain in efficiency. The explanation for these surprising results is that the government, by taxing capital income, absorbs a certain fraction of both the expected return and the uncertainty in the return. While investors as a result receive a lower expected return, they also bear less risk when they invest, and these two effects are largely offsetting.
Handle: RePEc:nbr:nberwo:0687
Template-Type: ReDIF-Paper 1.0
Title: Pitfalls in the Construction and Use of Effective Tax Rates
Author-Name: David F. Bradford
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 0688
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0688
File-URL: http://www.nber.org/papers/w0688.pdf
File-Format: application/pdf
Publication-Status: published as Bradford, David F. and Fullerton, Don. "Pitfalls in the Construction and Use of Effective Tax Rates." Depreciation and the Taxation of Income from Capital, edited by Charles R. Hulten, pp. 251-278. Washington, D.C.: The Urban Institute Press, 1981.
Abstract: A cost of capital formula can be a useful tool in estimating the effective tax rate on a dollar of marginal investment in a particular industry. There are a number of procedural issues, however, which can greatly affect the resulting estimates. First, tax rate estimates vary with the interest rate used in the formula. Second, the nonlinearity of tax rate formulas may lead to anomalous results. For example, an investment that is actually subsidized may appear to bear a positive tax. Or, tax rates may become arbitrarily large when the project's rate of return approaches zero. Third, effective tax rate results depend on the assumed relationship between inflation and nominal interest rates. Our conclusion is that much sensitivity analysis and specificity are required in studies that undertake to estimate effective tax rates.
Handle: RePEc:nbr:nberwo:0688
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy and Foreign Direct Investment
Author-Name: David G. Hartman
Note: ITI PE IFM
Number: 0689
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0689
File-URL: http://www.nber.org/papers/w0689.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol 26 issue 1 (February 1985) pp. 107-121, 1985.
Abstract: This paper examines the implications of the most common system of taxing foreign source income. It is argued that, because the repatriation of earnings to the home country investor and not the earnings themselves are typically the source of tax liability, the foreign source income tax should affect foreign investment differently depending on the required transfers of funds within the firm. One implication of viewing the tax in this fashion is that in order to maximize after tax profits, a firm should finance its foreign investment out of foreign earnings to the greatest extent possible. That is, a firm's required foreign return jumps at the point at which desired foreign investment just exhausts foreign earnings. This allows us to draw a distinction between "mature" foreign operations, which are at any point in time financed at the margin by reinvested earnings (and perhaps also pay dividends to their: parent firm in the home country), and "immature" foreign affiliates, which rely on funding from their parents (and should not be paying dividends). It is noted that survey evidence on multinational firm behavior is consistent with this distinction. Direct investment data indicate that mature foreign operations probably account for nearly ninety percent of U. S. foreign direct investment. The discussion then turns to investment incentives. It is shown that the home country's rate of tax on foreign source income and the presence or absence of a foreign tax credit should be irrelevant to a mature foreign operation's investment and dividend decisions. This conclusion, which conflicts sharply with the conventional wisdom, follows because the home country tax acts as an unavoidable cost. New firms' investment decisions are, on the other hand, influenced by home country taxes.
Handle: RePEc:nbr:nberwo:0689
Template-Type: ReDIF-Paper 1.0
Title: Consumption Correlatedness and Risk Measurement in Economies with Non trade Assets and Heterogeneous Information
Author-Name: Sanford J. Grossman
Author-Person: pgr108
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 0690
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0690
File-URL: http://www.nber.org/papers/w0690.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Sanford J. and Robert J. Shiller, "Consumption Correlatedness and Risk Measurement in Economies with Non-traded Assets and Heterogeneous Information." Journal of Financial Economics, Vol. 10, No. 2 (July 1982), pp. 195-210.
Abstract: The consumption beta theorem of Breeden makes the expected return on any asset a function only of its covariance with changes in aggregate consumption. It is shown that the theorem is more robust than was indicated by Breeden. The theorem obtains even if one deletes Breeden's assumptions that (a) all risky assets are tradable, (b) investors have homogeneous beliefs, (c) other assets can be traded without transactions costs and (d) that all assets have returns which are Ito processes.
Handle: RePEc:nbr:nberwo:0690
Template-Type: ReDIF-Paper 1.0
Title: A Systematic Banking Collapse in a Perfect Foresight World
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Peter M. Garber
Author-Person: pga124
Note: EFG
Number: 0691
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0691
File-URL: http://www.nber.org/papers/w0691.pdf
File-Format: application/pdf
Abstract: In this paper we present a model in which a systematic banking collapse is possible in a perfect foresight, general equilibrium context. Our aim is to determine con3itions under which a collapse will eventually occur and the timing of such a collapse. The collapse can occur endogenously, driven by market fundamentals. Alternatively, it can be caused by a mass hysteria which generates itself in reality. Vie also compare the assumptions and implications of our model to the observable phenomena of the 1930's.
Handle: RePEc:nbr:nberwo:0691
Template-Type: ReDIF-Paper 1.0
Title: Wealth Mobility: The Missing Element
Author-Name: J. R. Kearl
Author-Name: Clayne L. Pope
Note: DAE
Number: 0692
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0692
File-URL: http://www.nber.org/papers/w0692.pdf
File-Format: application/pdf
Publication-Status: published as Kearl, J.R. "The Life Cycle in Economic History," Journal of Economic History, (March 1983).
Publication-Status: published as J. R. Kearl & Clayne L. Pope, 1983. "Wealth Mobility: The Missing Element," Journal of Interdisciplinary History, vol 13(3).
Abstract: We consider the problems that may arise when cross sectional data alone are used for inferences about individual welfare, the existence of elites, the possibilities of class boundaries, the openness of a society, etc. We also consider problems with alternative measures of socio-economic position. We then use a sample of 2400 households observed over one or two decade intervals together with data on the population of households at each observation point to examine mobility within the distribution of wealth for an almost closed economy, Utah, 1850-1870. We use information on households to examine those characteristics that contribute to mobility. We find considerable mobility, much apparently stochastic, within quite highly skewed distributions of wealth that also exhibit increasing inequality through time.
Handle: RePEc:nbr:nberwo:0692
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy and Short-Term Interest Rates: An Efficient Markets-Rational Expectations Approach
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG
Number: 0693
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0693
File-URL: http://www.nber.org/papers/w0693.pdf
File-Format: application/pdf
Publication-Status: published as Mishkin, Frederic S. "Monetary Policy and Short-Term Interest Rates: An Efficient Markets-Rational Expectations Approach." The Journal of Finance, Vol . 37, No. l (March 1982), pp. 63-72.
Abstract: The impact of a money stock increase on nominal short-term interest rates has been a hotly debated issue in the monetary economics literature. The most commonly held view -- also a feature of most structural macro models--has an increase in the money stock leading, at least in the short-run, to a decline in short interest rates. Monetarists dispute this view because they believe that it ignores the dynamic effects of a money stock increase. This paper is an application of efficient markets-rational expectations theory to analyze empirically the relationship of money supply growth and short- term interest rates. This approach has the advantage over earlier research on this subject in that it imposes a theoretical structure 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 short rates.
Handle: RePEc:nbr:nberwo:0693
Template-Type: ReDIF-Paper 1.0
Title: Utilitarianism and Horizontal Equity: The Case for Random Taxation
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 0694
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0694
File-URL: http://www.nber.org/papers/w0694.pdf
File-Format: application/pdf
Publication-Status: published as Stiglitz, Joseph E. "Utilitarianism and Horizontal Equity: The Case for Random Taxation." Journal of Public Economics, Vol. 18, No. 1 (June 1982) pp. 1-33.
Abstract: This paper establishes that, far from being able to derive the principle of horizontal equity from utilitarianism, the principle is actually in- consistent with utilitarianism in a variety of circumstances. We derive conditions under which (a) it is optimal to impose random tax schedules (ex post randomization) ; and (b) it is optimal to randomize the tax schedules imposed on a set of otherwise identical individuals (ex ante randomization). The implications for optimal tax theory are discussed. More generally, it is shown that there are a number of potentially important economic situations with which the principle of horizontal equity may be inconsistent not only with utilitarianism but even with Pareto optimality.
Handle: RePEc:nbr:nberwo:0694
Template-Type: ReDIF-Paper 1.0
Title: Familial Love and Intertemporal Optimality
Author-Name: Herschel I. Grossman
Note: LS
Number: 0695
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0695
File-URL: http://www.nber.org/papers/w0695.pdf
File-Format: application/pdf
Abstract: This paper analyzes the intertemporal efficiency and optimality of steady states within overlapping-generations models in which the utility of individual working couples , depends on the consumption of their parents and children as well as their own consumption. The analysis considers both a basic model in which altruistic behavior can take only the form of gifts of consumption goods from working couples to their retired parents and an extended model in which altruistic behavior also can take the form of bequests from parents to their surviving children. In the basic model, saving only involves storing consumption goods, whereas the extended model includes capital and neoclassical production. The following conclusions from the analysis apply to both models: An altruistic utility function promotes inter-temporal efficiency. However, altruism creates an externality that implies that satisfying the conditions for efficiency does not insure intertemporal optimality. Nevertheless, if the utility of working couples is appropriately sensitive at the margin to their own consumption, their parents consumption, and their children's consumption, the steady state that is consistent with individual behavior is both efficient and optimal.
Handle: RePEc:nbr:nberwo:0695
Template-Type: ReDIF-Paper 1.0
Title: Estimated Effects of Relative Prices on Trade Shares
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: ITI IFM
Number: 0696
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0696
File-URL: http://www.nber.org/papers/w0696.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Estimated Effects of the October 1979 Changes in Monetary Policy on the 1980 Economy) American Economic Review, Vol. 71, no. 2(1981): 160-165.
Abstract: Estimated effects of relative prices on trade shares are presented in this paper for 64 countries. The equations are estimated using pooled time series, cross section data under the assumption that the error term is serially correlated across time and heteroskedastic across countries. The results strongly indicate that relative prices have an important effect on trade shares. The sensitivity of the properties of the multicountry model in Fair (1981a) to the endogenous treatment of trade shares is also examined. The addition of the trade share equations to the model has noticeable effects on the properties of the model regarding the effects of a depreciation. The sensitivity of trade shares to relative prices is an important channel in this version of the model through which a country's price of exports affects the demand for its exports.
Handle: RePEc:nbr:nberwo:0696
Template-Type: ReDIF-Paper 1.0
Title: Implications of the Changing U.S. Labor Market for Higher Education
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0697
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0697
File-URL: http://www.nber.org/papers/w0697.pdf
File-Format: application/pdf
Abstract: This paper examines evidence regarding the impact of the changed labor market on the higher educational system. Four basic propositions can be drawn from the paper's findings. Firstly, the labor market for the highly educated underwent a downturn in the 1970s, reducing the relative earnings of new college graduates and forcing them into jobs not normally considered as requiring college training. Secondly, this downturn resulted in a leveling off, and, in the case of white males, a sharp decline, in college enrollment. Statistical and survey questionnaire data show that this is due to the economic responsiveness of potential students to market incentives. The effects of this labor market change were most severe in the liberal arts, teaching, and academic and research-oriented occupations. In other business-oriented fields such as management and accounting, and in engineering, economic opportunities remained substantial or in some cases improved. Consistent with these changes were changes in enrollments and degrees. Depressed job markets experienced rapid declines in enrollment, while fields such as engineering experienced an increase in enrollment. Concurrently, professional schools benefited while liberal arts schools suffered from labor market induced patterns of change in enrollment.
Handle: RePEc:nbr:nberwo:0697
Template-Type: ReDIF-Paper 1.0
Title: Taxation and Excess Burden: A Life-Cycle Perspective
Author-Name: E. John Driffill
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 0698
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0698
File-URL: http://www.nber.org/papers/w0698.pdf
File-Format: application/pdf
Publication-Status: published as Driffill, John E., and Harvey S. Rosen. "Taxation and Excess Burden: A Life-Cycle Persepective." International Economic Review, Vol. 24, No.3, (October 1983), pp. 735-749.
Abstract: A lifetime perspective is appropriate in assessing the welfare implications of government tax policies. Although a number of attempts have been made to ex- amine the excess burden of taxation in life-cycle models, these have tended to ignore the role of human capital accumulation and/or the leisure-income choice. In this paper, we do numerical simulations with a model that takes both of these phenomena into account. We find that under reasonable assumptions, the failure to take into account distortions of human capital decisions produces substantial underestimates of the excess burden of income taxation. In addition, allowing for the endogeneity of human capital increases the efficiency of a personal consumption tax relative to that of an equal yield income tax.
Handle: RePEc:nbr:nberwo:0698
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Resource Utilization, and Debt and Equity Returns
Author-Name: Patric H. Hendershott
Note: ME
Number: 0699
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0699
File-URL: http://www.nber.org/papers/w0699.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. "Inflation, Resource Utilization, and Debt and Equity Returns." The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, edited by Benjamin Friedman, pp. 15-26 Chicago: University of Chicago Press, 1982.
Publication-Status: published as Inflation, Resource Utilization, and Debt and Equity Returns, Patric H. Hendershott. in The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, Friedman. 1982
Abstract: Enormously diverse real and nominal ex post returns on equity and short and long term debt securities have accompanied substantial variations in inflation and resource utilization during the past half century. This paper contains an examination of the relationships among these security returns and an analysis of the effects of inflation and resource utilization on the relationships. The three major results are the following. First, prior to the Treasury-Federal Reserve Accord in 1951, nominal yields on one-month Treasury bills were reasonably stable, while real bill rates were incredibly volatile. Since 1952, the reverse has been true. Nominal bill rates have cycled around a rising trend, and real bill rates have stayed near zero. Second, changes in yields on new-issue, long-term bonds have been largely unanticipated, and these changes have dominated the realized returns on bonds relative to Treasury bills. Because bond rates have risen with (unexpected) inflation during the last fifteen years, bonds have earned negative real returns. Third, the relative returns on equities and bonds are greatly affected by the business cycle with equities performing very well around troughs and very poorly around peaks. This has been true for all ten troughs since 1926 and all six peaks since 1946.
Handle: RePEc:nbr:nberwo:0699
Template-Type: ReDIF-Paper 1.0
Title: Risk and Return: A New Look
Author-Name: Burton G. Malkiel
Note: ME
Number: 0700
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0700
File-URL: http://www.nber.org/papers/w0700.pdf
File-Format: application/pdf
Publication-Status: published as Malkiel, Burton G. "Risk and Return: A New Look." The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, edited by Benjamin Friedman, pp. 27-45. Chicago: University of Chicago Press, 1982.
Publication-Status: published as Risk and Return: A New Look, Burton G. Malkiel. in The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, Friedman. 1982
Abstract: One of the best documented propositions in the field of finance is that, on average, investors have received higher rates of return on in- vestment securities for bearing greater risk. This paper looks at the historical evidence regarding risk and return, explains the fundamentals of portfolio and asset pricing theory, and then goes on to take a new look at the relationship between risk and return using some unexplored risk measures that seem to capture quite closely the actual risks being valued in the market. The paper concludes that the best single risk proxy is not the traditional beta calculation but rather the dispersion of analysts' forecasts. Companies for which there is broad consensus with respect to future earnings and dividends seem to be less risky (and hence have lower expected returns) than companies for which there is little agreement among security analysts. It is possible to interpret this result as contradicting modern asset pricing theory, which suggests that total variability per se will not be relevant for valuation. As is shown in the paper, how- ever, this dispersion of forecasts could well result from different companies being particularly susceptible to systematic risk elements and thus the dispersion measure may be the best individual proxy available to capture the variety of systematic risk elements to which securities are subject.
Handle: RePEc:nbr:nberwo:0700
Template-Type: ReDIF-Paper 1.0
Title: Investment Strategy in an Inflationary Environment
Author-Name: Zvi Bodie
Author-Person: pbo569
Note: ME PE
Number: 0701
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0701
File-URL: http://www.nber.org/papers/w0701.pdf
File-Format: application/pdf
Publication-Status: published as Bodie, Zvi. "Investment Strategy in an Inflationary Environment." The Changing Roles of Debt and Equity in Financing U.S. Capital Formations, edited by Benjamin Friedman, pp. 47-64. Chicago: University of Chicago Press, 1982.
Publication-Status: published as Investment Strategy in an Inflationary Environment, Zvi Bodie. in The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, Friedman. 1982
Abstract: This paper addresses the issue of how an investor concerned about the real rate of return on his investment portfolio should allocate his funds among four major asset classes: stocks, bonds, bills and commodity futures contracts. It employs the Markowitz mean-variance framework to derive estimates of the pre-tax, real risk-return tradeoff curve currently facing an investor in the U.S. capital markets. Some of the major findings are: 1) Bills are the cornerstone of any low-risk investment strategy. The minimum-risk portfolio has a mean real rate of return of zero and a standard deviation of about 1%. The slope of the tradeoff curve is initially 1, but it declines rapidly as one progresses up the curve to higher mean rates of return. 2) Stocks offer the highest mean and are also riskiest. 3) Bonds play a prominent part in portfolios which lie in the midsection of the tradeoff curve, although not much would be lost if these instruments were eliminated. 4) Commodity futures contracts are the only asset whose returns are positively correlated with inflation. By adding them to the portfolios of stocks, bonds and bills, it is possible to achieve any target mean real rate of return with less risk.
Handle: RePEc:nbr:nberwo:0701
Template-Type: ReDIF-Paper 1.0
Title: Changing Balance Sheet Relationships in the U.S. Manufacturing Sector, 1926-77
Author-Name: John H. Ciccolo, Jr.
Note: ME
Number: 0702
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0702
File-URL: http://www.nber.org/papers/w0702.pdf
File-Format: application/pdf
Publication-Status: published as Ciccolo, John H., Jr., "Changing Balance Sheet Relationships in the U.S. Manufacturing Sector, 1926-77", The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, edited by Benjamin M. Friedman, pp. 65-74. Chicago: University of Chicago Press, 1982.
Publication-Status: published as Changing Balance Sheet Relationships in the U.S. Manufacturing Sector, 1926-77, John H. Ciccolo, Jr.. in The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, Friedman. 1982
Abstract: This paper documents trends in the sources and uses of funds, market valuations, and rates of return for a sample of U.S. manufacturing firms during the half -century ending in 1977. The major objective of the paper is to construct economic balance sheet relationships based on securities market valuations rather than on the more familiar book values used for accounting purposes. Among the more interesting long-term trends highlighted in the analysis is the finding that the widely recognized increase in debt in manufacturing firms' capitalization has come primarily at the expense of .preferred stock. A second interesting point is the contrast between the sharp fall in common equity values in 1929-32, which was entirely reversed by 1936, and the even sharper post-1968 decline which was not reversed by 1977 nor, for that matter, by 1981. This paper is an introduction to a more comprehensive study which will be part of the second stage of the Debt/Equity Research Project.
Handle: RePEc:nbr:nberwo:0702
Template-Type: ReDIF-Paper 1.0
Title: Private Pensions as Corporate Debt
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: ME PE
Number: 0703
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0703
File-URL: http://www.nber.org/papers/w0703.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Private Pensions as Corporate Debt." The Changing Rolesof Debt and Equity in Financing U.S. Capital Formation, edited by Benjamin M. Friedman, pp. 75-90. Chicago: University of Chicago Press, 1982.
Publication-Status: published as Private Pensions as Corporate Debt, Martin Feldstein. in The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, Friedman. 1982
Abstract: This paper begins by examining the ways in which pension liabilities are and are not like corporate bonds. Some conceptual issues involved in valuing future pension obligations are then discussed. The second section considers the advantage to firms of fully funding their pension obligations and the reasons why many firms nevertheless choose to have unfunded obligations. The third section then summarizes the results of research on the effect of unfunded pension liabilities on the equity value of firms. The first three sections thus consider the role of pensions at the level of the individual firm. The two sections that follow focus on the current and future role of pensions in the national economy. More specifically, section 4 examines the effect of private pensions on the nation's saving rate, paying special attention to the implication of unfunded pension obligations. The fifth section then discusses the impact of inflation on the private pension system and the likely future for indexed and unindexed private pensions.
Handle: RePEc:nbr:nberwo:0703
Template-Type: ReDIF-Paper 1.0
Title: Debt and Economic Activity in the United States
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0704
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0704
File-URL: http://www.nber.org/papers/w0704.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Debt and Economic Activity in the United States." The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, edited by Benjamin M. Friedman, pp. 91-110. Chicago: University of Chicago Press, 1982.
Publication-Status: published as Debt and Economic Activity in the United States, Benjamin M. Friedman. in The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, Friedman. 1982
Abstract: This paper documents a long-standing stability in the relationship between outstanding debt and economic activity in the United States, and explores the implications for capital formation of several hypotheses that could explain this observed phenomenon. The aggregate of outstanding credit liabilities of all nonfinancial borrowers in the United States bears as close a relationship to U.S. non- financial economic activity as do the more familiar asset aggregates like the money stock (however measured) or the monetary base. This stability in the debt-to-income relationship reflects the net outcome of pronounced but offsetting movements of the public and private components of the total debt aggregate. Three different hypotheses provide potential explanations for this phenomenon. Two of these, one emphasizing taxpayers' actions and one based on credit market borrowing constraints, carry the implication that increases in government debt outstanding associated with financing budget deficits crowd out private financing and hence private capital formation. The third hypothesis, which emphasizes the portfolio preferences of lenders, implies that increased government financing will not crowd out private capital formation but will cause the private sector to shift from debt to equity financing.
Handle: RePEc:nbr:nberwo:0704
Template-Type: ReDIF-Paper 1.0
Title: Real and Monetary Disturbances in an Exchange-Rate Union
Author-Name: Richard C. Marston
Note: ITI IFM
Number: 0705
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/w0705
File-URL: http://www.nber.org/papers/w0705.pdf
File-Format: application/pdf
Publication-Status: published as Marston, Richard C. "Exchange Rate Unions as an Alternative to Flexible Rates: The Effects of Real and Monetary Disturbances." Exchange Rate Theoryand Practive, edited by J. F.O. Bilson & Richard C. Marston, pp. 407-437 and 441-442. Chicago: The University of Chicago Press, 1984.
Abstract: This paper investigates how a small country fares in an exchange-rate union if that country is subject to real and monetary disturbances originating at home and abroad. By joining a union, the country can fix the exchange rate between its currency and the currency of another country or countries. The paper asks whether or not fixing this exchange rate helps to modify the effects of disturbances on the domestic economy. This question is investigated within a model consisting of an aggregate demand equation dependent upon the terms of trade, an aggregate supply equation in which labor supply is responsive to the general price level, and a financial equation that determines the exchange rate of the domestic currency relative to one of two foreign currencies (the other being determined by triangular arbitrage) . Aggregate supply behavior varies depending upon whether wages respond to prices with a lag or are indexed to current changes in the general price level. Because the small country model cannot be used by itself to analyze the effects of foreign disturbances, the paper introduces models of two foreign countries with the same analytical structure as the domestic country model. Foreign disturbances are studied in two stages, first within the foreign model, then within the domestic model. The analysis shows that one of the most important factors determining the effects of the union is the degree of wage indexation in the domestic economy. The greater the degree of indexation, the less difference there is between output variation in the union and in a flexible regime. Apart from wage behavior, two other factors are important: the sources of the disturbances and the pattern of trade. Contrary to common belief, the case for a union is not necessarily strengthened if disturbances primarily originate outside the union and if the domestic country trades primarily with other members of the union.
Handle: RePEc:nbr:nberwo:0705
Template-Type: ReDIF-Paper 1.0
Title: The Added-Worker Effect: A Reappraisal
Author-Name: Shelly J. Lundberg
Author-Person: plu82
Note: LS
Number: 0706
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0706
File-URL: http://www.nber.org/papers/w0706.pdf
File-Format: application/pdf
Publication-Status: published as Lundberg, Shelly, 1985. "The Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 11-37, January.
