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Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Dynamics and the Overshooting Hypothesis
Author-Name: Jacob A. Frenkel
Author-Name: Carlos A. Rodriguez
Note: ITI EFG IFM
Number: 0832
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0832
File-URL: http://www.nber.org/papers/w0832.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. and Rodriguez, Carlos A. "Exchange Rate Dynamics and the Overshooting Hypothesis." International Monetary Fund Staff Papers, Vol. 29 , No. 1 (March, 1982), pp. 1-30.
Abstract: In this paper we analyze the determinants of the evolution of ex- change rates within the context of alternative models of exchange rate dynamics. We examine the overshooting hypothesis in models which emphasize differential speeds of adjustment in asset and goods markets as well as in models which emphasize portfolio balance considerations. We show that exchange rate overshooting is not an intrinsic characteristic of the foreign exchange market and that it depends on a set of specific assumptions. We also show that the overshooting is not a characteristic of the assumption of perfect foresight nor does it depend in general on the assumption