Abstract: In this paper, the added worker effect is interpreted as a response to uncertain returns to labour supply offers by members of a household. A model of household labour supply is developed In which each member's current labour force status affects the job search and participation decisions of the other and thus the probabilities of observed transitions between the states of employment, unemployment, and non-participation. The determinants of actual household transitions are then investigated using continuous employment histories for a sample of low-income families. Simulations using the estimated transition functions show that increased unemployment among married men has a sizeable short-run effect on both participation and employment of married women.
Handle: RePEc:nbr:nberwo:0706
Template-Type: ReDIF-Paper 1.0
Title: Economic Well-Being and Child Labor: The Inter action of Family and Industry
Author-Name: Claudia D. Goldin
Author-Person: pgo601
Author-Name: Donald O. Parsons
Author-Person: ppa291
Note: DAE
Number: 0707
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0707
File-URL: http://www.nber.org/papers/w0707.pdf
File-Format: application/pdf
Publication-Status: published as Goldin, Claudia and Donald O. Parsons. "Parental Altruism and Self-Interest:Child Labor Among late Nineteenth Century American Families." Economic Inquiry, vol. 27, pp. 637-659, October 1989.
Abstract: How did industrialization in the nineteenth century affect the well-being of children among American working class families? Two revealing surveys from 1890 and 1907 are used to examine the implications of child labor on schooling decisions and on possible offsetting intrafamily transfers, in the form of current "retained" earnings or future asset transfers. Both issues are analyzed within the context of a formal model of family labor supply, in which returns to schooling accrue after the youth has left the household and thus the interests of the parents and the child need not coincide. Parents working in the industries examined did not, it appears, compensate their children for the reduced future earnings implied by child labor, in either the current or in future time periods. But, in addition, the migration of families in which parental altruism was weak may have eliminated much of the apparent increase in family income due to higher child earnings. We end with a note reconciling our findings with the long term trend away from child labor.
Handle: RePEc:nbr:nberwo:0707
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Flexible Exchange Rates, and the Natural Rate of Unemployment
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 0708
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0708
File-URL: http://www.nber.org/papers/w0708.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Robert J. "Inflation, Flexible Exchange Rates, and the Natural Rateof Unemployment." Workers, Jobs and Inflation, edited by M. N. Baily. Washington, D.C.: The Brookings Insitution, 1982, pp. 89-158.
Abstract: The most important conclusion of this paper is that the growth rate of the money supply influences the U.S. inflation rate more strongly and promptly than in most previous studies, because the flexible exchange rate system has introduced an additional channel of monetary impact, over and above the traditional channel operating through labor-market tightness. Lagged changes in the effective exchange rate of the dollar, through their influence on the prices of exports and import substitutes, help to explain why U.S. inflation was so low in 1976 and why it accelerated so rapidly in 1978. Granger causality tests indicate that lagged exchange rate changes influence inflation, but lagged inflation does not cause exchange rate changes. A policy of monetary restriction in the 1980s is shown to cut the inflation rate by five percentage points at about half the cost in lost output as compared with the consensus view from previous studies. The paper defines the "no shock natural rate of unemployment" as the unemployment rate consistent with a constant rate of inflation in a hypothetical state having no supply shocks and a constant exchange rate. A new estimate of this natural rate concept displays an increase from 5.1 percent in 1954 to 5.9 percent in 1980 that is entirely due to the much-discussed demographic shift in labor-force shares and relative unemployment rates. Other higher estimates of the natural unemployment rate, close to 7 percent in 1980, result from the use of a naive Phillips curve that relates inflation only to labor-market tightness and inertia variables. The paper contains extensive sensitivity tests that examine the behavior of the basic inflation equation over alternative sample periods; that enter the growth rate of money directly and track the behavior of a money- augmented equation in dynamic simulation experiments; and that test and reject the view that wage-setting behavior is dominated by "wage-wage inertia", that is, the dependence of wage changes mainly on their own past values.
Handle: RePEc:nbr:nberwo:0708
Template-Type: ReDIF-Paper 1.0
Title: Test Scores and Self-Selection of Higher Education: College Attendance versus College Completion
Author-Name: Steven F. Venti
Author-Name: David A. Wise
Author-Person: pwi45
Note: LS
Number: 0709
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0709
File-URL: http://www.nber.org/papers/w0709.pdf
File-Format: application/pdf
Publication-Status: published as Venti, Steven F. and David A. Wise. "Individual Attributes and Self-Selection of Higher Education: College Attendance Versus College Completion." Journal of Public Economics, Vol. 21, (1983), pp. 1-32.
Abstract: As a companion paper to our work on students' application and colleges' admission decisions, we have estimated a joint discrete-continuous utility maximization model of college attendance and college completion. The paper is motivated by the possibility that test scores are poor predictors of who will succeed in college and thus may not promote optimal investment decisions and may indeed unjustly limit the educational opportunities of some youth. We find that: (1) College attendance decisions are strongly commensurate with college completion. Persons who are unlikely to attend college would be very likely to drop out of even their "first-choice" colleges, were they to attend. College human capital investment decisions are strongly mirrored by the likelihood that they will pay off. (2) Contrary to much of the recent criticism of the predictive validity of test scores, we find that their informational content is substantial. After controlling for high school class rank, for example, the probability of dropping out of the first-choice college varies greatly with SAT scores. (3) Individual self-selection, related to both measured and unmeasured attributes, is the dominant determinant of college attendance.
Handle: RePEc:nbr:nberwo:0709
Template-Type: ReDIF-Paper 1.0
Title: Test Scores, Educational Opportunities, and Individual Choice
Author-Name: Steven F. Venti
Author-Name: David A. Wise
Author-Person: pwi45
Note: LS
Number: 0710
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0710
File-URL: http://www.nber.org/papers/w0710.pdf
File-Format: application/pdf
Publication-Status: published as Venti, Steven F. and David A. Wise. "Test Scores, Educational Opportunities , and Individual Choice." Journal of Public Economics, Vol. 18 (1982), pp. 35-63.
Abstract: A model combining student preferences for college with university admissions decisions is estimated to provide information on the role of test scores in the determination of post-secondary educational opportunities. In contrast to implications of much of the recent criticism of tests and their use, we find that scholastic aptitude test scores are more strongly related to student application and choice of college "quality" than to college admissions decisions. In addition, although there is a substantial correlation between test scores and high school performance, we find that both post-secondary school preferences and ultimate opportunities are related as much to performance in high school as to test scores themselves. Although SAT scores certainly exclude some persons from schools, our findings indicate that they do not represent a dominating constraint on the college opportunities of high school graduates.
Handle: RePEc:nbr:nberwo:0710
Template-Type: ReDIF-Paper 1.0
Title: Discontinuous Distributions and Missing Persons: The Minimum Wage and Unemployed Youth
Author-Name: Robert H. Meyer
Author-Name: David A. Wise
Author-Person: pwi45
Note: LS
Number: 0711
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0711
File-URL: http://www.nber.org/papers/w0711.pdf
File-Format: application/pdf
Publication-Status: published as Meyer, Robert H. and David A. Wise. "Discontinuous Distributions and Missing Persons: The Minumum Wage and Unemployed Youth." Econometrica, 51:6, ( November 1983), pp. 1677-1698.
Abstract: The effects of minimum wage legislation on the employment and wage rates of youth are estimated using a new statistical approach. We find that without the minimum, not only would the percent of out-of-school youth who are employed be 4 to 6 percent higher than it is, but also that these youth would earn more. In particular, the expected hourly earnings of youth with market wage rates below the 1978 minimum are 10 percent lower with the minimum than they would be without it. Thus, an effect of the minimum is to increase the concentration of non-employment among low-wage workers and to reduce their earnings relative to higher wage workers as well. The minimum wage accounts for possibly a third of the difference between the employment rates of black and white youth, according to our results. Our methodology is based on parameterization of the effect of the minimum on the distribution of "market" employment outcomes and market wage rates that would exist in the absence of the minimum. A concomitant of the estimation procedure is joint estimation of market wage and employment functions that would pertain if there were no minimum.
Handle: RePEc:nbr:nberwo:0711
Template-Type: ReDIF-Paper 1.0
Title: The Sources of Labor Productivity Variation in U.S. Manufacturing, 1947-80
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Note: EFG
Number: 0712
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0712
File-URL: http://www.nber.org/papers/w0712.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben. "On the Sources of Labor Productivity Variation in U.S. Manufacturing, 1947-1980." Review of Economics and Statistics, Vol. 65, No. 2,(May 1983), pp. 214-224.
Abstract: This paper examines the relationship between inflation, exchange rates, and the pattern of international trade and payments in a small economy with utility-maximizing agents and a transactions demand for money. Fully anticipated inflation has real effects in the model through its role as a tax on money and thereby on monetary transactions. An increase in the rate of monetary expansion generally reduces the value of domestic output and alters the composition of domestic production. The result is a change in the pattern of international comparative advantage and trade flows. The initial depreciation of the exchange rate following an increase in the rate of monetary expansion is accompanied by a trade surplus and capital outflow, while the subsequent depreciation is accompanied by a trade deficit.
Handle: RePEc:nbr:nberwo:0712
Template-Type: ReDIF-Paper 1.0
Title: Effects of Inflation on the Pattern of International Trade
Author-Name: Alan C. Stockman
Author-Person: pst94
Note: ITI IFM
Number: 0713
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0713
File-URL: http://www.nber.org/papers/w0713.pdf
File-Format: application/pdf
Publication-Status: published as Stockman, Alan C. "Effects of Inflation on the Pattern of International Trade," Canadian Journal of Economics, Vol. XVIII, No. 3, (August 1985), pp. 587-601.
Abstract: This paper examines the relationship between inflation, exchange rates, and the pattern of international trade and payments in a small economy with utility-maximizing agents and a transactions demand for money. Fully anticipated inflation has real effects in the model through its role as a tax on money and thereby on monetary transactions. An increase in the rate of monetary expansion generally reduces the value of domestic output and alters the composition of domestic production. The result is a change in the pattern of international comparative advantage and trade flows. The initial depreciation of the exchange rate following an increase in the rate of monetary expansion is accompanied by a trade surplus and capital outflow, while the subsequent depreciation is accompanied by a trade deficit.
Handle: RePEc:nbr:nberwo:0713
Template-Type: ReDIF-Paper 1.0
Title: Risk Sharing through Breach of Contract Remedies
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Note: LE
Number: 0714
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0714
File-URL: http://www.nber.org/papers/w0714.pdf
File-Format: application/pdf
Publication-Status: published as Polinsky A. Mitchell. "Risk Sharing through Breach of Contract Remedies." Journal of Legal Studies, Vol. 12, No. 2, (June 1983), pp. 427-444.
Abstract: This paper examines the sharing of risk under three different remedies for breach of contract. The risk considered arises from the possibility that, after a seller and buyer have entered into an agreement for the exchange of some (not generally available) good, a third party who values the good more than the original buyer may come along before delivery has occurred; the seller will want to breach. It is shown that this risk is optimally allocated by the expectation damage remedy if the seller is risk neutral and the buyer is risk averse, by the specific performance remedy if the opposite is true, and by a liquidated damage remedy if both parties are risk averse. The level of damages under the liquidated damage remedy is also shown to be bounded by the expectation measure of damages and a "damage equivalent" to the specific performance remedy. By means of a numerical example, it is shown that use of the prevailing remedy for breach of contract -- the expectation damage remedy -- may plausibly cause a welfare loss of as much as 20% due to inappropriate risk sharing.
Handle: RePEc:nbr:nberwo:0714
Template-Type: ReDIF-Paper 1.0
Title: Four Observations on Modern International Commercial Policy under Floating Exchange Rates
Author-Name: J. David Richardson
Note: ITI IFM
Number: 0715
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0715
File-URL: http://www.nber.org/papers/w0715.pdf
File-Format: application/pdf
Publication-Status: published as Richardson, J. David. "Four Observations on Modern International Commercial Policy under Floating Exchange Rates." Monetary REgimes and Protectionism, Carnegie-Rochester Conference Series on Public Policy, edited by Kar; Brunner and Allan H. Meltzer, Vol. 16. Amsterdam: North-Holland, 1982.
Abstract: This paper describes the essential similarity between "modern" commercial policy, with its rent-like revenues, and capital transfers. Import barriers are shown to have consequently ambiguous effects on nominal and real exchange rates. The paper also examines some important supply-side welfare Costs and consequences of import barriers through their influence on current asset prices and future capital formation. The model on which the observations are based is an aggregated fixed-endowment, full-employment, general-equilibrium model similar to those used in the pure theory of international trade, with financial capital and foreign exchange markets that are integrated in a manner consistent with the asset/portfolio-balance approach to exchange rates. The model is empirically calibrated to reflect the U.S. and the rest of the world in the early 1980's. In this empirical stylization, U.S. import barriers are shown (1) to reduce national consumption possibilities more significantly than is usually thought to be the case; (ii) to discourage U.S. physical capital formation; and (iii) to have significant yet variable effects on exchange rates, where the variability depends on the distribution between the U.S. and the rest of the world of the rent-like revenues implicit in the import barriers. It is notable that the more favorable this distribution to the U.S. the larger is the dollar depreciation caused by import barriers.
Handle: RePEc:nbr:nberwo:0715
Template-Type: ReDIF-Paper 1.0
Title: A Comment on Feldstein's Fisher-Schultz Lecture
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: EFG
Number: 0716
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0716
File-URL: http://www.nber.org/papers/w0716.pdf
File-Format: application/pdf
Abstract: Feldstein argues in his Fisher-Schultz Lecture that he has found, by accounting for inflation and taxes, large and significant rate of return effects on investment. His results are interesting because they seem to be robust to alternative specifications of the investment equation. Feldstein has clearly not exhausted all possible specifications of the investment equation, and this comment reports on results, using Feldstein's data, for one alternative specification. The results do not support Feldstein's conclusion. The data do not appear to contain enough information to decide the issue of the quantitative effect of the cost of capital on investment.
Handle: RePEc:nbr:nberwo:0716
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Unions on Productivity in the Public Sector: The Case of Libraries
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Joshua L. Schwarz
Note: LS
Number: 0717
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0717
File-URL: http://www.nber.org/papers/w0717.pdf
File-Format: application/pdf
Publication-Status: published as Ehrenberg, Ronald G. and Schwarz, Joshua L. "The Effect of Unions on Productivity in the Public Sector: The Case of Libraries." The Economics of Municipal Labor Markets, edited by Werner Hirsch & Anthony Rufolo. Los Angeles: Industrial Relations Section, (1982).
Publication-Status: published as Ehrenberg, Ronald, Daniel R. Sherman and Joshua L. Schwarz. "Unions and Productivity in the Public Sector: A Study of Municipal Libraries." Industrial and Labor Relations Review, Vol. 36, No. 2 (January 1983), pp. 199-2 13.
Abstract: This paper presents an analytical framework that can be used to analyze the effects of unions on productivity in the public sector. Our initial focus is on public libraries because considerable effort has been devoted to conceptualizing library productivity measures and because of the availability of data to implement the framework. Preliminary estimates are presented based upon data from 71 municipal libraries in Massachusetts. We conclude by indicating the direction that our future research on the subject will take.
Handle: RePEc:nbr:nberwo:0717
Template-Type: ReDIF-Paper 1.0
Title: The Allocation of Capital Between Residential and Nonresidential Uses: Taxes, Inflation and Capital Market Constraints
Author-Name: Patric H. Hendershott
Author-Name: Sheng Cheng Hu
Note: PE
Number: 0718
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0718
File-URL: http://www.nber.org/papers/w0718.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. and Sheng Cheng Hu. "The Allocation of Capital Between Residential and Nonresidential Uses: Taxes, Inflattion and Capital Market Constraints." The Journal of Finance, Vol. 38, No. 3, (June 1983), pp. 7 95-812.
Abstract: We have constructed a simple two-sector model of the demand for housing and corporate capital. An increase in the inflation rate, with and with- out an increase in the risk premium on equities, was then simulated with a number of model variants. The model and simulation experiments illustrate both the tax bias in favor of housing (its initial average real user cost was 3 percentage points less than that for corporate capital) and the manner in which inflation magnifies it (the difference rises to 5 percentage points without an exogenous increase in real house prices and 4 percentage points with an exogenous increase). The existence of a capital-market constraint offsets the increase in the bias against corporate capital, but it introduces a sharp, inefficient reallocation of housing from less wealthy, constrained households to wealthy households who do not have gains on mortgages and are not financially const rained. Widespread usage of innovative housing finance instruments would overcome this reallocation but at the expense of corporate capital. Only a reduction in inflation or in the taxation of income from business capital will solve the problem of inefficient allocation of capital. The simulation results are also able to provide an explanation for the failure of nominal interest rates to rise by a multiple of an increase in the inflation rate in a world with taxes. When the inflation rate alone was increased, the ratio of the increases in the risk-free and inflation rates was 1.32. An increase in the risk premium on equities, in conjunction with the increase in inflation, lowered the simulated ratio to 1.10, introduction of a supply price elasticity of 4 and an exogenous increase in the real house price reduced the ratio to 1.03, and incorporation of the credit-market. constraint reduced the ratio to 0.95.
Handle: RePEc:nbr:nberwo:0718
Template-Type: ReDIF-Paper 1.0
Title: The Efficiency of Decentralized Investment Management Systems
Author-Name: David S. Jones
Note: ME
Number: 0719
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0719
File-URL: http://www.nber.org/papers/w0719.pdf
File-Format: application/pdf
Abstract: The primary purpose of this paper is to demonstrate that decentralized investment management systems may not always be efficient. Specifically, within the context of a particular portfolio choice paradigm it is shown that a given decentralized investment management system is (weakly) efficient if and only if the joint probability distribution of asset rates of return satisfy certain covariance restrictions. If these restrictions do not obtain then the asset portfolios generated by this decentralized structure will generally be inferior to those which would be generated by a completely centralized structure. This paper also discusses how the managers of departments within an efficient decentralized structure should behave so as to generate portfolios which are optimal from the point of view of the institution as a whole. Generally, departmental managers should behave as if they have less risk aversion than the institution as a whole. In fact, a given manager should be more risk averse the greater the value of his portfolio. Finally, we note that the efficiency concept employed in this paper is equivalent to the proposition that certain assets admit consistent simple sum aggregation. It is shown that this implies that the efficient decentralization of investment decisions permits the institution to economize on the information which must be passed to higher level departments.
Handle: RePEc:nbr:nberwo:0719
Template-Type: ReDIF-Paper 1.0
Title: Intertemporal Substitution in Consumption
Author-Name: Robert E. Hall
Note: EFG
Number: 0720
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0720
File-URL: http://www.nber.org/papers/w0720.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 96, No. 2, pp. 339-357, (1988).
Abstract: Does a higher real interest rate induce significant postponement of consumption? According to the theory developed here, this question can be answered by studying the relation between the rate of growth of consumption and expected real interest rates. In postwar data for the United States, expected real returns have declined over time in the stock market and for savings accounts. Over the same period, the rate of growth of consumption has been almost steady. The paper concludes that intertemporal substitution is weak, for if it were strong, the growth rate of consumption would have declined.
Handle: RePEc:nbr:nberwo:0720
Template-Type: ReDIF-Paper 1.0
Title: Bilateral Contracts
Author-Name: Jerry R. Green
Author-Person: pgr476
Author-Name: Seppo Honkapohja
Author-Person: pho12
Note: EFG
Number: 0721
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0721
File-URL: http://www.nber.org/papers/w0721.pdf
File-Format: application/pdf
Publication-Status: published as Green, Jerry, and Seppo Honkapohja. "Bilateral Contracts." Journal of Mathematical Economics, Vol. 11, No. 2, (1983), pp. 171-187.
Abstract: The basic form of economic exchange is a bilateral relationship between buyer and seller. If economic conditions are common knowledge there is no problem in principle to determine the efficient quantity to trade. But if benefits are known only to the buyer and costs are known only to the seller a situation of bargaining under incomplete information results. Instead of relying on the vagaries of a bargaining outcome, which might be quite costly to implement, economic inefficiency is likely to be improved by a contractual arrangement that could be agreed upon in advance. In such contracts various aspects of the exchange could be allocated to the two parties involved. For example, a price per unit might be fixed in advance and the buyer might be allowed to name his quantity in the light of the information he has about benefits. A more complex version would present the buyer with a non-linear price schedule. Alternatively the supplies might be given control. While these solutions are fairly well understood, there are other types of arrangements in which control is mutual. This paper studies contracts of this nature. We examine the feasibility of implementing various agreements and the nature of optimal bilateral contracts under these informational circumstances. When the random influences impact both parties significantly, full efficiency is not attainable. We show that contracts involving mutual control might sometimes be superior to the best contract giving one side or the other exclusive dominance.
Handle: RePEc:nbr:nberwo:0721
Template-Type: ReDIF-Paper 1.0
Title: The Relative Productivity Hypothesis of Industrialization: The American Case, 1820-1850
Author-Name: Claudia D. Goldin
Author-Person: pgo601
Author-Name: Kenneth L. Sokoloff
Note: DAE
Number: 0722
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0722
File-URL: http://www.nber.org/papers/w0722.pdf
File-Format: application/pdf
Publication-Status: published as Goldin, Claudia and Kenneth Sokoloff. "The Relative Productivity Hypothesis of Industrialization: The American Case, 1820-1850." Quarterly Journal of Economics, (August 1984), pp. 461-487. vol.99. issue 3
Abstract: The American Northeast industrialized rapidly from about 1820 to 1850, while the South remained agricultural. Industrialization in the Northeast was substantially powered during these decades by female and child labor, who comprised about 45% of the manufacturing work force in 1832. Wherever manufacturing spread in the Northeast, the wages of females and children relative to those of adult men increased greatly from levels in the agricultural sector which were previously quite low. Our hypothesis of early industrialization is that such development proceeds first in areas whose agriculture, for various reasons, puts a low value on females and children relative to adult men. The lower the "relative productivity" of females and children in the pre-industrial agricultural or traditional economy the earlier will manufacturing evolve, the proportionately greater will the relative wages for females and children increase, and the relatively more manufactured goods will the economy produce. A two-sector model which incorporates a difference in "relative productivity" between two economies is used to develop seven propositions relating to the process of early industrialization. Data from two early censuses of manufactures, 1832 and 1850, and other sources provide evidence for our hypothesis, demonstrating, for example, the low relative productivity of females and children in the Northeast agricultural sector, and the increase in relative wages for these laborers with industrialization. We conclude that factors with low relative productivity in agriculture were instrumental in the initial adoption of the factory system and of industrialization in general in the U.S., and we believe these results are applicable to contemporary phenomena in developing countries.
Handle: RePEc:nbr:nberwo:0722
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Real Interest, and the Determinacy of Equilibrium in an Optimizing Framework
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0723
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0723
File-URL: http://www.nber.org/papers/w0723.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "Multiple Stable Equilibria in an Optimizing Perfect-Foresight Model." Econometrica, Vol. 52, No. 1, (January 1984), pp. 223-228.
Abstract: This paper examines the short-run relation between anticipated inflation and the real rate of interest in a model where agents with perfect foresight maximize utility over infinite lifetimes. In addition to deriving behavioral functions from explicit intertemporal optimization, the approach taken here departs from the usual IS-LM analysis in that it is dynamic and deals with a small economy open to trade in consumption goods. Because capital mobility must be ruled out to allow scope for variation in the real interest rate, the results obtained here for one of the two exchange- rate regimes considered -- free floating -- apply equally to a closed economy. The paper shows that an increase in the expected inflation rate depresses the real interest rate in the short run when the exchange rate is instantaneously fixed by the central bank. When equilibrium is determinate in the floating-rate case, the real interest rate is invariant with respect to inflation.
Handle: RePEc:nbr:nberwo:0723
Template-Type: ReDIF-Paper 1.0
Title: Tax Aspects of Corporate Pension Funding Policy
Author-Name: Jeremy I. Bulow
Note: PE
Number: 0724
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0724
File-URL: http://www.nber.org/papers/w0724.pdf
File-Format: application/pdf
Abstract: This paper explores four models of firms' pension liabilities. All of the models yield the result that if it is the stockholders who gain or lose from a change in the market value of pension fund assets, a pension fund invested entirely in bonds will maximize that gain. If a firm's pension liabilities are considered to be no more than the present value of accrued benefits, then most plans for salaried employees would maximize the pension's value by having their assets entirely in bonds. However, for less well funded plans such as most union plans, holding both stocks and bonds or even all stocks may maximize the value of the firm.. Implicit contracts on the liability side of the pension balance sheet can encourage holding some stock, but implicit contracts on the asset side are likely to encourage increased bond holdings.
Handle: RePEc:nbr:nberwo:0724
Template-Type: ReDIF-Paper 1.0
Title: Savings and Loan Usage of the Authority to Invest in Corporate Debt
Author-Name: Patric H. Hendershott
Author-Name: Kevin E. Villani
Note: ME
Number: 0725
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/w0725
File-URL: http://www.nber.org/papers/w0725.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. and Villani, Kevin E. "Savings and Loan Usage of the Authority to Invest in Corporate Debt." Savings and Loan Asset Managementunder Deregulation, pp. 149-167. Sixth Annual Conference of the Federal Home Loan Bank of San Francisco, 1981.
Abstract: This paper examines the portfolio choice of savings and loan associations (SLAS) between mortgages and bonds, first in a certainty world and then under uncertainty. Differences in servicing and transactions costs, in default losses, in tax treatment and in the timing of payments are accounted for in a certain world. SLAs are seen as investing in bonds only if the demand for mortgage funds is sufficiently weak that more profitable SLAs compete away some of the value of their tax preference by bidding down mortgage rates; in this case less profitable SLAs would find corporate debt attractive. In an uncertain world, mortgages will command a premium over bonds to compensate for the prepayment option extended mortgage borrowers. The appropriate value of this premium depends on uncertainty regarding future interest rates and aversion to this uncertainty. SLAs that view future interest rates as more uncertain than the market does generally, or who are more averse to this uncertainty, will require an options premium greater than that determined in the market. Thus they will find corporate debt to be attractive relative to bonds, even when the demand for mortgage funds is strong and their mortgage tax preference is not competed away.
Handle: RePEc:nbr:nberwo:0725
Template-Type: ReDIF-Paper 1.0
Title: An Integrated View of Tests of Rationality, Market Efficiency, and the Short-Run Neutrality of Monetary Policy
Author-Name: Andrew B. Abel
Author-Person: pab10
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG
Number: 0726
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0726
File-URL: http://www.nber.org/papers/w0726.pdf
File-Format: application/pdf
Publication-Status: published as Abel, Andrew B., Frederic S. Mishkin. "An Integrated View of Tests of Rationality, Market Efficiency, and the Short-Run Neutrality of Monetary Policy."Journal of Monetary Economics, Vol. 11, No. 1, (January 1983), pp. 3-24.
Abstract: This paper analyzes an important class of models in which expectations play an important role. Topics included in the analysis are tests of: (1) rationality of forecasts in either market or survey data, (2) capital market efficiency, (3) the short-run neutrality of monetary policy and, (4) Granger causality in macroeconometric models. The common elements of these tests are highlighted. In particular, cross-equation tests for rationality or the short-run neutrality of money are shown to be equivalent to more common regression tests in the literature. Also discussed are the conditions for identification and the implications for whether hypotheses are testable.
Handle: RePEc:nbr:nberwo:0726
Template-Type: ReDIF-Paper 1.0
Title: On the Design of Contracts and Remedies for Breach
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 0727
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0727
File-URL: http://www.nber.org/papers/w0727.pdf
File-Format: application/pdf
Publication-Status: published as Shavell, Steven. "On the Design of Contracts and Remedies for Breach." Quarterly Journal of Economics, Vol. 97, (February 1984), pp. 121-148.
Abstract: The implications of uncertainty for the design of contracts and of remedies for their breach are studied. After characterizing complete contingent contracts, incomplete contracts are examined. Specifically, in view of difficulties in making contingent provisions (costs of enumeration and of bargaining; verification of occurrence of events), it is shown for which contingencies provisions are made. Then, in the major part of the paper, two important implicit substitute for contingent terms are analyzed. The first is provided by remedies for breach of contract; for when a party must pay damages for breach, he will be induced to fulfill his obligations in approximately those contingencies which would have been agreed upon under the terms of a detailed contract. The second substitute for contingent terms lies in the opportunity for renegotiation in light of circumstances, since renegotiation will occur in more or less those contingencies where the contract terms would have differed under a more detailed agreement.
Handle: RePEc:nbr:nberwo:0727
Template-Type: ReDIF-Paper 1.0
Title: Transition from Inflation to Price Stability
Author-Name: Peter M. Garber
Author-Person: pga124
Note: EFG
Number: 0728
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0728
File-URL: http://www.nber.org/papers/w0728.pdf
File-Format: application/pdf
Publication-Status: published as Garber, Peter M. "Transition from Inflation to Price Stability." Carnegie-Rochester Conference Series on Public Policy, Vol. 16, (Spring 1982), pp. 11-41.
Abstract: This paper provides a detailed discussion of the real phenomena that materialized in the stabilization period which followed the German hyper-inflation. Significant real dislocations arose after the monetary reform; and these can be attributed to a government policy which subsidized heavy industry through the inflation tax proceeds. The "credibility problem" appears not to have been a significant factor in the post-reform dislocation.
Handle: RePEc:nbr:nberwo:0728
Template-Type: ReDIF-Paper 1.0
Title: National Savings, Economic Welfare, and the Structure of Taxation
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 0729
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0729
File-URL: http://www.nber.org/papers/w0729.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. and Kotlikoff, Laurence J. National Savings, Economic Welfare, and the Structure of Taxation." Behavioral Simulation Methods in Tax Policy Analysis, edited by Martin Feldstein. Chicago: University of Chicago Press, (1983), pp. 459-498.
Publication-Status: published as National Savings, Economic Welfare, and the Structure of Taxation, Alan J. Auerbach, Laurence J. Kotlikoff. in Behavioral Simulation Methods in Tax Policy Analysis, Feldstein. 1983
Abstract: This paper develops a perfect foresight general equilibrium simulation model of life cycle savings that may be used to investigate the potential impact of a wide range of government policies on national savings and economic welfare. The model can provide quantitative answers to a number of long-standing questions concerning the government's influence on capital formation. These include the degree of crowding out of private investment by debt financed increases in government expenditure, the differential effect on consumption of temporary versus more permanent tax cuts, the announcement effects of future changes in tax and expenditure policy, and the response to structural changes in the tax system, including both the choice of the tax base and the degree of progressivity. The model tracks the values of all economic variables along the transition path from the initial steady state growth path to the new steady state growth path. Hence, it can be used to compute the exact welfare gains or losses for each age cohort associated with tax reform proposals.
Handle: RePEc:nbr:nberwo:0729
Template-Type: ReDIF-Paper 1.0
Title: An Examination of Empirical Tests of Social Security and Savings
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 0730
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0730
File-URL: http://www.nber.org/papers/w0730.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. and Kotlikoff, Laurence J. "An Examination of Empirical Tests of Social Security and Savings." In Social Policy Evaluation: An Economic Perspective, E. Helpman, Assaf Razin and EfraEfraim Sadka, pp. 161-179 . New York: Academic Press, (1983).
Abstract: The effect of social security and other forms of government debt on national savings is one of the most widely debated policy questions in economics today. Some estimates suggest that social security has reduced U.S. savings by almost forty percent. This paper examines recent cross-section and time series empirical tests of the social security-savings question and argues that, given current data, neither type of test has much potential for settling the controversy. In particular, there are a number of specification problems relating to social security time series regressions that can easily lead to highly unstable coefficients and to rejection of the hypothesis that social security reduces savings, even if it is actually true. These points are demonstrated by running regressions on hypothetical data generated by a perfect foresight life-cycle growth model developed previously by the authors. While the data is obtained from a model in which social security reduces the nation's capital stock by almost twenty percent, time series social security regression coefficients vary enormously depending on the specified level of the program, the preferences of hypothetical households, the level of concommitant government policies, and the time interval of the data.
Handle: RePEc:nbr:nberwo:0730
Template-Type: ReDIF-Paper 1.0
Title: Changes in the Provision of Correspondent-Banking Services and the Role of Federal Reserve Banks under the DIDMC Act
Author-Name: Edward J. Kane
Author-Person: pka853
Note: ME
Number: 0731
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0731
File-URL: http://www.nber.org/papers/w0731.pdf
File-Format: application/pdf
Publication-Status: published as Kane, Edward J., 1982. "Changes in the provision of correspondent-banking services and the role of Federal Reserve Banks under the DIDMC Act," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 16(1), pages 93-126, January.
Abstract: This paper focuses on microeconomic incentives set in motion by Federal Reserve decisions about how to implement the reserve-requirement and pricing-of-service provisions of the Depository Institutions Deregulation and Monetary Control Act of 1980 (the DIDMC Act). These incentives promise to reshape the production and character of correspondent-banking services, the margin of jurisdictional competition between state banking regulators and the Federal Reserve System, and ultimately the regional structure of the Federal Reserve itself.
Handle: RePEc:nbr:nberwo:0731
Template-Type: ReDIF-Paper 1.0
Title: Measurement Error and the Flow of Funds Accounts: Estimates of HouseholdAsset Demand Equations
Author-Name: Carl E. Walsh
Author-Person: pwa23
Note: ME
Number: 0732
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0732
File-URL: http://www.nber.org/papers/w0732.pdf
File-Format: application/pdf
Publication-Status: published as Walsh, Carl E. "Revisions In The 'Flash' Estimates Of GNP Growth: Measurement Error Or Forecast Error?," FRB San Francisco - Economic Review (1985): 5-13.
Abstract: In the household sector of the Flow of Funds Accounts, the difference between net acquisition of financial assets and net financial savings is equal to a statistical discrepancy which is often quite large relative to the reported changes in asset holdings. This means that the budget restrictions emphasized in the Brainard-Tobin approach to specifying asset demand equations are not satisfied by the data commonly used to estimate such equations. The view adopted in this paper is that the statistical discrepancy should be thought of as resulting from measurement error in the Flow of Funds data. By imposing a structure on the measurement error, a consistent estimator is developed and used to estimate asset demand equations for the household sector. The demand equations are similar in specification to those used by others so that the results allow a direct assessment of the effects of alternative treatments of the statistical discrepancy. The empirical results suggest that qualitative conclusions about the effects of financial flows and interest rates on asset demands are not affected by the way the statistical discrepancy is treated. Quantitative conclusions are, however, affected.
Handle: RePEc:nbr:nberwo:0732
Template-Type: ReDIF-Paper 1.0
Title: Taxation and On-the-job Training Decisions
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 0733
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0733
File-URL: http://www.nber.org/papers/w0733.pdf
File-Format: application/pdf
Publication-Status: published as Rosen, Harvey S. "Taxation and On-The-Job Training Decisions," The Review of Economics and Statistics, Vol. LXIV, No. 3 (August 1982), pp. 442-449.
Abstract: This paper is an econometric analysis of the on-the-job training (OJT) decisions of a group of white American males during 1975. The data are obtained from the Panel Study of Income Dynamics, which asked a very careful series of questions concerning the individual's OJT status. Each individual's internal rate of return is estimated and used as an explanatory variable to predict the probability of taking OJT. The individual's marginal tax rate is also entered in the equation. The results suggest that income taxation has tended to increase the probability of being involved in OJT. I conjecture that this is because income taxation makes investment in physical capital a less desirable vehicle for carrying consumption into the future, and hence increases the attractiveness of human capital.
Handle: RePEc:nbr:nberwo:0733
Template-Type: ReDIF-Paper 1.0
Title: Social Security and the Decision to Retire
Author-Name: Anthony J. Pellechio
Number: 0734
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0734
File-URL: http://www.nber.org/papers/w0734.pdf
File-Format: application/pdf
Publication-Status: Published as "Social Security and Household Wealth Accumulation: New Microeconomic Evidence", Review of Economics and Statistics, Vol. 61, no. 3 (1979): 361-368.
Abstract: This study examines empirically whether social security influences the retirement decisions of individuals. The framework for this study is the life-cycle model of individual behavior. The life-cycle model shows that there are two main ways in which social security can affect behavior. One way is through the change in an individual's lifetime income that social security can bring about. The other way has to do with how the system changes compensation for work. Social security's income and substitution effects are included in a model for examining retirement decisions. This model is based on the model of labor force participation that has become standard in the literature on labor supply. The data used in this study come from the Social Security Administration and are particularly well suited for this study. Retirement models are estimated separately for samples of 62-64 and 65-70 year old men. The empirical results support the conclusion that social security influences the decision to retire. The magnitude of behavioral responses to changes in social security benefits are reported and implications for future behavior are discussed.
Handle: RePEc:nbr:nberwo:0734
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Collective Bargaining: Illusion or Reality?
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: James L. Medoff
Note: LS
Number: 0735
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0735
File-URL: http://www.nber.org/papers/w0735.pdf
File-Format: application/pdf
Publication-Status: published as in "U.S. Industrial Relations 1950-1980: A Critical Assessment" edited by J. Stieber, R. B. McKersie, and D. Q. Mills , pp. 47-97. Madison, WI: Industrial Relations Research Association, 1981.
Abstract: This paper reviews a significant body of evidence regarding the impact of trade unionism on economic performance and seeks to evaluate antithetical views regarding whether estimated differences between union and nonunion workers and firms represent: illusions created by poor experiments, real effects explicable solely in price-theoretic terms, or real effects which reflect the non wage-related dimensions of trade unions. The review yields conclusions on both the substantive questions at hand and the methodologies which have been used to address their validity. With respect to the illusion/reality debate, the preponderance of extant evidence indicates that union effects on a wide variety of economic variables estimated with cross-sectional data are real. Moreover, since the effects of unions on nonwage outcomes generally come from models which hold fixed the level of wages and variables affected by wages, the evidence supports the view that unions do much more than simply raise wages as an economic monopolist. While, in this study, we do not examine interpretations of these nonwage effects, the effects represent an empirical foundation for the "institutional" view of unionism, which is described in Section I. With respect to methods for evaluating the quality of standard cross-sectional experiments, some techniques appear more useful than others. In particular, we find that sensitivity analyses of single-equation results and longitudinal experiments provide valuable checks on cross-sectional findings while multiple-equations approaches produce results which are much too unstable to help resolve the questions of concern.
Handle: RePEc:nbr:nberwo:0735
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Adjustment and Foreign Trade of Centrally Planned Economies
Author-Name: John Burkett
Author-Person: pbu19
Author-Name: Richard Portes
Author-Person: ppo132
Author-Name: David Winter
Note: ITI IFM
Number: 0736
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0736
File-URL: http://www.nber.org/papers/w0736.pdf
File-Format: application/pdf
Abstract: This empirical study stresses the underlying macroeconomic forces which determine foreign trade flows in CPEs. The general specification includes a planners' demand equation for the volume of imports, a planners' supply equation for the volume of exports, and a rest-of-world demand equation for the export price level. The planners' behavioural equations include variables for activity levels, trade balance constraints, prices, and domestic excess demand. The import price is exogenous. This simultaneous equation model is estimated on annual data from the mid-1950s to the mid-1970s, for Czechoslovakia, the GDR, Hungary, and Poland. Maximum likelihood estimation in a nested hypothesis testing framework allows selection of restricted versions of the general model for each country. Estimated price elasticities accord with the underlying theory, and the excess demand variables perform well.
Handle: RePEc:nbr:nberwo:0736
Template-Type: ReDIF-Paper 1.0
Title: Implications of Corporate Capital Structure Theory for Banking Institutions
Author-Name: Yair E. Orgler
Author-Name: Robert A. Taggart, Jr.
Note: ME
Number: 0737
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0737
File-URL: http://www.nber.org/papers/w0737.pdf
File-Format: application/pdf
Publication-Status: published as Orgler, Yair E. and Robert A. Taggart, Jr. "Implications of Corporate Capital Structure Theory for Banking Institutions." Journal of Money, Credit and Banking, Vol. 15, No. 2 (May 1983), pp.212-221.
Abstract: This paper applies some recent advances in corporate capital structure theory to the determination of optimal capital in banking. The effects of corporate and personal taxes, government regulation, the technology of producing deposit services and the costs of bankruptcy and agency problems are all discussed in the context of the U.S. commercial banking system. The analysis suggests explanations for why commercial banks tend to have relatively less capital than nonfinancial firms, why commercial bank leverage has tended to increase over time and why large banks tend to have relatively less capital than small banks.
Handle: RePEc:nbr:nberwo:0737
Template-Type: ReDIF-Paper 1.0
Title: The Terminations Premium in Mortgage Coupon Rates: Evidence on the Integration of Mortgage and Bond Markets
Author-Name: Patric H. Hendershott
Author-Name: Kevin E. Villani
Note: ME
Number: 0738
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0738
File-URL: http://www.nber.org/papers/w0738.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. and Kevin E. Villani. "Measurement of Spreads between Yields on Various Mortgage Contracts and Treasury Securities." Journal of the American Real Estate and Urban Economic Association, (Winter 1984), pp. 476-490. James Shilling added as co-author.
Abstract: During the Last three years mortgage rates have risen relative to yields on comparable maturity bonds. The questions addressed in the present paper are what is the extent of this increase and to what is it attributable? We find the increase between early 198 and early 1981 in coupon rates on GNMA mortgage pools relative to ''the" rate on a comparable portfolio of Treasury bonds to be about 100 basis points. We attribute the increase to a rise in the terminations premia built into mortgage coupon rates. The premia is the price borrowers are charged for the option to repay the mortgage when it is to their benefit (to refinance if interest rates decline). This price has risen in response to an increase in interest rate uncertainty. Our empirical results suggest that the increase is due to both greater uncertainty regarding the inflation premium in interest rates and the lesser weight the monetary authorities give to interest rate stability in their deliberations.
Handle: RePEc:nbr:nberwo:0738
Template-Type: ReDIF-Paper 1.0
Title: Housing Finance in the United States in the Year 2001
Author-Name: Patric H. Hendershott
Author-Name: Kevin E. Villani
Note: ME
Number: 0739
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0739
File-URL: http://www.nber.org/papers/w0739.pdf
File-Format: application/pdf
Publication-Status: published as in "North American Housing Markets into the 21st Century", edited by Gau and Goldberg. Aisterdam: North-Holland, (1983), pp . 181-202.
Abstract: This paper proceeds as follows. We first identify the essential services provided by a financial system and then derive the characteristics of the system that would exist in a technologically advanced society unfettered by nonneutral taxes and regulations. Next we consider how taxes and regulations have shaped the existing American financial structure. Finally, we posit likely tax and regulatory changes and conjecture as to how technological innovation will further interact with these changes to alter the American financial system. Our basic contentions are that the tax and regulatory influences are eroding and that the system will eventually move toward the unfettered financial system described in the first section.
Handle: RePEc:nbr:nberwo:0739
Template-Type: ReDIF-Paper 1.0
Title: The Effective Tax Rate and the Pretax Rate of Return
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Louis Dicks-Mireaux
Note: PE
Number: 0740
Creation-Date: 1981-08
Order-URL: http://www.nber.org/papers/w0740
File-URL: http://www.nber.org/papers/w0740.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin, Louis Dicks-Mireaux, and James Poterba. "The Effective Tax Rate and the Pretax Rate of Return." Journal of Public Economics, Vol. 21, No. 2, pp. 129-158, (1983). (NOTE: Reprint 443 is based on BOTH W0508 and W0740.)
Abstract: This paper presents new estimates of the taxes paid on nonfinancial corporate capital, on the pretax rate of return to capital, and on the effective tax rate. The basic time series show that both the pretax rate of return and the effective tax rate have varied substantially in the past quarter century. An explicit analysis indicates that, after adjusting for different aspects of the business cycle, pretax profitability was between one and 1.5 percentage points lower in the 1970's than in the 1960's. The rate of profitability in the 1960's was also about one-half of a percentage point greater than the profitability in the 7 years of the 1950's after the Korean war. Changes in productivity growth, in inflation, in relative unit labor costs, and in other variables are all associated with changes in profitability. None of these variables, however, can explain the differences in profitability between the 1950Ts, 1960's and 1970's. Looking at broad decade averages, the effective tax rate and the pretax rate of return move in opposite directions, higher pretax profits occurring when the tax rate is high. There thus appears to have been no tendency for pretax profits to vary in a way that offsets differences in effective tax rates.
Handle: RePEc:nbr:nberwo:0740
Template-Type: ReDIF-Paper 1.0
Title: The Social versus the Private Incentive to Bring Suit in a Costly Legal System
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 0741
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0741
File-URL: http://www.nber.org/papers/w0741.pdf
File-Format: application/pdf
Publication-Status: published as Shavell, Steven. "The Social versus the Private Incentive to Bring Suit ina Costly Legal System." Journal of Legal Studies, Vol. 11, No. 2, (June 1982), pp. 333-340.
Abstract: The question is asked how the incentives of private parties to bring suit relate to what would be socially appropriate given the costs of using the legal system; and the answer presented in the model that is examined involves two elements. The first is that as a potential plaintiff takes into account only his own legal expenses in deciding whether to bring suit, the private cost of suit is evidently less than the social cost (which would include the defendant's legal expenses), suggesting a tendency toward excessive litigation, other things equal. But consideration of the second element complicates matters: as the plaintiff takes into account his own expected gains but not the social gains attaching to suit (which in the model is the general effect of suit on potential defendants' behavior), and as these social gains could be either larger or smaller than his gains, there is a tendency in respect to litigation that could either counter or reinforce the previous tendency.
Handle: RePEc:nbr:nberwo:0741
Template-Type: ReDIF-Paper 1.0
Title: Pigouvian Taxation with Administrative Costs
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 0742
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0742
File-URL: http://www.nber.org/papers/w0742.pdf
File-Format: application/pdf
Publication-Status: published as Polinsky, A. Mitchell and Shavell, Steven. "Pigouvian Taxation with Administrative Costs." Journal of Public Economics, Vol. 19, No. 3 (December 1982) , pp. 385-394.
Abstract: This paper examines how the optimal Pigouvian tax should be adjusted to reflect administrative costs. Several cases are examined, depending on whether the administrative costs are fixed per firm taxed or are a function of the amount of tax collected, and on whether such costs are borne by the government or by the taxed firm. In some cases, the presence of administrative costs increases the optimal tax above the external cost, while in other cases it leads to a decrease in the tax.
Handle: RePEc:nbr:nberwo:0742
Template-Type: ReDIF-Paper 1.0
Title: On the Role of Social Security as a Means for Efficient Risk-Bearing in an Economy Where Human Capital Is Not Tradeable
Author-Name: Robert C. Merton
Author-Person: pme203
Note: PE
Number: 0743
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0743
File-URL: http://www.nber.org/papers/w0743.pdf
File-Format: application/pdf
Publication-Status: published as Merton, Robert C. "On the Role of Social Security as a Means for Efficient Risk-Bearing in an Economy where Human Capital is Not Tradeable." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1984), pp. 325-358.
Abstract: An intertemporal general equilibrium model of an economy with overlapping generations and two factors of production, labor and capital, is used to analyze the economic inefficiencies caused by the non- tradeability of human capital -and to derive a constrained pareto-optimal sys tern of taxes and transfers which "c.orrectS1 these inefficiencies. It is shown that, in the absence of such a system, this market failure causes the equilibrium path of the economy to deviate from the optimum for two reasons: First, as is well known, people cannot achieve their optimal lifecycle consumption program because early in life when most of their wealth is in the form of human capital, they cannot consume as much as they would otherwise choose. Second, investors cannot achieve an optimal portfolio allocation of their savings. Not only will some investors be forced to bear more risk than they would choose in the absence of this market failure, but because factor shares are uncertain, the portfolios held by investors will be inefficient. The young are "forced" to invest "too much" of their savings in human capital and the old are "forced" to invest "too little" in human capital. Hence, all investors bear "factor-share" risk which if human capital were tradeable, could be diversified away. It is shown that a optimal system of taxes and transfers not unlike the current Social Security system can eliminate this inefficiency, and therefore, it is suggested that a latent function of the present system may be to improve the efficiency of risk-bearing in the economy.
Handle: RePEc:nbr:nberwo:0743
Template-Type: ReDIF-Paper 1.0
Title: Price Inertia and Policy Ineffectiveness in the United States, 1890-1980
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 0744
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0744
File-URL: http://www.nber.org/papers/w0744.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 90, No. 6, pp. 1087-1117, (1982).(combined with W0361)
Abstract: This paper introduces a new approach to the empirical testing of the Lucas- Sargent-Wallace (LSW) "policy ineffectiveness proposition." Instead of testing that hypothesis in isolation from any plausible alternative, the paper develops a single empirical equation explaining price change that includes as special cases both the LSW proposition and an alternative hypothesis. The alternative, dubbed "NRH-GAP," states that prices respond fully in the long run, but only gradually in the short run, to nominal aggregate demand disturbances. A second innovation is the development of a quarterly data file for the period 1890-1980, thus opening up more than 200 new quarterly observations for analysis. A third innovation is the testing of three different methods of introducing "persistence effects" into the LSW analytical framework. In conflict with the predictions of the LSW approach, the results here exhibit uniformly high coefficients of real output and low coefficients of price changes in response to anticipated nominal GNP changes. Further, price changes respond positively and output responds negatively to lagged changes in prices, reflecting the short-run inertia in price-setting that forms the basis for the alter- native NRH-GAP approach. Evidence is also provided that velocity tends to respond negatively to anticipated changes in money, in contrast to the usual assumption in this literature of random serially independent velocity changes. Two shifts in the structure of the price-setting process are noted--a much higher degree of price responsiveness during World War I and its aftermath, and a longer mean lag in the influence of past price changes after 1953. Of independent interest, beyond its treatment of the policy ineffectiveness debate, is the treatment in the paper of changes in monetary regimes, and of the impact of programs of government intervention. The money creation process exhibits a highly significant change in structure before and after World War I, and a marginally significant change in 1967. The results identify five episodes of government intervention that significantly displaced the time path of prices -- the National Recovery Act of 1933-35, and price controls during the two world wars, Korea, and the Nixon era.
Handle: RePEc:nbr:nberwo:0744
Template-Type: ReDIF-Paper 1.0
Title: Financing Capital Formation in the 1980s: Issues for Public Policy
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0745
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0745
File-URL: http://www.nber.org/papers/w0745.pdf
File-Format: application/pdf
Publication-Status: published as in "Toward a New U.S. Industrial Policy," edited by Michael L. Wachter and Susan M. Wachter, pp. 95-126. Philadelphia: Universityof Pennsylvania Press, 1981.
Abstract: Three specific aspects of the corporate financing decision - internal versus external funds, equity versus debt within the external component, and features of the debt including especially maturity - present opportunities (and pitfalls) for public policy for affecting U.S. capital formation. First, by reducing the government's dissaving and hence its claims on the economy's financial resources, policy can make credit market funds available for corporations to finance their investment externally, thereby both stimulating the overall amount of capital formation and also taking advantage of the allocative efficiency of the competitive market mechanism to achieve a productive composition of that capital formation. At the same time, by using the tax system to augment the rate of return on corporate-sector assets, policy can also enable corporations better to compete for such funds once they are available. Second, by eliminating or even reversing the current tax discrimination in favor of debt, policy can encourage corporations to rely at least in part on equities in their external financing , thereby reducing the economy 's aggregate-level financial risk. Third, by neutralizing or even reversing the current emphasis on long- term securities in managing the federal government's own debt, policy can encourage corporations to issue long- instead of short-term debt instruments, thereby further reducing aggregate-level financial risk. Along the same lines, policy can also play a role in pioneering markets for new financial instruments, like bonds providing protection of the investor's purchasing power, that private borrowers can then use to finance private capital formation.
Handle: RePEc:nbr:nberwo:0745
Template-Type: ReDIF-Paper 1.0
Title: Tax Exporting and the Commerce Clause: Reflections on Commonwealth Edison
Author-Name: Charles E. McLure, Jr.
Author-Person: pmc33
Note: PE LE
Number: 0746
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0746
File-URL: http://www.nber.org/papers/w0746.pdf
File-Format: application/pdf
Publication-Status: published as McLure, Charles E., Jr. "Tax Exporting and the Commerce Clause: Refectionson Commonwealth Edison." Fiscal Federalism and the Taxation of Natural Resources, edited by Charles E. McLure, Jr. and Peter Mieszkowski. Lexington MA: Lexington Books D.C. Heath and Company, (1983).
Abstract: This paper appraises the conflicting contentions found in the majority and dissenting opinions in Commonwealth Edison Co. et al. v. Montana et al. about the feasibility of basing findings of constitutionality under the Interstate Commerce Clause on the results of incidence analysis. Severance taxes, property taxes, corporate income taxes levied by both producing and consuming states, and gross receipts taxes levied by consuming states in conjunction with price controls are considered. Factors affecting tax exporting by producing states include the degree of geographic concentration of natural resources, cartelization by producing states, the mobility of various resources, international competition, natural substitutability, government regulations, the prevalence of long-term contracts, and transportation costs. The analysis of tax exporting is sufficiently complicated that attempting to base constitutionality on estimates of tax exporting is fraught with danger, especially in times of rapid economic and institutional change, in part because it is so difficult to know when the tax exporting question is being asked properly.
Handle: RePEc:nbr:nberwo:0746
Template-Type: ReDIF-Paper 1.0
Title: Capital Structure Equilibrium under Incomplete Market Conditions
Author-Name: Lemma W. Senbet
Author-Name: Robert A. Taggart, Jr.
Note: ME
Number: 0747
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0747
File-URL: http://www.nber.org/papers/w0747.pdf
File-Format: application/pdf
Publication-Status: published as Senbet, Lemma W. and Robert A. Taggart, Jr. "Capital Structure Equilibriumunder Market Imperfections and Incompleteness." Journal of Finance, Vol. 3 9, No. 1, (March 1984), pp. 93-103.
Abstract: Most discussions of corporate capital structure have been set in the context of a complete capital market. In this paper we study the determinants of capital structure for the incomplete markets case, where incompleteness manifests itself in the form of divergent borrowing and lending rates. We argue that firms have a natural incentive to tailor their financing choices so as to narrow such divergences. While this implies an optimal capital structure for firms in the aggregate, however, competition will drive out profits, and the capital structure of any individual firm may still be a matter of indifference. Firms' incentive to try to complete the market provides a rationale for corporate finance even in a taxless environment. This incentive may also shed light on such related issues as corporate mergers, the use of complex securities and the role of financial intermediaries.
Handle: RePEc:nbr:nberwo:0747
Template-Type: ReDIF-Paper 1.0
Title: Aspects of the Optimal Management of Exchange Rates
Author-Name: Jacob A. Frenkel
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI EFG IFM
Number: 0748
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0748
File-URL: http://www.nber.org/papers/w0748.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. and Joshua Aizenman. "Aspects of the Optimal Management of Exchange Rates." Journal of International Economics, Vol. 13 (1982), pp. 231-256. North-Holland Publishing Co.
Abstract: This paper analyzes aspects of the economics of the optimal management of exchange rates. It shows that the choice of the optimal exchange rate regime depends on the nature and the origin of the stochastic shocks that affect the economy. Generally, the higher is the variance of real shocks which affect the supply of goods, the larger becomes the desirability of fixity of exchange rates. The rationale for that implication is that the balance of payments serves as a shock absorber which mitigates the effect of real shocks on consumption. The importance of this factor diminishes the larger is the economy's access to world capital markets. On the other hand, the desirability of exchange rate flexibility increases the larger are the variances of the shocks to the demand for money, to the supply of money, to foreign prices and to purchasing power parities. All of these shocks exert a similar effect and their sum is referred to as the "effective monetary shock." It is also shown that the desirability of exchange rate flexibility increases the larger is the propensity to save out of transitory income. When the analysis is extended to an economy which produces traded and non-traded goods it is shown that the desirability of exchange rate flexibility diminishes the higher is the share of non-traded goods relative to traded goods and the lower are the elasticities of demand and supply of the two goods.
Handle: RePEc:nbr:nberwo:0748
Template-Type: ReDIF-Paper 1.0
Title: Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Marcus H. Miller
Author-Person: pmi133
Note: ITI IFM
Number: 0749
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0749
File-URL: http://www.nber.org/papers/w0749.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. and Miller, Marcus. "Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation." European Economic Review, Vol. 18, No.1, 1982, pp.85-123.
Publication-Status: published as Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation, Willem H. Buiter, Marcus Miller. in International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, de Ménil and Gordon. 1991
Publication-Status: published as Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation: Some Further Results, Willem H. Buiter, Marcus Miller. in Exchange Rates and International Macroeconomics, Frenkel. 1983
Abstract: Implementing a 'gradualist' policy of monetary contraction, in an open economy with a freely floating exchange rate but with nominal inertia in domestic labor costs, can lead to prompt and substantial changes in the nominal and real exchange rate. One of the virtues claimed for such exchange rate 'overshooting', however, is its immediate effect on the price level and so on domestic wage and price inflation. In this paper we show that, in a model which is 'super-neutral' and has nominal inertia in both the level of labor costs and their trend or core rate of growth, this early overshooting of the exchange rate does not succeed in cutting the output costs of reducing steady-state inflation. Those output and unemployment costs which are initially avoided by over- valuing the currency have to be paid later when this overvaluation is corrected. Relative to other policies which achieve the same effect on steady-state inflation, exchange rate overshooting brings inflation down more quickly.
Handle: RePEc:nbr:nberwo:0749
Template-Type: ReDIF-Paper 1.0
Title: Career Patterns of College Graduates in a Declining Job Market
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0750
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0750
File-URL: http://www.nber.org/papers/w0750.pdf
File-Format: application/pdf
Abstract: This study uses Current Population Survey cohort data and the National Longitudinal Survey for men aged 14-24 in 1966 to examine the earnings growth of college graduates relative to high school graduates during the 1970s depressed market for graduates. The principal finding is that the longitudinal/cohort earnings profile for college graduates flattened markedly relative to that for high school graduates in the 1970s. With smaller growth rates of earnings for the college educated in the period than in previous decades, the evidence lends no support to the hypothesis that the graduates who suffered economic losses during the period will recover the traditional college advantage as time proceeds. The finding that the longitudinal profile of college graduates flattened contrasts sharply with the steepening of cross-section profiles in the period, raising serious doubts about the validity of standard cross-section analyses of age-earnings curves to assess lifetime income profiles and investments in training.
Handle: RePEc:nbr:nberwo:0750
Template-Type: ReDIF-Paper 1.0
Title: Have Black Labor Market Gains Post-1964 Been Permanent or Transitory?
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0751
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0751
File-URL: http://www.nber.org/papers/w0751.pdf
File-Format: application/pdf
Abstract: One of the most important questions regarding black economic gains post-1964 is whether they are permanent or transitory. This study examines the relative economic progress of black cohorts and of individual black workers in longitudinal samples to evaluate the permanence of changes. It finds that the preponderance of evidence runs against the proposition that the post-1964 advances have bS2- transitory or illusory. Measured by earnings of workers and occupational attainment, blacks have continued to make significant progress in the 1970s. Measured by the increase in earnings of specific cohorts, black gains did not dissipate due to slow growth of earnings.
Handle: RePEc:nbr:nberwo:0751
Template-Type: ReDIF-Paper 1.0
Title: Union Wage Practices and Wage Dispersion within Establishments
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0752
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0752
File-URL: http://www.nber.org/papers/w0752.pdf
File-Format: application/pdf
Publication-Status: published as Richard B. Freeman, 1982. "Union Wage Practices and Wage Dispersion within Establishments," ILR Review, Cornell University, ILR School, vol. 36(1), pages 3-21, October.
Abstract: This study uses establishment level data to examine the effect of unionism on the wage structure within establishments. The major finding is that unionism substantively reduces within-establishment dispersion of wages, in part through explicit wage practices, such as single rate or automatic progression modes of wage payment as opposed to merit reviews and individual determination. Dispersion of wages between organized plants is reduced compared to dispersion of wages between unorganized plants, but by more modest amounts. Overall, the evidence suggests a major role for explicit union wage policies on dispersion of wages within firms and in the economy as a whole.
Handle: RePEc:nbr:nberwo:0752
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Tax Rules, and the Accumulation of Residential and Nonresidential Capital
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0753
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0753
File-URL: http://www.nber.org/papers/w0753.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Inflation, Tax Rules, and the Accumulation of Residential and Nonresidential Capital." Scandinavian Journal of Economics, Vol. 84, No. 2 (1982), pp. 293-311.
Publication-Status: published as Feldstein, Martin. "Inflation, Tax Rules, and the Accumulation of Residential and Nonresidential Capital." Inflation, Tax Rules and Capital Formation,edited by Martin Feldstein. Chicago: University of Chicago Press, (1983).
Publication-Status: published as Inflation, Tax Rules, and the Accumulation of Residential and Nonresidential Capital, Martin Feldstein. in Inflation, Tax Rules, and Capital Formation, Feldstein. 1983
Abstract: The present paper analyses the effect of the interaction between tax rules and inflation on the size and allocation of the capital stock with particular emphasis on the role of owner-occupied housing. The analysis is developed in the framework of an economy that is in equilibrium and in which a constant fraction of disposable income is saved. In this model, I show that, with current U.S. tax laws, an increase in the rate of inflation reduces the equilibrium amount of business capital employed in the economy and raises the amount of housing capital. The analysis also shows that a higher rate of inflation lowers the real net-of-tax rate of return to the provider of business capital. In a richer model than the current one, i.e., in a model in which the rate of personal saving was an increasing function of the net rate of return, a higher inflation rate would therefore lower the rate of saving. The present analysis also shows that permitting firms to depreciate investments more rapidly for tax purposes increases the accumulations of business capital but that, unless firms are permitted to expense all in- vestment immediately, an increase in in£ lat ion continues to depress the accumulation of business capital.
Handle: RePEc:nbr:nberwo:0753
Template-Type: ReDIF-Paper 1.0
Title: Intergenerational Effects of the Distribution of Income and Wealth: The Utah Experience, 1850-1900
Author-Name: J. R. Kearl
Author-Name: Clayne L. Pope
Note: DAE
Number: 0754
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0754
File-URL: http://www.nber.org/papers/w0754.pdf
File-Format: application/pdf
Abstract: The relationship between the wealth or income of parents and children is an important economic issue in both positive and normative senses. In this paper, we estimate elasticities of sons' income or wealth with respect to the wealth of their fathers for a sample of households in nineteenth century Utah. We find the elasticity relating the wealth of fathers to sons to range from .10 to .34 depending on the variables held constant such as occupation, age and residence. Elasticities based on observation of the wealth of fathers and sons in the same year were higher than those based on a lagged value of the fathers' wealth. The death of the father prior to observation of the sons' wealth increased the elasticity about three fold. The elasticity between the income of sons and wealth of fathers was low (.09 to .21) but significant even though the sons' incomes were observed fifteen years after the wealth of fathers. In general, the data suggest a persistent relationship between the economic status of parents and their children with substantial regression toward the mean so that an economic elite was unlikely to be based upon intergenerational transmission of economic success.
Handle: RePEc:nbr:nberwo:0754
Template-Type: ReDIF-Paper 1.0
Title: Accelerating Inflation, Nonassumable Fixed-Rate Mortgages, and Consumer Choice and Welfare
Author-Name: Patric H. Hendershott
Author-Name: Sheng Cheng Hu
Note: ME
Number: 0755
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0755
File-URL: http://www.nber.org/papers/w0755.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. and Hu, Sheng Cheng. "Accelerating Inflation, Nonassumable Fixed-Rate Mortgages, and Consumer Choice and Welfare." Public Finance Quarterly, Vol. 10, No. 2, (April 1982).
Abstract: This paper measures the impact of nonassumable, fixed-rate, long-term mortgage financing on household mobility and housing demand during a period of accelerating inflation (l965_71l). We calculate that typical households who bought houses during the l96l7l period and utilized this type of financing would not have moved until the 1975-77 period. And this is in spite of rising incomes and a sharp fail in the real rental price or user cost of housing. We conclude that the nonassumable, fixed-rate mortgage is largely responsible for bath sluggish housing demand in the l967-79 period and its surge in the 1976-79 period. Housing activity would have been far more stable had variable-rate mortgagee been employed. Finally, the enormous gap between current mortgage rates and those existing in the19705 and the resultant huge capital gains on existing mortgages does not bode well for housing activity in the near term future.
Handle: RePEc:nbr:nberwo:0755
Template-Type: ReDIF-Paper 1.0
Title: Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence from Panel Data
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Note: EFG
Number: 0756
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0756
File-URL: http://www.nber.org/papers/w0756.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben S. "Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence from Panel Data." Quarterly Journal of Economics, Vol. 99, No. 3, August 1984, pp. 587-614.
Abstract: Several recent papers have tested the permanent income-cum- rational expectations hypothesis using data on nondurable or semi-durable consumption. We show how this approach can be extended to the case of durables. An application to panel data on automobile expenditures reveals no evidence against the permanent income hypothesis. This result is unchanged in subsamples segregated by family holdings of liquid assets.
Handle: RePEc:nbr:nberwo:0756
Template-Type: ReDIF-Paper 1.0
Title: Tax Reform and Corporate Investment: A Microeconometric Simulation Study
Author-Name: Michael A. Salinger
Author-Person: psa817
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 0757
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0757
File-URL: http://www.nber.org/papers/w0757.pdf
File-Format: application/pdf
Publication-Status: published as Salinger, Michael A. and Lawrence H. Summers. "Tax Reform and Corporate Investment: A Microeconometric Simulation Study." Chapter 8 in Behavioral Simulation Methods in Tax Policy Analysis, ed. by Martin Feldstein. Chicago: UCP, (1983), pp. 247-281.
Publication-Status: published as Tax Reform and Corporate Investment: A Microeconometric Simulation Study , Michael Salinger, Lawrence H. Summers. in Behavioral Simulation Methods in Tax Policy Analysis, Feldstein. 1983
Abstract: This paper develops a methodology for simulating the effects of alternative corporate tax reforms on the stock market valuation and investment plans of individual firms. The methods are applied to estimate the effects of alternative corporate tax reforms on the 30 Dow Jones companies. The estimates are all based on extensions of Tobin's "q Theory of Investment" to take account of the effects of tax policy. As well as providing the basis for the estimates of the effects of tax policy, the results here provide strong microeconometric support for the q theory of investment. The q theory approach provides a superior method for estimating the effects of investment incentives because it recognizes the effects of changes in the cost of capital on the desired level of output. The results suggest that some potential tax reforms could have potent effects, which vary widely among firms. For example, complete indexation of the tax system would raise the Dow Jones average by an estimated 7.6 percent. The variance among companies is substantial with the effect ranging from -13 percent for Sears to 20 percent for American Brands.
Handle: RePEc:nbr:nberwo:0757
Template-Type: ReDIF-Paper 1.0
Title: Capital Gains Taxation in an Economy with an "Austrian Sector"
Author-Name: Daniel J. Kovenock
Author-Name: Michael Rothschild
Author-Person: pro48
Note: PE
Number: 0758
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0758
File-URL: http://www.nber.org/papers/w0758.pdf
File-Format: application/pdf
Publication-Status: published as Kovenock, Daniel J. and Michael Rothschild. "Capital Gains Taxation in an Economy with an "Austrian Sector."" Journal of Public Economics, Vol. 21 (1983), pp. 215-256.
Abstract: This paper examines the effects of a proportional capital gains tax in an economy with an Austrian sector (with wine and trees) and an ordinary sector. We analyze the effect of capital gains taxation (on both an accrual and a realization basis) on the efficiency with which resources are used within the Austrian sector. Since time is the only input which can be varied in the Austrian sector this amounts to looking at the effect of capital gains taxation on the harvesting time or selling time of assets. Accrual taxation decreases the selling time of Austrian assets. Realization taxation decreases the selling time of some Austrian assets and leaves it unchanged for others. Inflation further reduces the selling time of assets taxed on an accrual basis; often, but not always, inflation increases .the selling time of Austrian assets taxed on a realization basis. These results suggest that the capital gains tax can reduce the holding period of an asset. However, there is a sense in which such taxes (at least when levied on a realization basis) discourage transactions and increase holding periods. It is never profitable to change the ownership of an Austrian asset between the time of the original investment and the ultimate harvesting of the asset for final use. We examine the effect of capital gains taxation on the efficiency of the allocation of investment between sectors. No neutrality principles emerge when ordinary investment income is taxed at the same rate as capital gains income. We also analyze the effect of the special tax treatment of capital gains at death and find that the current U.S. tax system, under which capital gains taxes are waived at death, encourages investors to hold assets longer than they otherwise would.
Handle: RePEc:nbr:nberwo:0758
Template-Type: ReDIF-Paper 1.0
Title: Anticipated and Unanticipated Oil Price Increases and the Current Account
Author-Name: Nancy Peregrim Marion
Author-Person: pma1464
Note: ITI IFM
Number: 0759
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0759
File-URL: http://www.nber.org/papers/w0759.pdf
File-Format: application/pdf
Publication-Status: published as Marion, Nancy Peregrim. "Nontraded Goods, Oil Price Increases and the Current Account." Journal of International Economics, Vol. 16, No. 1/2, (February 1984), pp. 29-44.
Abstract: This paper examines the current-account response to anticipated future increases in real oil prices as well as to unexpected increases which may be temporary or permanent in nature. The analysis is conducted using an intertemporal two-period model of a small open economy which produces both traded and nontraded goods and imports its oil. The paper identifies the channels through which various types of oil price increases affect the current account. The inclusion of nontraded investment and consumer goods permits oil price increases to generate intertemporal and static substitution effects in production and consumption which alter net international saving. Moreover, the relative oil-value-added ratio in the traded and nontraded sectors plays a crucial role in shaping these substitution effects and hence the current-account response.
Handle: RePEc:nbr:nberwo:0759
Template-Type: ReDIF-Paper 1.0
Title: Anticipated Money, Inflation Uncertainty, and Real Economic Activity
Author-Name: John H. Makin
Note: ME
Number: 0760
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0760
File-URL: http://www.nber.org/papers/w0760.pdf
File-Format: application/pdf
Publication-Status: published as Makin, John H. "Anticipated Money, Inflation Uncertainty, and Real Economic Activity." The Review of Economics and Statistics, Vol. LXIV, No. 1, (February 1982), pp. 126-134.
Abstract: This paper critically examines a number of maintained hypotheses that are necessarily being tested along with the basic notion derived from the rational expectations (RE) formulation of Lucas (1972) (19 73) that "only unanticipated money matters." The trend stationary representation of secular real output of Lucas and others is replaced by a difference stationary representation found by Nelson and Plosser (1980) to be consistent with U. S. historical data. The impact of inflation uncertainty on real activity is considered. Attention is paid to possible mis-measurement of agents' ex ante -- anticipated money growth. It is found that three alternative measures of anticipated money growth produce a stable impact on growth of output and employment. Contemporaneous and lagged values of unanticipated money growth have no significant additional explanatory power in the presence of any one of the three measures of anticipated money growth. Beyond this, it is impossible to reject the hypothesis that the initial positive real impact of anticipated money is not temporary. Inflation uncertainty is found to act as a significant depressant of real economic activity in the presence of all tested combinations of anticipated and unanticipated money growth.
Handle: RePEc:nbr:nberwo:0760
Template-Type: ReDIF-Paper 1.0
Title: The Index of Leading Indicators: "Measurement without Theory," Twenty-Five Years Later
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: EFG
Number: 0761
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0761
File-URL: http://www.nber.org/papers/w0761.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "The Index of Leading Indicators: Measurement without Theory, Thirty-Five Years Later." The Review of Economics and Statistics, Vol. 64, No. 4 (November 1982), pp. 589-595.
Abstract: The index of leading economic indicators first developed by the NBER remains a popular informal forecasting tool in spite of the original criticism that its use represents "measurement without theory. " This paper seeks to evaluate the performance of the index in comparison to alternative time series methods in predicting business cycle behavior. While the actual method of choosing the weights for the twelve series included in the index is essentially unnecessary (because the resulting series is indistinguishable from another with uniform weights) the series itself helps explain business cycle behavior, and outperforms an index with econometrically chosen weights.
Handle: RePEc:nbr:nberwo:0761
Template-Type: ReDIF-Paper 1.0
Title: The Holding Period Distinction of the Capital Gains Tax
Author-Name: Steven Kaplan
Note: PE
Number: 0762
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0762
File-URL: http://www.nber.org/papers/w0762.pdf
File-Format: application/pdf
Abstract: United States tax law distinguishes between short-term and long-term capital gains. By taxing long-term gains at a lower rate the law creates an incentive for investors to postpone the realization of short-term gains. This study examines the lock-in effect induced by the differential tax treatment of long- and short-term gains. Analysis of data on corporate stock transactions from 1973 suggests that the lock-in effect is large and, thus, causes investors to alter their investment portfolios. The existence of such an effect is inefficient and results in a reduction in capital market efficiency. The inefficiency might be justified if there were convincing reasons which supported the existence of the holding period distinction. It is commonly argued, for instance, that eliminating the distinction would encourage short-term speculation at the expense of long-term commitment to capital. It is also claimed that this would result in a loss of revenue to the government. This study relies on IRS data and simulations using the NBER-TAXSIM file to examine the validity of these arguments. The results of this study suggest that the holding period distinction is not very effective in deterring speculation and does not increase government revenues; in fact, it may decrease them.
Handle: RePEc:nbr:nberwo:0762
Template-Type: ReDIF-Paper 1.0
Title: Partial Retirement and the Analysis of Retirement Behavior
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 0763
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0763
File-URL: http://www.nber.org/papers/w0763.pdf
File-Format: application/pdf
Publication-Status: published as Gustman, Alan L. and Thomas L. Steinmeier. "Partial Retirement and the Analysis of Retirement Behavior." Industrial and Labor Relations Review, Vol. 3 7, No. 3, (April 1984), pp. 403-415.
Abstract: This paper examines the phenomenon of partial retirement . Topics covered include: (1) the quantitative importance of partial retirement, (2) institutional constraints in addition to mandatory retirement which limit the opportunity to retire partially in the main job, (3) the effect of these constraints on the specification of the relevant structural equations in a life cycle retirement model, (4) the impact of standard explanatory variables on four outcomes -- complete retirement, partial retirement both in and outside the main job, and non-retirement, (5) the importance of partial retirement even for those who do not face mandatory retirement, are not covered by a pension and are healthy, (6) the sensitivity of results based on a dichotomous retirement variable to whether the partially retired are classified as retired or not retired. A number of studies have either treated partial retirement inappropriately or have adopted unrealistic assumptions about the opportunity set facing potential retirees. Our findings call their results into question.
Handle: RePEc:nbr:nberwo:0763
Template-Type: ReDIF-Paper 1.0
Title: The Potential for Using Excise Taxes to Reduce Smoking
Author-Name: Eugene M. Lewit
Author-Name: Douglas Coate
Note: EH
Number: 0764
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0764
File-URL: http://www.nber.org/papers/w0764.pdf
File-Format: application/pdf
Publication-Status: published as Lewit, Eugene M. and Douglas Coate. "The Potential for Using Excise Taxes to Reduce Smoking." Journal of Health Economics, Vol. 1, No. 2 (1982) pp. 12 1-145.
Abstract: We examine the potential for reducing cigarette smoking through increases in cigarette excise taxes by estimating the price elasticity of demand for cigarettes. Using information on individual smoking behavior for a sample of adults in the 1976 Health Interview Survey, we estimate the adult price elasticity of demand for cigarettes to be -.45. Moreover, we find that price has its greatest effect on the smoking behavior of young males and that it operates primarily on the decision to begin smoking regularly rather than via adjustments in the quantity of cigarettes smoked by smokers. It follows that, if future reductions in cigarette smoking are desired, Federal excise tax policy can be a potent tool to accomplish this goal, but only in the long run. An excise tax increase, if maintained in real terms, would discourage smoking participation by successive cohorts of young adults and those reduced smoking levels would be reflected in aggregate smoking as these cohorts mature. In the short run however, the impact of an excise tax increase on aggregate cigarette consumption would be relatively small.
Handle: RePEc:nbr:nberwo:0764
Template-Type: ReDIF-Paper 1.0
Title: Low-Cost Student Labor: The Use and Effects of the Subminimum Wage Provisions for Full-time Students
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Wayne B. Gray
Author-Person: pgr111
Author-Name: Casey Ichniowski
Note: LS
Number: 0765
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0765
File-URL: http://www.nber.org/papers/w0765.pdf
File-Format: application/pdf
Abstract: Section 14(b) of the Fair Labor Standards Act permits certain classes of employers to pay full-time students a wage fifteen percent below the minimum wage. This study develops a new data base from administrative records, our own survey of participating company and establishment managers, and published information on local labor markets to investigate employer responses to a subminimum wage program. Our analysis of the full-time student certification program has yielded four general conclusions. First, while the most important users of the program are institutions of higher education, certain non-educational employers in the retail and service sectors employ a sufficiently large and increasing number of students below the minimum wage to suggest that the program has considerable attractiveness in the private sector. Second, area labor market conditions are a major determinant of which establishments with permits to pay students subminimum wages in fact make use of the program and the extent of that use. Establishments in areas characterized by high wages and low levels of unemployment, implying high costs in employing or locating substitute labor, make more use of student subminimum workers than establishments in areas with lower costs for substitute labor. The magnitude of the effect of area wage is, however, sensitive to the precise specification of the full-time student employment equation and the variable used to measure area wage. Although this sensitivity leads to variations in the estimation of the elasticity of substitution between student and other labor, reasonable estimates of this elasticity range from .5 to 1.0. Among company characteristics, unionism reduces program usage, while certain company incentives promote use of the program. Finally, restrictions in the law placed on hours worked at the subminimum appear to be a major reason for failure to employ students under this program.
Handle: RePEc:nbr:nberwo:0765
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Determination and the Demand for Money
Author-Name: Craig S. Hakkio
Author-Person: pha431
Note: ITI IFM
Number: 0766
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0766
File-URL: http://www.nber.org/papers/w0766.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 64, no. 4 (1982): 681-686.
Abstract: This paper examines the conventional monetary equation of exchange rate determination. Under certain exogeneity conditions, one can write the price level, at home and abroad, as the ratio of the nominal money supply to the demand for real money balances. Then, since the exchange rate is the domestic price of foreign exchange, one can equate the exchange rate to the ratio of domestic to foreign prices. This then allows one to write, and estimate, the exchange rate as a function of the money supply differential, income differential and interest rate differential. If the domestic and foreign money demand errors are autocorrelated, and if deviations from purchasing power parity are autocorrelated, tests based on the above model may be invalid. Only if all autoregressive parameters are equal will test results be valid. A full information maximum likelihood procedure is used to estimate and test the assumptions necessary for the conventional procedure to be correct. Finally, two alternative models of exchange rate determination are considered to illustrate the importance of introducing the error terms at the beginning of the analysis.
Handle: RePEc:nbr:nberwo:0766
Template-Type: ReDIF-Paper 1.0
Title: Employee Valuation of Pension Claims and the Impact of Indexing Initiatives
Author-Name: James E. Pesando
Author-Person: ppe278
Note: PE
Number: 0767
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0767
File-URL: http://www.nber.org/papers/w0767.pdf
File-Format: application/pdf
Publication-Status: published as Pesando, James E. "Employee Valuation of Pension Claims and the Impact of Indexing Initiatives." Economic Inquiry, Vol. 22, No. 1, (January 1984), pp. 1-17.
Abstract: There is discussion in both Canada and the United States of the government's requiring private pension plans to provide contractual cost-of-living protection. This paper employs both an auction and an implicit contract model to identify the compensating wage differentials required of possible indexing initiatives. The contract model, motivated by the prevalence (especially in Canada) of ad hoc cost-of-living adjustments to pensions in pay, presumes that workers have a call option on the investment earnings in excess of the interest rate assumption used to value the plan. The case for policy action would appear to rest on either (1) the assumption that workers misperceive the value (and, possibly, the security) of pension benefits or (2) the presumption that society should subsidize pension income by providing to pension plans an investment vehicle (such as an index bond) whose risk-return characteristics cannot be duplicated by portfolios of existing assets.
Handle: RePEc:nbr:nberwo:0767
Template-Type: ReDIF-Paper 1.0
Title: Schooling and Health: The Cigarette Connection
Author-Name: Phillip Farrell
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: EH
Number: 0768
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0768
File-URL: http://www.nber.org/papers/w0768.pdf
File-Format: application/pdf
Publication-Status: published as Farrell, Phillip and Victor R. Fuchs. "Schooling and Health: The Cigarette Connection." Journal of Health Economics, Vol. 1, No. 3 (December 1982) pp. 217-230.
Abstract: Numerous studies by economists during the past decade have revealed a large, statistically significant correlation between health and years of schooling after controlling for differences in income and other variables. Cigarette smoking is a likely intervening variable because of the strong effect of smoking on morbidity and mortality, and because there is a strong negative correlation between smoking and years of schooling -- at least at high school levels and above. This paper tests the hypothesis that schooling causes differences in smoking behavior. We use retrospective smoking histories of 1,183 white, non-Hispanic men and women who had completed 12 to 18 years of schooling. The data were collected in 1979 by the Stanford University Heart Disease Prevention Program from randomly selected households in four small California cities. The most striking result is that the negative relation between schooling and smoking observed at age 24 is accounted for by differences in smoking behavior present at age 17, when all subjects were still in approximately the same grade. We conclude that additional years of schooling cannot be the cause of differential smoking behavior; one or more "third variables" must cause changes in both smoking and schooling. Analysis of smoking by cohort reveals that the schooling-smoking correlation developed only after the health consequences of smoking became widely known; it has remained strong even in the most recent cohorts. This implies that the mechanism behind the schooling-smoking correlation may also give rise to the schooling-health correlation.
Handle: RePEc:nbr:nberwo:0768
Template-Type: ReDIF-Paper 1.0
Title: Collective Bargaining and Compulsory Arbitration: Prescriptions for the Blue Flu
Author-Name: Casey Ichniowski
Note: LS
Number: 0769
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0769
File-URL: http://www.nber.org/papers/w0769.pdf
File-Format: application/pdf
Publication-Status: published as Ichniowski, Casey. "Arbitration and Police Bargaining: Prescriptions forthe Blue Flu," Industrial Relations, Vol. 21, No. 2, Spring 1982, pp. 149- 166.
Abstract: This paper reveals that municipal police departments are much less likely to strike in states that have collective bargaining laws than in states with no police bargaining law or when police bargaining has been outlawed. Unlike previous research which has used the state as the unit of observation, this study examines the municipal level decision to strike for a pooled cross-section of 2998 municipal police departments. Pooled cross-section estimates of this study reveal two important relationships. First, municipalities in states that provide for collective bargaining in any form experience significantly fewer police strikes than do municipalities in environments where there is no law or where police bargaining is specifically outlawed. Second, among states with duty-to- bargain rights for police, those with compulsory arbitration provisions experience significantly fewer strikes. Fixed-effect estimates that consider strike probabilities of the same cities under different statutes qualifies the first finding. Municipalities that experienced a change from a "no law" environment to a bargaining law environment are less likely to experience strikes while in the "no law" environment than are municipalities which have always been in no law environments. However, fixed-effect estimates confirm the finding that a compulsory arbitration provision significantly reduces strike propensities. Interviews with representatives from cities that experienced a police strike suggest that state agencies responsible for the administration of arbitration mechanisms could help avoid strikes by avoiding lengthy delays in the arbitration process after the expiration of contracts.
Handle: RePEc:nbr:nberwo:0769
Template-Type: ReDIF-Paper 1.0
Title: Capital Mobility and the Scope for Sterilization: Mexico in the 1970s
Author-Name: Robert E. Cumby
Author-Person: pcu115
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0770
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0770
File-URL: http://www.nber.org/papers/w0770.pdf
File-Format: application/pdf
Publication-Status: published as Cumby, Robert E. and Maurice Obstfeld. "Capital Mobility and the Scope for Sterilization." Financial Policies and the World Capital Market: The Problem of Latin American Countries, ed. Pedro Aspe Armella, Rudiger Dornbusch, Maurice Obstfeld. Chicago: UCP, (1983) pp. 245-269.
Publication-Status: published as Capital Mobility and the Scope for Sterilization: Mexico in the 1970s, Robert E. Cumby, Maurice Obstfeld. in Financial Policies and the World Capital Market: The Problem of Latin American Countries, Armella, Dornbusch, and Obstfeld. 1983
Abstract: This paper is an empirical study of the Banco de Mexico's monetary policy during the 1970s. In particular, it studies the Mexican monetary equilibria and the extent to which capital mobility undermined monetary control. Estimates of a Banco de Mexico reaction function suggest that the Mexican central bank attempted to sterilize reserve flows through offsetting movements in domestic credit, at least over the second half of the decade. This finding suggests that estimates of the capital-account response to domestic credit expansion should be derived from a structural model, and we accordingly estimate an aggregative three-equation model of Mexican financial markets. The paper distinguishes between the short-run or one-quarter capital-account offset and a hypothetical long-run offset that would obtain under instantaneous asset-market adjustment. The model implies that, depending on the method of monetary expansion, between 30 and 50 percent of an expansion in domestic credit was offset by capital outflow in the same quarter. The implied long-run offsets range from 50 to 76 percent. These offset coefficients indicate that the Banco de Mexico's monetary control was exercised at a substantial cost in terms of reserve volatility.
Handle: RePEc:nbr:nberwo:0770
Template-Type: ReDIF-Paper 1.0
Title: The Interaction between Research and Public Policy: The Case of Unemployment Insurance
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 0771
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0771
File-URL: http://www.nber.org/papers/w0771.pdf
File-Format: application/pdf
Publication-Status: published as Eccles, Mary, Richard B. Freeman, and Daniel S. Hamermesh. "Economic Policy Assessment: The Labor Market." From The American Economic Review, Vol. 72, No. 2, pp. 226-232 AND 237-241, (May 1982). (NOTE: Reprint 274is based on BOTH W0878 and W0771.)
Abstract: This essay examines the role of economic research in affecting the recommendations of the National Commission of Unemployment Compensation, and the likely impacts of that Commission and economists' research findings on policy. Using a questionnaire addressed to Commission members, I find that most became quite aware of the results of research on the labor- market effects of unemployment insurance, with the degree of recognition proportional to the strength of the consensus among economists on a particular result; that the members had little awareness of the identity of particular economists who had done the research; and that, though the members claimed their recommendations were influenced importantly by research, that influence is difficult to detect in the Commission's Report. Because that Report goes against the tenor of current labor- market policy, its short-run impact will likely be small; and, because the focus of interest in policy will change over time, its long-term influence may not be great. Economic research, though, is shown to have had an immediate impact in three specific cases; and its long-run effect, by conditioning the policy discussion, has been and will likely be substantial.
Handle: RePEc:nbr:nberwo:0771
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Pensions and Earnings on Retirement: A Review Essay
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Author-Name: Gary S. Fields
Note: LS PE
Number: 0772
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0772
File-URL: http://www.nber.org/papers/w0772.pdf
File-Format: application/pdf
Publication-Status: published as Mitchell, Olivia S. and Fields, Gary S. "The Effects of Pensions and Earnings on Retirement: A Review." Research in Labor Economics, Vol. 5, (1982), pp. 115-155. JAI Press, Greenwich, Conn.
Abstract: Does retirement behavior react predictably to economic incentives? Evidence on this question would be useful to policy makers responsible for work and retirement programs affecting the elderly. This paper reviews the lessons and limitations of recent economics literature on pensions, earnings, and retirement. Section I develops the life cycle context for analyzing this problem. Theoretical literature is examined in Section II, followed by a review of the empirical literature in Section III. Conclusions appear at the end of each Section.
Handle: RePEc:nbr:nberwo:0772
Template-Type: ReDIF-Paper 1.0
Title: The International Economics of Transitional Growth: The Case of the United States
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Edward E. Leamer
Author-Person: ple440
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 0773
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0773
File-URL: http://www.nber.org/papers/w0773.pdf
File-Format: application/pdf
Publication-Status: published as RECD, Vol. 2, no. 3 (July 1999): 532-574.
Abstract: This paper develops a general equilibrium two country, two commodity dynamic simulation model of international trade in commodities and financial claims. The model generalizes the Heckscher-Ohlin static theory of trade by incorporating costs of quickly adjusting levels of capital stocks in particular industries; i.e., capital mobility in the short run is permitted, but at a price. The model predicts Heckscher-Ohlin relationships, including factor price equalization, in the long-run, but not during the economy's transition path to its ultimate steady-state. An interesting feature of the model is that it provides a determinate solution to the long-run inter- national allocation of the world's capital stock. This is true despite the fact that the Rybchinski-theorem holds in the long-run. The simulation model of international trade with costly capital stock adjustment appears capable of explaining many features of the patterns of factor price equalization, international investment, and changes in comparative advantage that have characterized the post-war period.
Handle: RePEc:nbr:nberwo:0773
Template-Type: ReDIF-Paper 1.0
Title: Prices and Terms of Trade for Developed-Country Exports of Manufactured Goods
Author-Name: Irving B. Kravis
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 0774
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0774
File-URL: http://www.nber.org/papers/w0774.pdf
File-Format: application/pdf
Publication-Status: published as Kravis, Irving B. and Robert E. Lipsey. "Prices and Terms of Trade for Developed-Country Exports of Manufactured Goods." The Economics of Relative Prices, edited by Bela Csikos- Nagy, Douglas Hague, and Graham Hall, pp. 415-445. New York: Saint Martin's Press, 1984.
Abstract: The purpose of this paper is to contribute some new measurements to t112 discussion of trends in the terms of trade between manufactured goods exports of developed countries and primary product exports of developing countries. The new measures are manufactured goods price indexes that are derived from price data rather than from unit value data and include some corrections for quality change. Our calculations indicate that the prices of manufactured goods exported by developed countries to developing countries have risen over twenty years or so by 75 per cent, as compared to the 140 per cent shown by the generally used UN unit value indexes. The decline in terms of trade for these goods relative to primary products has been almost 50 per cent over this period. Over tile last hundred years, fluctuations in the terms of trade of manufactured goods relative to primary products !lave been very wide, as far as we can tell from the inadequate measures we have. Impressions about trends have been highly dependent on choices of beginning and end years. There is very little evidence for a long-run trend in either direction.
Handle: RePEc:nbr:nberwo:0774
Template-Type: ReDIF-Paper 1.0
Title: Monetary Aggregates as Targets: Some Theoretical Aspects
Author-Name: Charles Freedman
Note: ME
Number: 0775
Creation-Date: 1981-09
Order-URL: http://www.nber.org/papers/w0775
File-URL: http://www.nber.org/papers/w0775.pdf
File-Format: application/pdf
Publication-Status: published as Freedman, Charles. "Monetary Aggregates as Targets: Some Theorectical Aspects." Bank of Canada Technical Report 27, (1981).
Abstract: In the mid-1970s the Bank of Canada, along with a number of other central banks, began to set explicit targets for monetary growth and to emphasize the long-run role of monetary aggregates in controlling the rapid upward trend of prices. There are three distinct ways of viewing and interpreting a policy of setting growth targets for monetary aggregates. The first is associated with the work of William Poole, the second is derived from the reduced-form model initially developed at the Federal Reserve Bank of St. Louis, and the third, which the author has labeled the feedback- rule approach, is related to the techniques developed within central banks to implement the policy of monetary targeting. In this paper the author sets forth the logic and examines the implications of these three methods when the principal aim of policy is reducing the rate of inflation. He also examines the question of gradualist versus "cold-shower" policies and the criteria for selecting a monetary aggregate as a policy target.
Handle: RePEc:nbr:nberwo:0775
Template-Type: ReDIF-Paper 1.0
Title: Currency Diversification and Export Competitiveness: A Model of the "Egyptian Disease"
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Note: ITI IFM
Number: 0776
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0776
File-URL: http://www.nber.org/papers/w0776.pdf
File-Format: application/pdf
Publication-Status: published as de Macedo, Jorge Braga, "Currency Diversification and Export Competitiveness: A Model of the 'Dutch Disease' in Egypt." Journal of Development Economics, Vol. 11, No. 3, (December 1982), pp. 287-306
Abstract: The paper presents a dynamic portfolio model under currency inconvertibility which rationalizes the recent Egyptian experience of real exchange rate appreciation and currency diversification following the increase in oil exports and the partial financial liberalization that took place after 1976. The two shocks are linked because the relative price of manufacturing exports in terms of oil is also the premium of the black market rate over the official exchange rate. The effects of various official exchange rate policies on the temporary equilibrium values of the premium and the real wage and on the steady-state values of asset stocks are examined. A review of the Egyptian experience shows that as the model suggests the official devaluation of 1979 was ineffective against the "Egyptian disease" so that little can be expected from the 1981 devaluation. In light of the model results, a crawling peg policy is proposed instead.
Handle: RePEc:nbr:nberwo:0776
Template-Type: ReDIF-Paper 1.0
Title: Agency, Delayed Compensation, and the Structure of Executive Remuneration
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE LS
Number: 0777
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0777
File-URL: http://www.nber.org/papers/w0777.pdf
File-Format: application/pdf
Publication-Status: published as Eaton, Jonathan and Harvey S. Rosen. "Agency, Delayed Compensaton, and the Structure of Executive Remuneration." Journal of Finance, Vol. 38, No. 5, ( December 1983), pp. 1489-1505.
Abstract: In this paper we examine the factors affecting the structure of executives' compensation packages. We focus particularly on the role of various types of delayed compensation as means of "bonding" executives to their firms. The basic problem is to design a compensation package that rewards actions that are in the long-run interest of the stockholders. Firms must take into account (1) their ability to discern unfortunate circumstances from mismanagement; (2) the extent to which a compensation package forces the executive to face risks, beyond his control; and (3) the willingness of a given executive to bear this risk. We use our theory to interpret some executive compensation data from the early 1970's. The results are generally in line with the theoretical predictions.
Handle: RePEc:nbr:nberwo:0777
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Incomes Policies on the Frequency and Size of Wage Changes
Author-Name: John H. Pencavel
Author-Person: ppe335
Note: LS
Number: 0778
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0778
File-URL: http://www.nber.org/papers/w0778.pdf
File-Format: application/pdf
Publication-Status: published as Pencavel, John H. "The Effects of Incomes Policies on the Frequency and Size of Wage Changes." Economica, Vol. 49, No. 194, May 1982, pp. 147-160.
Abstract: Along with house rents, wages have frequently been described as the "stickiest" prices in the economy, rarely adjusted more than once a year. Because of this stickiness (which arises from the transactions costs involved in changing wages), a distinction exists between the adjustment of wages and the size of that adjustment. This distinction has important implications for empirical investigations of the determinants of aggregate money wage changes because the equations fitted in these studies are almost invariably plagued with aggregation bias unless the non-synchronous pattern of wage settlements in different sectors of the economy is taken into account. This is a particularly relevant issue when evaluating the effectiveness of incomes policies since some policies have operated by postponing the implementation of new wage settlements (in which case they are directed towards the occurrence of the event) while other policies have taken the form of specifying a permissible ceiling on wage increases (in which case they are designed to affect the extent of occurrence of the event, but not its occurrence). One purpose of this paper is to reevaluate the effectiveness of incomes policies by making use of information from one industry both on the frequency of wage settlements and on the size of wage changes when a settlement takes place. Our empirical work leads us to conjecture whether the apparent "statistical significance" reported by researchers with respect to the performance of variables in models of aggregate wage changes reflects primarily the effects of these variables on the probability of wages being adjusted rather than the effects on the magnitude of wage changes conditional upon wages being adjusted.
Handle: RePEc:nbr:nberwo:0778
Template-Type: ReDIF-Paper 1.0
Title: Real Interest Rates, Home Goods, and Optimal External Borrowing
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 0779
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0779
File-URL: http://www.nber.org/papers/w0779.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "Real Interest Rates, Home Goods, and Optimal External Borrowing." Journal of Political Economy, Vol. 91, No. 1 (1983), pp. 141-15 3.
Abstract: The paper investigates the optimal tire path of consumption and external borrowing in the dependent economy model. The small country faces given world prices and a given world real interest rates. The presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home gods. The paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption. In particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in interest rates.
Handle: RePEc:nbr:nberwo:0779
Template-Type: ReDIF-Paper 1.0
Title: Government and Health Outcomes
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 0780
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0780
File-URL: http://www.nber.org/papers/w0780.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Michael. "Government and Health Outcomes." The American Economic Review, Vol. 72, No. 2 (May 1982), pp. 191-195.
Abstract: In this paper, I summarize the results of empirical studies in the areas of schooling and health, public programs and infant mortality, and government regulation of teenage smoking. My review is selective and is based on my own research. It is neutral with respect to the question of whether the government should pursue policies to improve the health of its citizens. But it calls attention to the consequences with respect to health of alternative decisions by policy makers.
Handle: RePEc:nbr:nberwo:0780
Template-Type: ReDIF-Paper 1.0
Title: Unemployment, Unsatisfied Demand for Labor, and Compensation Growth in the United States, 1956-1980
Author-Name: James L. Medoff
Author-Name: Katharine G. Abraham
Author-Person: pab32
Note: LS
Number: 0781
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0781
File-URL: http://www.nber.org/papers/w0781.pdf
File-Format: application/pdf
Publication-Status: published as Baily, Martin N. (ed.) Workers, Jobs, and Inflation. Washington, D.C.: Brookings Institution, 1982.
Abstract: This paper presents two key facts which call into question the value of unemployment rates as barometers of labor market tightness. First, while both unemployment rates and unsatisfied labor demand proxies perform reasonably well on their own in compensation growth equations, in models which include both, only the unsatisfied demand variable appears to matter. Second, the past decade's outward shifts in Phillips plots can to a substantial degree be tied to outward shifts in plots pairing the relevant unemployment rate and unsatisfied demand proxies. The paper also provides results which indicate that Phillips relationships which are defined in terms of unsatisfied demand variables appear to be somewhat more stable than those using unemployment rates. Taken together, our findings have a clear message for those concerned with macroeconomic theory and policy: labor market pressure on wages can be more reliably assessed by looking at measures of unsatisfied labor demand than by looking at the unemployment rates on which most earlier analyses have focused.
Handle: RePEc:nbr:nberwo:0781
Template-Type: ReDIF-Paper 1.0
Title: Central Planning and Monetarism: Fellow Travelers?
Author-Name: Richard Portes
Author-Person: ppo132
Note: ITI IFM
Number: 0782
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0782
File-URL: http://www.nber.org/papers/w0782.pdf
File-Format: application/pdf
Publication-Status: published as Portes, Richard. "Central Planning and Monetarism: Fellow Travelers?" Marxism, Central Planning and the Soviet Economy: Economic Essays in Honor of Alexander Erlich, ed. by Padma Desai, pp. 149-165. Cambridge: M.I.T. Press, (1983).
Abstract: We discuss the monetary institutions and macroeconomics of centrally planned economies (CPEs) ; objectives and techniques of monetary control; the relevance to CPEs of the neutrality property, the natural rate hypothesis, and the quantity theory; the roles of stock .and flow variables and the stability of asset demand and expenditure functions; the relation between monetary policy, fiscal policy and incomes policy in CPEs; the CPE equivalent of a floating exchange rate and its implications for monetary policy; and "super crowding out." Many considerations suggest that monetarism as theory and policy might be more applicable under central planning than it is in market economies.
Handle: RePEc:nbr:nberwo:0782
Template-Type: ReDIF-Paper 1.0
Title: Seigniorage and Fixed Exchange Rates: An Optimal Inflation Tax Analysis
Author-Name: Stanley Fischer
Note: EFG ITI IFM
Number: 0783
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0783
File-URL: http://www.nber.org/papers/w0783.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley. "Seigniorage and Fixed Exchange Rates: An Optimal Inflation Tax Analysis." Financial Policies and the World Capital Market: The Problem of Latin American Countries, edited by Rudiger Dornbusch and Maurice Obstfeld. Chicago: University of Chicago Press, (1983), pp. 41-58.
Publication-Status: published as Seigniorage and Fixed Exchange Rates: An Optimal Inflation Tax Analysis, Stanley Fischer. in Financial Policies and the World Capital Market: The Problem of Latin American Countries, Armella, Dornbusch, and Obstfeld. 1983
Abstract: A country that decides to fix its exchange rate thereby gives up control over its own inflation rate and the determination of the revenue received from seigniorage. If the country goes further and uses a foreign money, it loses all seigniorage. This paper uses an optimal inflation tax approach to analyze the consequences for optimal rates of income taxation and welfare of the alternative exchange rate and monetary arrangements. From the viewpoint of seigniorage, a system in which the country is free to determine its own rates of inflation is optimal; fixed exchange rates are second best, and the use of a foreign money is worse. The paper notes that seigniorage is only one of the factors determining the choice of optimal exchange rate regime, but also points out that rates of seigniorage collection are high, typically accounting for five or more percent of government revenue.
Handle: RePEc:nbr:nberwo:0783
Template-Type: ReDIF-Paper 1.0
Title: Domestic Tax Policy and Foreign Investment: Some Evidence
Author-Name: David G. Hartman
Note: ITI PE IFM
Number: 0784
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0784
File-URL: http://www.nber.org/papers/w0784.pdf
File-Format: application/pdf
Abstract: Investment abroad has come to play a major role in the total investment undertaken by U.S. firms. Despite this development, very little attention has been paid to the impacts of domestic tax policy on foreign investment. One reason has been the presumption that, since changes in domestic tax rules ordinarily also apply to foreign-source income, policy changes should affect foreign and domestic investment similarly. However, the fact that the tax on foreign-source income is deferred until the income is repatriated represents a crucial difference in the treatment of foreign and domestic income. So long as the U.S. tax is deferred, the effective U.S. tax rate on foreign-source income can be shown to be irrelevant to a firm's optimal foreign reinvestment decision. Foreign investment is now largely accomplished by firms reinvesting earnings abroad, so the reinvestment decision is of primary importance. Thus, a decrease in the effective U.S. tax rate which applies to both domestic and foreign investment income can be thought of as a cut in the tax on domestic investment income, which is encouraging to domestic investment (perhaps at the expense of foreign investment), combined with a cut in the tax on foreign investment income, which has no effect on the optimal foreign reinvestment decision. Consequently, the impacts on foreign and domestic investment of an apparently neutral policy could be very different . Another reason that the response of foreign investment has been neglected in domestic policy discussions is the lack of evidence on the magnitude of that response. This paper utilizes the theory just described to confirm that foreign investment is influenced negatively and quite strongly by the after-tax rate of return to domestic investment. A further test, in which a "gross domestic rate of return" term and a "domestic tax" term are included separately, produces coefficients virtually equal in absolute value, confirming that the net domestic rate of return is the appropriate variable. The results indicate that a tax incentive which has been found to raise net domestic investment by a dollar reduces net foreign investment by at least twenty cents. This conclusion is further reinforced by results from a forward-looking (Tobin's q) mod el. While these results do not point to the primary outcome of a domestic policy change being a domestic-foreign reallocation of the capital stock, they indicate that a significant reallocation does take place. With open economy tax analysis still in its infancy, the question of how this evidence alters the usual conclusions is largely an open one.
Handle: RePEc:nbr:nberwo:0784
Template-Type: ReDIF-Paper 1.0
Title: Real versus Financial Openness under Alternative Exchange Rate Regimes
Author-Name: Michael Bruno
Note: ITI IFM
Number: 0785
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0785
File-URL: http://www.nber.org/papers/w0785.pdf
File-Format: application/pdf
Publication-Status: published as Bruno, Michael. "Real Versus Financial Openness Under Alternative Exchange Rate Regimes." Financial Policies and the World Capital Market: The Problemof Latin American Countries, ed. Pedro Aspe Armella, Rudiger Dornbusch, Maurice Obstfeld. Chicago: UCP, (1983), pp. 131-152.
Publication-Status: published as Real versus Financial Openness under Alternative Exchange Rate Regimes, Michael Bruno. in Financial Policies and the World Capital Market: The Problem of Latin American Countries, Armella, Dornbusch, and Obstfeld. 1983
Abstract: A simple analytical framework is used to consider alternative exchange rate regimes and their bearing on macroeconomic management of a semi- industrial economy. The emphasis is on the implications of different degrees of capital mobility. One of the topics taken up is the conflict between the role of the real exchange rate as a signaling device for long-run resource allocation and the problem of real exchange rate appreciation accompanying the opening up of an economy to short-term capital inflow. Also discussed is the related choice of exchange rate policy as an anti-inflation device.
Handle: RePEc:nbr:nberwo:0785
Template-Type: ReDIF-Paper 1.0
Title: Patents, R and D, and the Stock Market Rate of Return
Author-Name: Ariel Pakes
Author-Person: ppa20
Note: PR
Number: 0786
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0786
File-URL: http://www.nber.org/papers/w0786.pdf
File-Format: application/pdf
Publication-Status: published as Pakes, Ariel. "Patents, R&D, and the Stock Market Rate of Return: A Summaryof Some Empirical Results." R&D, Patents and Productivity, edited by Zvi Griliches, (1984).
Publication-Status: published as Pakes, Ariel. "On Patents, R&D, and the Stock Market Rate of Return." Journal of Political Economy, Vol. 93, No. 2, (April 1985), pp. 390-409.
Abstract: The purpose of this paper is to present and estimate a model which allows one to use the recently computerized U.S. Patent Office's data base to identify when and where changes in inventive output have occurred. The model assumes a firm which chooses a research strategy to maximize the expected discounted value of the net cash flows from its activities, and a stock market that evaluates this expectation at different dates (it is a version of the Lucas-Prescott, 1971, investment model). Patents are taken as an indicator of the output of the firm's research laboratories. These assumptions place a set of testable restrictions on the stochastic process generating patents, R&D, and the stock market rate of return on the firm's equity (the econometric framework used is that of a restricted index, or dynamic factor-analysis model [Sargent and Sims, 1977; Geweke, 1977b]). The data contain observations on these three variables for 120 firms over an eight year period. The model fits these data quite well and the final section reports on the implications of the parameter estimates.
Handle: RePEc:nbr:nberwo:0786
Template-Type: ReDIF-Paper 1.0
Title: Should Private Pensions Be Indexed?
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0787
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0787
File-URL: http://www.nber.org/papers/w0787.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Should Private Pensions Be Indexed?" Financial Aspectsof the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1983), pp. 211-230.
Publication-Status: published as Should Private Pensions Be Indexed?, Martin Feldstein. in Financial Aspects of the United States Pension System, Bodie and Shoven. 1983
Abstract: The analysis in this paper was motivated by the apparent puzzle that, despite substantial uncertainty about future inflation rates, private pensions are almost universally unindexed. Moreover, although a variable annuity invested in short-term money market instruments provides a good inflation hedge, almost all private pensions provide a fixed annuity. The results of the analysis indicate that the existence of unindexed pensions and fixed annuities is not at all surprising. Even without Social Security, it may be optimal to have a completely unindexed private pension and it is generally not optimal to have a completely indexed pension. The availability of an optimal (or greater than optimal) amount of Social Security generally reduces the desired degree of indexing and, under a variety of conditions, makes it optimal to have no indexing at all in the private pension. Because unexpected changes in the price level do not alter the value of Social Security pensions, the existence of inflation uncertainty makes a Social Security pension optimal when it would not otherwise be and an increase in inflation uncertainty is likely to increase the optimal reliance on Social Security. But despite these conclusions, the analysis shows that including some Social Security in an overall pension program is necessarily optimal only when both money market instruments and Social Security have rates of return that are known with certainty. When the real yield on money market instruments is uncertain, the optimal pension arrangement may be a partially indexed private pension even though Social Security is risk-free and has a return that is higher than the expected rate on the money market instruments. Similarly, when Social Security is risky, the optimal arrangement my be to exclude Social Security and to use a partially indexed private pension. In all cases, an individual who has a low enough degree of risk aversion will prefer no Social Security and a completely unindexed private pension.
Handle: RePEc:nbr:nberwo:0787
Template-Type: ReDIF-Paper 1.0
Title: Stochastic Problems in the Simulation of Labor Supply
Author-Name: Jerry A. Hausman
Author-Person: pha893
Note: LS PE
Number: 0788
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0788
File-URL: http://www.nber.org/papers/w0788.pdf
File-Format: application/pdf
Publication-Status: published as Hausman, Jerry A. "Stochastic Problems in the Simulation of Labor Supply." Chapter 2 in Behavioral Simulation Methods in Tax Policy Analysis, ed. by Martin Feldstein. Chicago: UCP, (1983).
Publication-Status: published as Stochastic Problems in the Simulation of Labor Supply, Jerry A. Hausman. in Behavioral Simulation Methods in Tax Policy Analysis, Feldstein. 1983
Abstract: Modern work in labor supply attempts to account for nonlinear budget sets created by government tax and transfer programs. Progressive taxation leads to nonlinear convex budget sets while the earned income credit, social security contributions, AFDC, and the proposed NIT plans all lead to nonlinear, nonconvex budget sets. Where nonlinear budget sets occur, the expected value of the random variable, labor supply, can no longer be calculated by simply 'plugging in' the estimated coefficients. Properties of the stochastic terms which arise from the residual or from a stochastic preference structure need to be accounted for. This paper considers both analytical approaches and Monte Carlo approaches to the problem. We attempt to find accurate and low cost computational techniques which would permit extensive use of simulation methodology. Large samples are typically included in such simulations which makes computational techniques an important consideration. But these large samples may also lead to simplifications in computational techniques because of the averaging process used in calculation of simulation results. This paper investigates the tradeoffs available between computational accuracy and cost in simulation exercises over large samples.
Handle: RePEc:nbr:nberwo:0788
Template-Type: ReDIF-Paper 1.0
Title: Does Anticipated Aggregate Demand Policy Matter? Further Econometric results.
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG
Number: 0789
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0789
File-URL: http://www.nber.org/papers/w0789.pdf
File-Format: application/pdf
Publication-Status: published as Mishkin, Frederic S. "Does Anticipated Aggregate Demand Policy Matter? Further Econometric Results." The American Economic Review, Vol. 72, No. 4 (September 1982), pp. 788-802.
Abstract: A heated debate has arisen over what Modigliani has dubbed the Macro Rational Expections (MRE) hypothesis. This hypothesis embodies two component hypotheses: 1) rational expectations and 2) short-run neutrality -- i.e., that anticipated changes in aggregate demand will have already been taken into account in economic agents' behavior and will thus evoke no output or employment response. Together these component hypotheses imply that deterministic feedback policy rules will have no effect on business cycle fluctuations. The irrelevance of these types of policy rules is inconsistent with much previous macro theorizing as well as with the views of policymakers. It is thus an extremely controversial proposition which requires a wide range of empirical research. This paper is a sequel to a previous paper by the author. That paper developed a methodology for testing the MRE hypothesis and found that anticipated money growth does matter to the business cycle. This paper extends the analyses to cases where the rate of nominal GNP growth or the inflation rate, rather than money growth, is the aggregate demand variable. The empirical results are also negative on the MRE hypothesis and its corresponding policy ineffectiveness proposition.
Handle: RePEc:nbr:nberwo:0789
Template-Type: ReDIF-Paper 1.0
Title: Time-Series Evidence of the Effect of the Minimum Wage on Youth Employment and Unemployment
Author-Name: Charles Brown
Author-Person: pbr341
Author-Name: Curtis Gilroy
Author-Name: Andrew Kohen
Author-Person: pko169
Note: LS
Number: 0790
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0790
File-URL: http://www.nber.org/papers/w0790.pdf
File-Format: application/pdf
Publication-Status: published as Brown, Charles, Curtis Gilroy, and Andrew Kohen. "Time Series Evidence of the Effect of the Minimum Wage on Youth Employment and Unemployment." Journal of Human Resources, Vol. 18, No. 1 (Winter 1983), pp. 3-31.
Abstract: While previous time series studies have quite consistently found that the minimum wage reduces teenage employment, the extent of this reduction is much less certain. Moreover, because few previous studies report results of more than one specification, the causes of differences in estimated impacts are not well understood. Less consensus is evident on the effect of the minimum wage on teenage unemployment, or its relative impact on black and white teenagers. The purpose of this paper is both to update earlier work and to analyze the sensitivity of estimated minimum wage effects to alternative specification choices. In addition to providing estimates of the effect of minimum wage increases on aggregate employment and unemployment rates of teenagers, we explore several related issues: the relative importance of changing the level and coverage of the minimum wage; the timing of responses to a change in the minimum; effects on part-time and full-time work; effects on young adults (age 20-24).
Handle: RePEc:nbr:nberwo:0790
Template-Type: ReDIF-Paper 1.0
Title: The OPEC Surplus and U.S.-LDC Trade
Author-Name: William H. Branson
Note: ITI IFM
Number: 0791
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0791
File-URL: http://www.nber.org/papers/w0791.pdf
File-Format: application/pdf
Abstract: This paper explores the connections between the shift of world saving toward OPEC and the changing structure of U.S. trade with the non-oil developing countries. The basic point of the paper is that during the 1970s the U.S. economy has become more interdependent through trade with the newly industrializing countries (NICs) in the developing world. The shift of world saving toward OPEC in the 1970s effectively internationalized the supply of saving, as OPEC places its surplus in the international financial system. The NICs and other developing countries borrow the surplus and direct it to domestic investment. Investment in the NICs stimulates the demand for U.S. capital goods. The reallocation of resources towards capital goods production in the U.S. stimulates excess demand for consumer goods, which appear as imports from the NICs. U.S. exports of capital goods to these countries have grown rapidly in the 1970s as have U.S. imports of non-food, non-auto consumer goods from them. Thus the structure of U.S. trade has been reoriented to become complementary with the rapidly- growing developing countries, and perhaps more competitive with Europe and Japan.
Handle: RePEc:nbr:nberwo:0791
Template-Type: ReDIF-Paper 1.0
Title: Intergenerational and International Trade
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 0792
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0792
File-URL: http://www.nber.org/papers/w0792.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "Intergenerational and International Trade." Journal of International Economics, Vol. 18, No. 1/2, (February 1985), pp. 123-139.
Abstract: The paper sets out an overlapping generations model in an open economy context. In the absence of productive capital a real consol is the vehicle for intertemporal consumption smoothing. The presence of a long term asset implies that the anticipated future path of the economy, through the term structure of interest, affects current generations. The model is applied to issues in the closed and open economy. These include the effects of debt issue on asset prices and welfare, the effect of present or anticipated future income growth, permanent or transitory. In the open economy context we investigate the welfare and current account effects of income changes on debt issue. The role of international differences in risk aversion is studied.
Handle: RePEc:nbr:nberwo:0792
Template-Type: ReDIF-Paper 1.0
Title: Wages, Relative Prices, and the Choice between Fixed and Flexible Exchange Rates
Author-Name: Richard C. Marston
Note: ITI IFM
Number: 0793
Creation-Date: 1981-10
Order-URL: http://www.nber.org/papers/w0793
File-URL: http://www.nber.org/papers/w0793.pdf
File-Format: application/pdf
Publication-Status: published as Marston, Richard C. "Wages, Relative Prices, and the Choice between Fixed and Flexible Exchange Rates." Canadian Journal of Economics, Vol. XV, No. 1,(February 1982), pp. 87-103.
Abstract: This paper reexamines the choice between fixed and flexible rates to take into account wage indexation and flexible prices. The model employed is of a small open economy faced by monetary and aggregate demand disturbances originating at ham and abroad. Aggregate supply behavior in this &el varies depending upon whether wages are set in one-period labor contracts or are indexed to current changes in the general price level, Two central conclusions emerge from the analysis. First, for all disturbances the difference in output variation between fixed and flexible rates is dependent upon the degree of wage indexation, being proportional to one minus the degree of wage indexation in the domestic economy. Thus the more highly indexed the economy, the less difference the choice of exchange rate regime makes to output variation, Secondly, the effect of foreign disturbances on the domestic economy depends as much on foreign wage and price behavior as domestic. If the rest of the world is fully indexed, flexible rates insulate the domestic country completely from foreign monetary disturbances, If the rest of the world is more highly indexed than the domestic country, then for high price elasticities at least, a flexible rate dampens the output variation associated with foreign demand disturbances.
Handle: RePEc:nbr:nberwo:0793
Template-Type: ReDIF-Paper 1.0
Title: Trade and Protection with Multistage Production
Author-Name: Avinash K. Dixit
Author-Person: pdi79
Author-Name: Gene M. Grossman
Author-Person: pgr21
Note: ITI IFM
Number: 0794
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0794
File-URL: http://www.nber.org/papers/w0794.pdf
File-Format: application/pdf
Publication-Status: published as Dixit, Avinash K. and Gene M. Grossman. "Trade and Protection with Multistage Production." Review of Economic Studies, Vol. 49 (1982), pp.583-594.
Abstract: This paper analyzes trade in manufactured goods that are produced via a vertical production structure with many stages, where some value is added at each to an intermediate product to yield a good-in-process ready for the next stage. We consider the stage at which a good is traded to be an economically endogenous variable, with comparative advantage determining the pattern of production specialization by stages across countries. We study how endowment changes and policy shifts move the margin of comparative advantage, which thus provides a channel for resource allocation adjustment that is additional to the usual ones of factor substitution and changes in the quantity of output.
Handle: RePEc:nbr:nberwo:0794
Template-Type: ReDIF-Paper 1.0
Title: Women, Children, and Industrialization in the Early Republic: Evidence from the Manufacturing Censuses
Author-Name: Claudia Goldin
Author-Person: pgo601
Author-Name: Kenneth L. Sokoloff
Note: DAE
Number: 0795
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0795
File-URL: http://www.nber.org/papers/w0795.pdf
File-Format: application/pdf
Publication-Status: published as Goldin, Claudia and Kenneth Sokoloff. "Women, Children, and Industrialization in the Early Republic Evidence from the Manufacturing Censuses." Journal of Economic History, Vol. 42, No. 4, (December 1982), pp. 741-774.
Abstract: The first half of the nineteenth century was a critical juncture regarding the emergence of female participation in the market economy, the increase in the wage of females relative to that of adult males, and the evolution of large scale firms in both mechanized and non-mechanized industries. We present the first systematic and comprehensive description of these events as they evolved in the states of the Northeast to 1850. Our sources are primarily samples taken from three early censuses and reports of manufacturing, 1820, 1832, and 1850. Our principal findings are: (1) that women and children composed a large share (over 40% in 1832) of the entire manufacturing labor force during the initial period of industrialization in the U.S., but that this share began a secular decline as early as 1840; (2) that the wage of females (and boys) relative to that of adult males rose wherever large scale manufacturing establishments spread and that by 1850 this ratio had risen to almost 90% its long-term level; (3) that the labor force participation of young unmarried women in the industrial counties of the Northeast was, in 1832, high by late nineteenth century standards; and (4) that the employment of females and boys was closely associated with production processes used by large-scale establishments. Women and children had been a previously under-utilized and large segment of the potential labor force, and their harnessing by manufacturing was a critical factor in the industrialization of the Northeast.
Handle: RePEc:nbr:nberwo:0795
Template-Type: ReDIF-Paper 1.0
Title: The Current Account in the Eacroeconomic Adjustment Process
Author-Name: Jeffrey D. Sachs
Note: ITI IFM
Number: 0796
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0796
File-URL: http://www.nber.org/papers/w0796.pdf
File-Format: application/pdf
Publication-Status: published as Scandanavian Journal of Economics Volume 84, No. 2, 1982
Abstract: This paper provides a formal analysis of the current account balance in a dynamic model with optimizing agents. Two analytical ideas are stressed. First, an economy's current account balance depends as much on fixture economic trends as on the current economic environment. A shift in fiscal policy, for example, will have one effect on the current account if it is perceived to be temporary and another if it is seen to be permanent. Second, temporary disturbances in the economy have permanent effects, by altering the entire future path of the economy's international indebtedness.
Handle: RePEc:nbr:nberwo:0796
Template-Type: ReDIF-Paper 1.0
Title: Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Gene M. Grossman
Author-Person: pgr21
Note: ITI IFM
Number: 0797
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0797
File-URL: http://www.nber.org/papers/w0797.pdf
File-Format: application/pdf
Publication-Status: published as Eaton, Jonathan and Gene M. Grossman. "Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets are Incomplete." Canadian Journal of Economics, Vol. 18, No. 2, (May 1985), pp. 258-272.
Abstract: Free trade is not optimal for a small country that faces uncertain terms of trade if some factors are immobile - ex post, and markets for contingent claims are incomplete. The government can improve social welfare by using commercial policy that serves as a partial substitute for missing insurance markets. Using a combination of analytical and simulation techniques we demonstrate that optimal policy for this purpose will often have an anti-trade bias. We also show that the usual preference by economists for factor or product taxes and subsidies over tariffs and export subsidies may not be justified in this context.
Handle: RePEc:nbr:nberwo:0797
Template-Type: ReDIF-Paper 1.0
Title: Issues in the Taxation of Foreign Source Income
Author-Name: Daniel J. Frisch
Note: PE
Number: 0798
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0798
File-URL: http://www.nber.org/papers/w0798.pdf
File-Format: application/pdf
Publication-Status: published as Frisch, Daniel J. "Issues in the Taxation of Foreign Source Income." Chapter 9 in Behavioral Simulation Methods in Tax Policy Analysis, ed. Martin Feldstein. Chicago: UCP, (1983).
Publication-Status: published as Issues in the Taxation of Foreign Source Income, Daniel Frisch. in Behavioral Simulation Methods in Tax Policy Analysis, Feldstein. 1983
Abstract: This paper examines some aspects of the tax treatment of U.S. multinational corporations. The emphasis is on problems of coordination of the different tax systems faced by the firms. The U.S. corporate income tax must take account of the fact that the firms' over- seas income is taxed by the host governments, in a variety of ways. Currently, the foreign tax credit is the principle mechanism for making these adjustments; it is examined, along with alternative methods such as territorial treatment and a deduction for foreign taxes. The paper also considers the closely related question of coordinating measures of taxable income. The most common method, the arm's length rule, is examined. Alternatives to it, including allocation by shares and a partial case involving allocation of research and development expenses, are also considered. First, the revenue effects of these tax regimes are simulated, with no behavioral responses considered. Responses in location of investment decisions are then included. The data are taken from the corporations' U.S. tax returns, cross-tabulated into approximately 240 industry and country cells.
Handle: RePEc:nbr:nberwo:0798
Template-Type: ReDIF-Paper 1.0
Title: A General Equilibrium Model of Taxation with Endogenous Financial Behavior
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 0799
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0799
File-URL: http://www.nber.org/papers/w0799.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, Joel. "A General Equilibrium Model of Taxation with Endogenous Financial Behavior." Chapter 12 in Behavioral Simulation Methods in Tax Policy Analysis, edited by Martin Feldstein. Chicago: University of Chicago Press, (1983).
Publication-Status: published as Slemrod, Joel. "A General Model Of The Behavioral Response To Taxation," International Tax and Public Finance, 2001, v8(2,Mar), 119-128.
Publication-Status: published as A General Equilibrium Model of Taxation with Endogenous Financial Behavior , Joel B. Slemrod. in Behavioral Simulation Methods in Tax Policy Analysis, Feldstein. 1983
Abstract: This paper presents and utilizes a new general equilibrium simulation model of capital income taxation. Its chief advantage over existing models of the effects of taxation is that it recognizes that agents may adjust their financial behavior in response to changes in the way that capital income is taxed. By integrating a structural treatment of portfolio choice and financial markets into a standard multi-sector model of taxation, the model can trace the general equilibrium impact of these financial adjustments and calculate the tax-induced changes in the allocation of factors and output as well as the distributional effects of any tax change. The model is used to simulate the impact of completely indexing the tax system for inflation. The results indicate there would be significant financial adjustment in response to indexing. A large shift in the distribution of private risk bearing accompanies a slight reallocation of the capital stock away from owner-occupied housing toward its other uses and a substantial change in the ownership of the housing stock by income class. All in all, indexing the tax system of an economy like the U.S. in 1977 seems to lead to an efficiency gain, slightly hurts the lowest income classes, and substantially improves the welfare of the highest income groups. The simulation results should, however, be considered tentative due to uncertainty about the values of several parameters and the relatively simple formulations of the determinants of portfolio choice and the U.S. financial structure.
Handle: RePEc:nbr:nberwo:0799
Template-Type: ReDIF-Paper 1.0
Title: "Double Dipping": The Combined Effects of Social Security and Civil Service Pensions on Employee Retirement
Author-Name: Gary Burtless
Author-Person: pbu95
Author-Name: Jerry A. Hausman
Author-Person: pha893
Note: PE LS
Number: 0800
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0800
File-URL: http://www.nber.org/papers/w0800.pdf
File-Format: application/pdf
Publication-Status: published as Burtless, Gary and Hausman, Jerry A. "'Double Dipping': The Combined Effects of Social Security and Civil Service Pensions on Employee Retirement." Journal of Public Economics, Vol. 18 (1982), pp. 139-159.
Abstract: We consider the retirement behavior of civilian employees of the United States government. Unlike previous studies, this investigation is based upon a data set containing fairly complete and accurate information about the Social Security and employer-provided pensions for which employees are (or ultimately will be) eligible. These data permit us to specify the financial aspects of individual retirement decisions with a reasonable degree of precision. A large fraction of civil service pensioners is eligible to receive Social Security benefits because a part of their working careers was spent in Social-Security-covered employment. The prevalence of double pension coverage among government employees has raised serious equity questions about the treatment of civil servants by Social Security, and these questions have led to various suggestions for pension reform. Partly, the reform proposals have been put forward due to the perceived unfairness of "double dipping" which arises from the double pension coverage of government employees. Our analysis finds: (1) Both the amount of a Federal pension entitlement and the expected wait until the pension commences affect the timing of retirement from the Federal service. (2) The rate of anticipated wage growth significantly affects individual decisions to remain in Federal employment. (3) Workers who are eligible to ultimately receive Social Security in some cases show a different pattern of retirement than do workers not vested in Social Security. However, our analysis does not reveal any massive shift of Federal workers into Social-Security-covered employment in order to benefit from the "tilt" in the Social Security formula.
Handle: RePEc:nbr:nberwo:0800
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Determinants of Real Exchange Rates
Author-Name: William H. Branson
Note: ITI IFM
Number: 0801
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0801
File-URL: http://www.nber.org/papers/w0801.pdf
File-Format: application/pdf
Publication-Status: published as Branson, William H. "Macroeconomic Determinants of Real Exchange Rates." Managing Foreign Exchange Risk, edited by R. J. Herring,Cambridge: Cambridge University Press, 1983.
Abstract: This paper presents a model that integrates money, relative prices, and the current account balance as factors explaining movements in nominal (effective) exchange rates. Thus money and the current account are the proximate determinants of changes in real (effective) rates. The basic model is first analyzed under static expectations. It is an extension of Branson (1977) to include explicitly exogenous disturbances to the current account. Next, rational expectations are introduced, and it is shown that the nominal (and real) rate should be expected to jump instantaneously in response to new information or "innovations" in money, the current account, and relative prices. The model is applied to the quarterly data on effective exchange rates, relative prices, money and the current account for four countries--the U.S., the U.K., Germany and Japan -- since 1973. First the time-series properties of the data are described. All are approximately first-order autocorrelations except all relative prices and Japan's effective exchange rate and current account balance. These are second-order autocorrelations. Then vector autoregressions (VARs) are estimated among the four variables for each country. The residuals from these equations are the "innovations" in the data -- the current movements not predicted by the past. The correlations amongst these innovations are consistent with the theory. Thus the broad conclusion from the paper is that the theoretical model which integrates money, the balance on current account and relative prices, is consistent with movements in these variables since 1973. Real exchange rates adjust to real disturbances in the current account, and time-series innovations in the current account seem to signal the need for adjustment.
Handle: RePEc:nbr:nberwo:0801
Template-Type: ReDIF-Paper 1.0
Title: Public Goods in Open Economies with Heterogeneous Individuals
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 0802
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0802
File-URL: http://www.nber.org/papers/w0802.pdf
File-Format: application/pdf
Publication-Status: published as Stiglitz, Joseph E. "Public Goods in Open Economies with Heterogeneous Individuals." Locational Analysis of Public Facilities, edited by J.F. Thisse & H.G. Zoller, North Holland Publishing Company, (1983), pp. 55-78.
Abstract: This paper formulates a simple model of "perfect community competition." It is shown that (1) the equilibrium is Pareto optimal; (2) communities will, in general, be heterogeneous; not all individuals will have the same tastes; but (3) all individuals of a given skill within the community will have identical preferences; (4) in spite of the heterogeneity of tastes, there is complete unanimity with respect to tax and expenditure policy, and there is no scope for redistribution at the local level; (5) under certain circumstances, everyone's expected utility can be increased by introducing a particular kind of unequal treatment of individuals who are otherwise identical with respect to tastes and production characteristics; (6) when there is not "perfect community competition, " the equilibrium will, in general, not be Pareto optimal, and benefit taxation may be desirable.
Handle: RePEc:nbr:nberwo:0802
Template-Type: ReDIF-Paper 1.0
Title: Human Capital and Economic Growth
Author-Name: Jacob Mincer
Note: LS
Number: 0803
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0803
File-URL: http://www.nber.org/papers/w0803.pdf
File-Format: application/pdf
Publication-Status: published as Mincer, Jacob. "Human Capital and Economic Growth." Published in Spanish, Citibank, Mexico City, 1981.
Publication-Status: published as Jacob Mincer, 1984. "Human capital and economic growth," Economics of Education Review, vol 3(3), pages 195-205.
Abstract: Individuals differ in both inherited and acquired abilities, but only the latter differ among countries and time periods. Human capital analysis deals with acquired capabilities which are developed through formal and informal education at school and at home, and through training, experience, and mobility in the labor market. Just as accumulation of personal human capital produces individual economic (income) growth, so do the corresponding social or national aggregates. At the national level, human capital can be viewed as a factor of production coordinate with physical capital. This implies that its contribution to growth is greater the larger the volume of physical capital and vice versa. The framework of an aggregate production function shows also that the growth of human capital is both a condition and a consequence of economic growth. Human capital activities involve not merely the transmission and embodiment in people of available knowledge, but also the production of new knowledge which is the source of innovation and of technical change which propels all factors of production. This latter function of human capital generates worldwide economic growth regardless of its initial geographic locus. Contrary to Malthus, economic growth has not been eliminated by population growth. Indeed, spatial and temporal patterns of the "demographic transition" appear to be congruent with economic growth. Human capital is a link which enters both the causes and effects of these economic-demographic changes.
Handle: RePEc:nbr:nberwo:0803
Template-Type: ReDIF-Paper 1.0
Title: The Economics of Wage Floors
Author-Name: Jacob Mincer
Note: LS
Number: 0804
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0804
File-URL: http://www.nber.org/papers/w0804.pdf
File-Format: application/pdf
Publication-Status: published as Mincer, Jacob. "The Economics of Wage Floors," Research in Labor Economics , Vol. 6, 1984.
Abstract: This paper contains a theoretical analysis of and summaries of empirical information on consequences of wage floors in the labor market imposed by minimum wages and by labor unions. Excess supplies are rationed in part probabilistically ("first come, first served"), and in part systematically -- by raising hiring standards, or by discrimination and nepotism. Effects on employment, unemployment, and labor force participation, and on wage differentials between the II covered'' and the free sector follow. Empirical information on these effects is cited in the minimum wage case, but only wage differentials are analyzed in the union context. Other consequences outlined here are: lengthening of school attendance, reduction of hours of work, substitution of paid out wages for fringes in the minimum wage case. However, union pressure on fringes is greater than on wages. This strategy produces larger income and greater job security for union members. The minimum wage reduces opportunities for job training and consequent wage growth. Quits initially decline as wages are pushed up, but turnover is likely to increase as the training content of jobs is reduced. Union wage and fringe advantages reduce quits significantly. However, training as well as wage growth are reduced.
Handle: RePEc:nbr:nberwo:0804
Template-Type: ReDIF-Paper 1.0
Title: Compensating Wage Differentials for Mandatory Overtime
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Paul L. Schumann
Note: LS
Number: 0805
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0805
File-URL: http://www.nber.org/papers/w0805.pdf
File-Format: application/pdf
Publication-Status: published as Ehrenberg, Ronald G. and Paul L. Schumann. "Compensating Wage Differentials for Mandatory Overtime." Economic Inquiry, Vol. 22, No. 4, (0ctober 1984), pp. 460-478.
Abstract: Our paper estimates the extent to which employees are compensated for an unfavorable job characteristic, being required to accept mandatory assignment of overtime, by receiving higher straight-time wages. Our estimating equations are derived from a model in which wage rates and the existence of mandatory assignment of overtime are jointly determined in the market by the interaction of employee and employer preferences. While - on average, we do not observe the existence of a compensating wage differential for mandatory overtime, we do observe the existence of such differentials for unionized workers and workers with only a few years experience at a firm. Given any estimated compensating wage differential for an unfavorable working condition, one must decide whether its magnitude is sufficiently large to allow one to conclude that the differential fully compensates workers for the disutility of being subject to the unfavorable working condition. We develop and illustrate a methodology that can be used to answer this question, at least for the case of mandatory overtime provisions and other rules that restrict employees' choice of hours.
Handle: RePEc:nbr:nberwo:0805
Template-Type: ReDIF-Paper 1.0
Title: Evaluating the Taxation of Risky Assets
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 0806
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0806
File-URL: http://www.nber.org/papers/w0806.pdf
File-Format: application/pdf
Abstract: This paper explores the taxation of risky assets, both from the theoretical perspective of optimal taxation and from the practical one of measuring "the" tax rate on an asset when, as under existing practice, its stochastic returns are subject to differential tax treatment across states of nature. The results suggest that it may be "appropriate" for tax rates to vary systematically with the riskiness of an asset, but that use of the expected tax rate to evaluate the characteristics of any particular tax system may be very misleading.
Handle: RePEc:nbr:nberwo:0806
Template-Type: ReDIF-Paper 1.0
Title: A Positive Theory of Monetary Policy in a Natural-Rate Model
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: David B. Gordon
Author-Person: pgo64
Note: EFG
Number: 0807
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0807
File-URL: http://www.nber.org/papers/w0807.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J., and David B. Gordon. "A Positive Theory of Monetary Policy in a Natural-Rate Model." Journal of Political Economy, Vol. 91. No. 4 (August 1983), pp. 589-610. Journal of Economic Literature, Vol. 22, No. 1,(March 1984).
Abstract: Natural-rate models suggest that the systematic parts of monetary policy will not have important consequences for the business cycle. Nevertheless, we often observe high and variable rates of monetary growth, and a tendency for monetary authorities to pursue countercyclical policies. This behavior is shown to be consistent with a rational expectations equilibrium in a discretionary environment where the policymaker pursues a "reasonable" objective, but where precommitments on monetary growth are precluded. At each point in time, the policymaker optimizes subject to given inflationary expectations, which determine a Phillips Curve-type tradeoff between monetary growth/inflation and unemployment. Inflationary expectations are formed with the knowledge that policymakers will be in this situation. Accordingly, equilibrium excludes systematic deviations between actual and expected inflation, which means that the equilibrium unemployment rate ends up independent of "policy" in our model. However, the equilibrium rates of monetary growth/inflation depend on various parameters, including the slope of the Phillips Curve, the costs attached to unemployment versus inflation, and the level of the natural unemployment rate. The monetary authority determines an average inflation rate that is "excessive," and also tends to behave countercyclically. Outcomes are shown to improve if a costlessly operating rule is implemented in order to precomrnit future policy choices in the appropriate manner. The value of these precommitments -- that is, of long-term agreements between the government and the private sector -- underlies the argument for rules over discretion. Discretion is the sub-set of rules that provides no guarantees about the government's future behavior.
Handle: RePEc:nbr:nberwo:0807
Template-Type: ReDIF-Paper 1.0
Title: Union Effects: Wages, Turnover, and Job Training
Author-Name: Jacob Mincer
Note: LS
Number: 0808
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0808
File-URL: http://www.nber.org/papers/w0808.pdf
File-Format: application/pdf
Publication-Status: published as Mincer, Jacob. "Union Effects: Wages, Turnover, and Job Training," Research in Labor Economics, Vol. 5, September 2, 1983.
Abstract: This study explores the existence of a net union premium and of the extent of rationing by quality of the resulting excess supply. The net union premium was estimated by relating changes in wages to changes in union status of the same worker in longitudinal panels (NLS and MID), and by two cross-section wage level regressions, a "prospective" and "retrospective" which permit more direct observation of selectivity in hiring. Over a half of the cross-section differential of over 20% for the "same" (standardized) worker is a net union rent and much of the rest reflects a quality adjustment in hiring, as measured by wages. This conclusion was less reliable for older workers. Subsequent analysis explores the effects of successful union wage pressure on: quit rates, fringe benefits, wage profiles, and training. The reduction in quit of union joiners depends on the size of the net wage premium. Quit rate differentials are also positively related to the gross, cross-section wage differentials within groups of workers, classified by location and occupation, less so by industry. In Section 4, it is hypothesized that the imposition of larger fixed labor costs (such as fringes) helps to deter employers from preferring reductions in hours to reductions in men, and it helps to stabilize employment in the face of fluctuating demand, by a more frequent use of overtime and of temporary layoffs in the union sector. This hypothesis links the size of fringe benefits to the union wage gain. An analysis of firms in 70 industries confirms this link. Union pressure is exerted on the whole tenure profile of wages. The explicit linking of wage levels to seniority reduces incentives for worker investment in general (transferable) training. The total volume of training is indeed reported to be smaller in union jobs, and this is consistent with the flatter profile.
Handle: RePEc:nbr:nberwo:0808
Template-Type: ReDIF-Paper 1.0
Title: Why U.S. Wage and Employment Behavior Differs from That in Britain and Japan
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 0809
Creation-Date: 1981-11
Order-URL: http://www.nber.org/papers/w0809
File-URL: http://www.nber.org/papers/w0809.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Robert J. "Why U.S. Wage and Employment behavior Differs from Thatin Britain and Japan." The Economic Journal, Vol. 92, No. 365, (March 1982) , pp. 13-44.
Abstract: This paper argues that rigid wages cannot provide the underpinnings of a universally valid theory of the business cycle, simply because wages are not universally rigid. Several different statistical techniques suggest that wage rates in the U.K. and Japan are between three and 15 times more flexible than in the U.S. during the postwar period. Corresponding to greater flexibility in wages, these two countries also exhibit more stable employment behavior over the business cycle. In historical data covering the period between the late-nineteenth-century and 1940, U.S. wage behavior appears to be much more similar to that in Britain and Japan. The contrast between the prewar data and the postwar data, where the U.S. is a definite outlier, suggests that the 1948 invention of the three-year staggered U.S. wage contract may be the crucial factor underlying sluggish U.S. postwar wage dynamics. A theoretical section attempts to distill from recent literature those features of labor market institutions that are regarded as optimal by economic theory. Japanese institutions exhibit more similarity to this theoretical paradigm than those in the U.S. or U.K. Economic theory predicts that long-duration contracts, like those in the postwar U.S., are more likely to emerge when the perceived cost of renegotiation is high, but we must appeal to history and cultural differences to explain why conflict avoidance plays a more prominent role in the development of Japanese labor market institutions than in the American case. In this comparison Britain is the odd-man-out, with well-publicized industrial strife, together with short contract durations. I appeal to history, the different legal tradition, and the nature of the British unions themselves to explain why the three-year contract became established in America but not in Britain.
Handle: RePEc:nbr:nberwo:0809
Template-Type: ReDIF-Paper 1.0
Title: Secular Patterns in Corporate Finance
Author-Name: Robert A. Taggart, Jr.
Note: ME
Number: 0810
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0810
File-URL: http://www.nber.org/papers/w0810.pdf
File-Format: application/pdf
Publication-Status: published as Taggart, Robert A., Jr. "Secular Patterns in the Financing of U.S. Corporations." Corporate Capital Structures in the United States, edited by Benjamin M. Friedman. Chicago UCP. (1985), pp. 13-75.
Abstract: Trends in the financing of the corporate sector have been widely discussed in both business and academic circles. It is frequently argued, for example, that corporations' use of debt financing has increased dramatically in recent years. These discussions have been hampered, however, by the lack of a unified theoretical framework. In this paper, an attempt is made to develop such a framework using existing corporate finance theory and some extensions thereof. This theory is then used to interpret available data on aggregate corporate financing patterns over the course of the twentieth century. It is found that corporations' use of debt has undeniably increased in the post-World War II period. Nevertheless, the relative corporate debt level was unusually low in the 1940's and current debt levels are not unprecedented when viewed in the context of the entire century. The tax system, in conjunction with inflation, has probably played an important role in the postwar increases in corporate debt, but these factors appear insufficient to explain longer-term trends. It is argued, then, that supplies of competing securities, such as federal government bonds, as well as the secular development of the financial intermediary system, may also be important determinants of long-run corporate financing patterns.
Handle: RePEc:nbr:nberwo:0810
Template-Type: ReDIF-Paper 1.0
Title: Pensions and Mortality
Author-Name: Paul J. Taubman
Note: EH PE
Number: 0811
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0811
File-URL: http://www.nber.org/papers/w0811.pdf
File-Format: application/pdf
Abstract: Pensions and age specific death rates are intertwined in several ways. Pensions provide a mechanism to remove the uncertainty about date of death from consumption planning. Age specific death rates determine the cost and value of pensions. In this paper, we use the Retirement History Survey to estimate reduced form functions for the probability of having a pension when the person reaches 65 and on the dollar amount of the pension. We also evaluate the effect of 15% drop in age specific death rates from 1973 to 1979 on the costs of a pension. We find that the probability of having a pension is related to education, marital status, occupation, industry and assets. The probability equation is very similar for males and females. We find that the sharp drop in death rates has only a marginal impact on the cost of providing a pension.
Handle: RePEc:nbr:nberwo:0811
Template-Type: ReDIF-Paper 1.0
Title: Employment Effects of the Federal Minimum Wage
Author-Name: John F. Boschen
Author-Name: Herschel I. Grossman
Note: EFG LS
Number: 0812
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0812
File-URL: http://www.nber.org/papers/w0812.pdf
File-Format: application/pdf
Abstract: This paper describes an empirical study of the effects of federal minimum wage policy on aggregate employment, on the employment of various demographic groups, and on employment in low-wage industries. The analytical framework permits separate testing both for direct employment effects of the level and coverage of the minimum wage and for indirect employment effects resulting from a possible role for the minimum wage as a cause of monetary nonneutrality. Another innovation in this study is the inclusion of rational expectations of expected future relative minimum wages as determinants of the demands and supplies of labor services. The study finds that minimum-wage policy seems not to affect aggregate employment or average wages either directly or indirectly. Minimum-wage policy, however, has large and statistically significant effects on the industrial and demographic composition of employment, with employment decreasing in certain low-wage industries and for teenagers and for young men but increasing for young women and for adults. A major part of these effects are associated with anticipated future changes in the level of the minimum wage.
Handle: RePEc:nbr:nberwo:0812
Template-Type: ReDIF-Paper 1.0
Title: Health Care Incentives under Disability Insurance
Author-Name: Frederic P. Slade
Note: EH
Number: 0813
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0813
File-URL: http://www.nber.org/papers/w0813.pdf
File-Format: application/pdf
Abstract: This paper examines one of the possible factors which has contributed to the significant recent growth in the Social Security Administration's Disability Insurance program: that of health care incentives under the program. The examination of health care incentives involves a 2-period, 2-state insurance model under uncertainty which incorporates two general types of insurance. One form of insurance is disability insurance, and the other is the individual; "own" insurance or own risk bearing -- which is represented by acute care and preventive care expenditures. The model predicts a positive effect of disability insurance on acute care, while the extent to which disability insurance discourages preventive care depends largely on the effect of preventive care on the price of disability insurance. Regression estimates using data from the 1969 Longitudinal Retirement History Study(LRHS) indicate an elasticity of prescription drug expenditures (acute care) with respect to benefits of about .5, and an elasticity of use of X-rays and inoculations (preventive care) with respect to benefits of about -.004.
Handle: RePEc:nbr:nberwo:0813
Template-Type: ReDIF-Paper 1.0
Title: Adjustment and Structural Change under Supply Shocks
Author-Name: Michael Bruno
Note: ITI IFM
Number: 0814
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0814
File-URL: http://www.nber.org/papers/w0814.pdf
File-Format: application/pdf
Publication-Status: published as Bruno, Michael. "Adjustment and Structural Change under Supply Shocks." Scandinavian Journal of Economics, Vol. 84, No. 2, (1982), pp. 199-221.
Abstract: The resource boom effect and the input price effect of raw material price changes are analyzed within a two-period, two-sector (plus resource industry), open economy framework. Diagrammatic exposition is used to study the 'Dutch disease', and in particular the distinction between the short term wealth effects (causing a real appreciation and a movement of variable factors from tradable to non-tradable industries) and between the long-run effects on total investment, its sectoral allocation and its finance by foreign borrowing. The framework further enables analysis of the different allocational effects of temporary versus permanent raw material price increases, when the two sectors differ in material use. Also discussed are the effects of changes in the world interest rate on factor allocation and foreign borrowing as well as the allocational effects of government intervention in the case of temporary real wage rigidity.
Handle: RePEc:nbr:nberwo:0814
Template-Type: ReDIF-Paper 1.0
Title: Compliance with the Overtime Pay Provisions of the Fair Labor Standards Act
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Paul L. Schumann
Note: LS
Number: 0815
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0815
File-URL: http://www.nber.org/papers/w0815.pdf
File-Format: application/pdf
Publication-Status: published as Ehrenberg, Ronald G. and Schumann, Paul L. Compliance with the Overtime Pay Provisions of the Fair Labor Standards Act." Journal of Law and Economics, Vol. 25, No. l (April 1982) pp. 159-181.
Abstract: Our paper presents a methodology that can be used to estimate the extent of noncompliance with the overtime pay provisions of the Fair Labor Standards Act (FLSA). The methodology is applied to data from the May 1978 Current Population Survey and the 1977 Michigan Quality of Employment Survey. These data suggest that the fraction of covered workers working overtime who fail to receive a premium of at least time and a half, as called for by the legislation, is in the range of 25 percent. They also suggest that the extent of noncompliance is greater in those industries in which size class exemptions to the legislation exist (retail trade and selected service industries). Finally, probit analyses of the determinants of noncompliance suggest that decisions about whether to comply with the overtime provisions of the FLSA are at least partially based on the associated benefits and costs.
Handle: RePEc:nbr:nberwo:0815
Template-Type: ReDIF-Paper 1.0
Title: Troubled Workers in the Labor Market
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0816
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0816
File-URL: http://www.nber.org/papers/w0816.pdf
File-Format: application/pdf
Publication-Status: Published as "The Exit-Voice Tradeoff in the Labor Market: Unionism, Job Tenure, Quits, and Separations", Quarterly Journal of Economics, Vol. 94,no. 4 (1980): 643-674.
Abstract: This paper seeks to discover the criteria by which workers are judged to be "troubled," to examine the severity of the economic problems facing "troubled" groups, and to determine whether the condition of these people is relatively permanent or the result of transitory setbacks. The paper provides a broad overview of some of the literature on troubled groups in the labor market, and puts forth several basic propositions about those having trouble in the labor market. Among these are the fact that many workers at the bottom of the income distribution are permanently plagued by problems of low earnings, that workers who drop substantially in the earnings distribution do not recover their previous economic positions, and that personal, unobserved characteristics are important factors in the labor market problems of individuals. Another finding is that areas with high rates of unemployment tend to experience these rates for a decade or more, classifying most regional differences in unemployment as permanent rather than transitory.
Handle: RePEc:nbr:nberwo:0816
Template-Type: ReDIF-Paper 1.0
Title: Stockholder Tax Rates and Firm Attributes
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 0817
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0817
File-URL: http://www.nber.org/papers/w0817.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "Stockholder Tax Rates and Firm Attributes." Journal of Public Economics, Vol. 21, No. 2, (July 1983), pp. 107-127. Journal of Economic Literature, Vol. 22, No. 1, (March 1984).
Abstract: This paper develops a rigorous theoretical model to assess when investor clienteles may be empirically identified using ex dividend day data and what firm attributes these clienteles should respond to. It then presents empirical results for the period 1963-1977 suggesting that (1) tax-based investor clienteles do exist, and are reasonably stable over time (2) these clienteles are strongly influenced by the dividend-price ratio, but insignificantly by direct measures of risk and other firm characteristics.
Handle: RePEc:nbr:nberwo:0817
Template-Type: ReDIF-Paper 1.0
Title: Real Interest, Money Surprises and Anticipated Inflation
Author-Name: John H. Makin
Note: ME EFG
Number: 0818
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0818
File-URL: http://www.nber.org/papers/w0818.pdf
File-Format: application/pdf
Publication-Status: published as Makin John H. Makin. "Real Interest, Money Surprises and Anticipated Inflation." Journal of Economic Literature, Vol. 22, No. 1, (March 1984).
Abstract: This paper investigates the hypothesis that surprise changes in the money supply and anticipated inflation (the Mundell-Tobin effect) are both inversely related to the expected real interest rate. The two novel aspects of the investigation are tests of the hypothesized impact of money surprises on real rates while simultaneously testing the Mundell-Tobin hypothesis and estimation employing transfer function methodology developed by Box and Jenkins (1970). The transfer function enables the investigator to entertain the hypothesis that residuals may not follow a simple AR-1 process, as is usually assumed in corrections for correlated residuals, but rather may be appropriately represented by a more complex ARMA process. Based on quarterly data from 1959-1 - 1980-IVY results obtained constitutes failure to reject either an inverse relationship between money surprises and expected real interest or an inverse relationship between anticipated inflation and expected real interest. These findings do not constitute a rejection of market efficiency.
Handle: RePEc:nbr:nberwo:0818
Template-Type: ReDIF-Paper 1.0
Title: The Efficiency Gains from Dynamic Tax Reform
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Jonathan Skinner
Author-Person: psk23
Note: PE
Number: 0819
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0819
File-URL: http://www.nber.org/papers/w0819.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J., Laurence J. Kotlikoff and Jonathan Skinner. "The Efficiency Gains from Dynamic Tax Reform." International Economic Review, Vol. 24 , No. 1, (February 1983), pp. 81-100.
Abstract: This paper presents a new simulation methodology for determining the pure efficiency gains from tax reform along the general. equilibrium rational expectations growth path of life cycle economies. The principal findings concern the effects of switching from a proportional income tax with rates similar to those in the U.S. to either a proportional tax on consumption or a proportional tax on labor income. A switch to consumption taxation generates a sustainable welfare gain of almost 2 percent of lifetime resources. In contrast, a transition to wage taxation generates a loss of greater than ? percent of lifetime re- sources. A second general result is that even a mild degree of progressivity in the income tax system imposes a very large efficiency cost.
Handle: RePEc:nbr:nberwo:0819
Template-Type: ReDIF-Paper 1.0
Title: The Changing Economic Value of Higher Education in Developed Economies: A Report to the O.E.C.D.
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0820
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0820
File-URL: http://www.nber.org/papers/w0820.pdf
File-Format: application/pdf
Abstract: This paper analyses the changing economic value of higher education in the major O.E.C.D. countries. The first part of the study examines data on earnings by education or earnings in occupations composed of per- sons with different educational attainments. A second part looks at un- employment rates and the occupations attained by college graduates. Both the relative earnings data and the unemployment and occupational attainment data suggest that the heralded decline in the economic value of higher education in the U.S. is not a unique North American phenomenon, but rather, a general development throughout the developed world. On the basis of evidence on elasticities of substitution and the observed growth in the supply of college graduates the paper suggests that the decline in the premium to the educated reflects movement along a reasonably well-defined demand for graduates schedule due to the growth of the college and university systems of the various countries.
Handle: RePEc:nbr:nberwo:0820
Template-Type: ReDIF-Paper 1.0
Title: New Measures of Labor Cost: Implications for Demand Elasticities and Nominal Wage Growth
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 0821
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0821
File-URL: http://www.nber.org/papers/w0821.pdf
File-Format: application/pdf
Publication-Status: published as Hamermesh, Daniel S. "New Measures of Labor Cost: Implications for Demand Elasticities and Nominal Wage Growth." The Measurement of Labor Cost, editedby Jack E. Triplett. Chicago: University of Chicago Press, (October 1983), pp. 287-305, 521-527.
Publication-Status: published as New Measures of Labor Cost: Implications for Demand Elasticities and Nominal Wage Growth, Daniel S. Hamermesh. in The Measurement of Labor Cost, Triplett. 1983
Abstract: This study develops alternative quarterly measures of labor costs that refine the published data on hourly earnings and hourly compensation for the period 1953-1978. These new series account for deviations of hours paid for from hours worked, for the tax treatment of wages under the corporate income tax, and for variations in the user cost of training. They generally produce somewhat higher elasticities of labor demand, and explain variations in employment over time slightly better than do the published series. They also provide a different view of the recent path of wage inflation in the United States, suggesting that nominal wage growth has been more responsive to variations in the rate of price inflation than the published labor-cost series indicate. A data appendix lists the values of these new series; one series (that which adjusts for the hours paid/hours worked distinction) can be updated with readily avail- able data by persons interested in using these more appropriate measures of the cost of labor facing employers.
Handle: RePEc:nbr:nberwo:0821
Template-Type: ReDIF-Paper 1.0
Title: Alternatives to the Current Maximum Tax on Earned Income
Author-Name: Lawrence B. Lindsey
Note: PE
Number: 0822
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0822
File-URL: http://www.nber.org/papers/w0822.pdf
File-Format: application/pdf
Publication-Status: published as Lindsey, Lawrence B. "Is The Maximum Tax On Earned Income Effective?," National Tax Journal, 1981, v34(2), 249-256.
Publication-Status: published as Lindsey, Lawrence B. "Alternatives to the Current Maximum Tax on Earned Income." Chapter 3 in Behavioral Simulation Methods in Tax Policy Analysis, edited by Martin Feldstein. Chicago: UCP, (1983).
Publication-Status: published as Alternatives to the Current Maximum Tax on Earned Income, Lawrence Lindsey. in Behavioral Simulation Methods in Tax Policy Analysis, Feldstein. 1983
Abstract: The Maximum Tax on Personal Service Income was intended to reduce the maximum marginal tax rate on earned income to 50 percent. In general it did not achieve this result, although it did lower marginal tax rates on both earned and unearned income. This paper considers the effect of different tax rate structures on the total tax revenue collected from high income taxpayers. The sensitivity of tax avoidance practices to marginal tax rates is estimated using four different specifications. These estimates are then combined with plausible parameter values for income and substitution effects in the supply of labor to produce a range of elasticities of taxable income with respect to tax rates. The NBER Taxsim model is then used to estimate the effects of different rate structures on tax revenue.
Handle: RePEc:nbr:nberwo:0822
Template-Type: ReDIF-Paper 1.0
Title: The Lender of Last Resort and the Run on the Savings and Loans
Author-Name: Peter M. Garber
Author-Person: pga124
Note: EFG
Number: 0823
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0823
File-URL: http://www.nber.org/papers/w0823.pdf
File-Format: application/pdf
Abstract: Speculative runs on asset price fixing schemes are most often attributed either to an inexplicable mass hysteria or to a sudden, unpredictable random disturbance. Such attribution places runs and panics outside of the realm of scientific inquiry. Alternatively, in this paper I define the notion of a run as a discontinuous shift in portfolio asset holdings brought about by a belief in the end of the price fixing regime. I also argue that runs are foreseeable events and employ the current difficulties of S & L's to serve as an extended example which emphasizes such predictability.
Handle: RePEc:nbr:nberwo:0823
Template-Type: ReDIF-Paper 1.0
Title: Inflation and the Valuation of Corporate Equities
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 0824
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0824
File-URL: http://www.nber.org/papers/w0824.pdf
File-Format: application/pdf
Publication-Status: published as (With M.Feldstein) Published as "Inflation and the Taxation of Capital Income in the Corporate Sector", NTJ, Vol. 32, no. 4 (1979): 445-470.
Abstract: This paper examines the relationship between inflation and the return on individual corporate securities. This question is of substantial importance in light of the puzzling behavior of the stock market over the last decade. Conventional financial theory holds that equity should be a good inflation hedge since it represents a claim of real rather than nominal assets. Yet a negative relationship between both expected and unexpected inflation and stock market returns has been widely documented. This relationship, which appears to antedate the surge in inflation over the last 15 years. might provide an explanation for the market's surprising recent performance. This paper studies differences across firms in the response of stock market values to changes in expected inflation in an effort to explore the reasons for the aggregate negative relationship between inflation and stock market values. Two opposing hypotheses about the impact of inflation on market valuation are contrasted. The "inflation illusion" hypothesis holds that investors are not able to see through nominal accounting statements and respond to reported rather than real profits. The opposing "tax effects" hypothesis holds that firms which report spuriously high profits due to inflation are penalized because the extra tax burden incurred reduces real profits. The results from the 1970's strongly bear out the predictions of the tax effects hypothesis. Aggregate calculations suggest that the interaction of inflation and taxation can account for a large part of the decline in the stock market which has been observed over the past decade. A significant part of the remainder appears to be due to increasing investor awareness of the need to adjust for historic cost depreciation.
Handle: RePEc:nbr:nberwo:0824
Template-Type: ReDIF-Paper 1.0
Title: The Impacts on Capital Allocation of Some Aspects of the Economic Recovery Tax Act of 1981
Author-Name: Patric H. Hendershott
Author-Name: James D. Shilling
Note: PE
Number: 0825
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0825
File-URL: http://www.nber.org/papers/w0825.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. and James D. Shilling. "The Impacts on Capital Allocation of Some Aspects of the Economic Recovery Tax Act of 1981." Public Finance Quarterly, Vol. 10, No. 2, (April 1982), pp. 242-273.
Abstract: This paper develops and employs a five-asset, four-household and single-business sector simulation model to measure the long-run impacts of the major provisions of the Economic Recovery Tax Act of 1981 on the allocation of a fixed capital stock among owner-occupied housing, rental housing, and nonresidential capital. The specific provisions analyzed are the increases in tax depreciation for nonresidential capital and rental housing and the reduction in the maximum tax rate on unearned income. Our analysis suggests a 6 percent increase in nonresidential capital, an 11 percent decline in owner-occupied housing and little change in rental housing (the increase in the number of renters -- the homeownership rate declines by 1 1/2 percentage points -- offsets a decline in the quantity of rental services demanded per renter). In the absence of an increase in aggregate saving, real pretax interest rates rise by nearly two percentage points. Corporate profit taxes decline by 60 percent, and after-tax earnings rise by 25 percent. As a result of the Act, the net (of depreciation) user costs for the three types of capital will almost be equalized.
Handle: RePEc:nbr:nberwo:0825
Template-Type: ReDIF-Paper 1.0
Title: Productivity and R and D at the Firm Level
Author-Name: Zvi Griliches
Author-Name: Jacques Mairesse
Author-Person: pma712
Note: PR
Number: 0826
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0826
File-URL: http://www.nber.org/papers/w0826.pdf
File-Format: application/pdf
Publication-Status: published as Griliches, Zvi and Jacques Mairesse. "Productivity and R&D at the Firm Level." R&D, Patents and Productivity, edited by Zvi Griliches. Chicago: University of Chicago Press, (1984), pp. 339-374.
Publication-Status: published as Productivity and R&D at the Firm Level, Zvi Griliches. in R&D and Productivity: The Econometric Evidence, Griliches. 1998
Abstract: This paper analyzes the relationship between output, employment, and physical and R&D capital, for a sample of 133 large U.S. firms covering the years 1966 through 197. In the cross sectional dimension, there is a strong relationship between firm productivity and the level of its R&D invespments. In the time dimension, using deviations from fire means as obserrations and unconstrained estimation, this relationship bomes closa to vanishing. This may be due, in part, to the increase in collinearity between trend, physical capital, and R&D cap)tal in the within dimension, leaving little ildependent variability there. When the coefficients of the first two variables are constrained to reasonable values, the R&D coefficient is both sizeable and significant. The possibility of simultaneity between output and employment decisions in the short run is also investigated. Allowing for this via the use of a semi-reduced form equations system yields rather high estimates of the importance of R&D capital relative to physical capital. Our data do not allow us, however, to answer any detailed questions about the lag structure of the effects of R&D on productivity. These effects are apparently highly variable, both in timing and magnitude.
Handle: RePEc:nbr:nberwo:0826
Template-Type: ReDIF-Paper 1.0
Title: Estimating Wage-Fringe Trade-Offs: Some Data Problems
Author-Name: Robert S. Smith
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Note: LS
Number: 0827
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0827
File-URL: http://www.nber.org/papers/w0827.pdf
File-Format: application/pdf
Publication-Status: published as Smith, Robert S. and Ronald Ehrenberg. "Estimating Wage-Fringe Trade-Offs: Some Data Problems." The Measurement of Labor Cost, edited by Jack E. Triplett. Chicago: University of Chicago Press, (1983).
Publication-Status: published as Estimating Wage-Fringe Trade-Offs: Some Data Problems, Robert S. Smith, Ronald G. Ehrenberg. in The Measurement of Labor Cost, Triplett. 1983
Abstract: Our paper attempts to identify the types of data nee3ed to estimate tradeoffs between wages and fringe benefits (such as pensions); it also explores the usefulness for this estimation of one particular employer- based data set collected by gay Associates. We stress three things: first, that employer-based data sets are required. Second, because pensions and many other fringe benefits are actuarial functions of wages or salaries, these technical relationships must be accounted for in estimation. Third, to take account of unobservable heterogeneity of employees across employers, one must use econometric methods that control for these unobservable variables. The paper concludes with a discussion of our attempts to estimate the tradeoff between wages and fringe benefits using a unique database for 200 establishments that contains information on wages and actuarial valuations of employer costs of fringe benefits at three different job levels.
Handle: RePEc:nbr:nberwo:0827
Template-Type: ReDIF-Paper 1.0
Title: Long-Run Effects of the Accelerated Cost Recovery System
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Yolanda K. Henderson
Note: PE
Number: 0828
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0828
File-URL: http://www.nber.org/papers/w0828.pdf
File-Format: application/pdf
Publication-Status: published as Fullerton, Don and Yolanda Kodrzycki Henderson. "Long-Run Effects of the Accelerated Cost Recovery System," Review of Economics and Statistics, Vol. L XVII, No. 3, August 1985, pp. 363-372.
Abstract: Much of the debate surrounding the enactment of President Reagan's tax plan was concerned with the short run effects of macroeconomic stimulation. Now that the Economic Recovery Tax Act of 1981 has become law, it is appropriate to look again at the long run effect of these tax cuts. This paper measures, for 37 different assets and for 18 different industries, the reduction in effective corporate tax rates that result from the acceleration of depreciation allowances and the expansion of the investment tax credit. It also uses a detailed dynamic general equilibrium model of the U.S. economy to simulate the effects of the new Accelerated Cost Recovery System (ACRS) on revenues, investment, long run growth, and capital allocation among industries. We find significant welfare gains from ACRS, but we find larger welfare gains from alternative plans that were not adopted.
Handle: RePEc:nbr:nberwo:0828
Template-Type: ReDIF-Paper 1.0
Title: Dividend Taxes, Corporate Investment, and "Q"
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 0829
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0829
File-URL: http://www.nber.org/papers/w0829.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James M. and Lawrence H. Summers. "Dividend Taxes, Corporate Investment, and 'Q'." Journal of Public Economics, Vol. 22, (1983), pp. 135-167.
Abstract: Taxes on corporate distributions have traditionally been regarded as a "double tax" on corporate income. This view implies that while the total effective tax rate on corporate source income affects real economic decisions, the distribution of this tax burden between the shareholders and the corporation is irrelevant. Recent research has suggested an alter- native to this traditional view. One explanation of why firms in the U.S. pay dividends in spite of the heavy tax liabilities associated with this form of distribution is that the stock market capitalizes the tax payments associated with corporate distributions. This capitalization leaves investors indifferent at the margin between corporations paying our dividends and retaining earnings. This alternative view holds that while changes in the dividend tax rate will affect shareholder wealth, they will have no impact on corporate investment decisions. This paper develops econometric tests which distinguish between these two views of dividend taxation. By extending Tobin's "q" theory of investment to incorporate taxes at both the corporate and personal levels, the implications of each view for corporate investment decisions can be derived. The competing views may be tested by comparing the performance of investment equations estimates under each theory's predict ions. British time series data are particularly appropriate for testing hypotheses about dividend taxes because of the substantial postwar variation in effective tax rates on corporate distributions. The econometric results suggest that dividend taxes have important effects on investment decisions.
Handle: RePEc:nbr:nberwo:0829
Template-Type: ReDIF-Paper 1.0
Title: Debt Management Policy, Interest Rates, and Economic Activity
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0830
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0830
File-URL: http://www.nber.org/papers/w0830.pdf
File-Format: application/pdf
Publication-Status: published as Jonas Agell, Mats Persson and Benjamin M. Friedman, Does Debt Management Policy Matter? (Oxford, 1992).
Abstract: The maturity structure of the U.S. government's outstanding debt has undergone large changes over time, at least in part because of shifts in the Treasury's debt management policy. During most of the post World War I1 period, an emphasis on short-term issues rapidly reduced the debt's average maturity. In the early 1960's and again since 1975, however, the opposite policy just as rapidly lengthened (and is now lengthening) the average maturity, Such changes in debt management policy in general affect the structure of relative asset yields as well as nonfinancial economic activity. The evidence presented in this paper indicates that debt management actions of a magnitude comparable to the recent changes in U.S. debt management policy have sizeable effects both in the financial markets and more broadly. In particular, a shift from long-term to short-term government debt - that is, a shift opposite to the Treasury's recent policy - lowers yields on long-term assets, raises yields on short-term assets, and in the short run stimulates output and spending. Moreover, the stimulus to spending is disproportionately concentrated in fixed investment, so that debt management actions shortening the maturity of the government debt not only increase the economy's output but also shift the composition of output toward increased capital formation.
Handle: RePEc:nbr:nberwo:0830
Template-Type: ReDIF-Paper 1.0
Title: The Roles of Money and Credit in Macroeconomic Analysis
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0831
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/w0831
File-URL: http://www.nber.org/papers/w0831.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "The Roles of Money and Credit in Macroeconomic Analysis." Macroeconomics, Prices, and Quantities, edited by James Tobin. Washingtion, D.C.: The Brookings Institution, (1983), pp. 161-199.
Abstract: This paper considers the implications, for macroeconomic modeling and for monetary policy, of the interrelationships among money, credit and nonfinancial economic activity. Data for the United States since World War II show that the volume of outstanding credit is as closely related to economic activity as is the stock of money, and moreover that neither money nor credit is sufficient to account fully for the effect of financial markets in determining real economic activity. Instead, what appears to matter is an interaction between money and credit. This result is consistent with a macroeconomic modeling strategy that deals explicitly with both the money market and the credit market, and with a monetary policy framework based on the joint use of a money growth target and a credit growth target.
Handle: RePEc:nbr:nberwo:0831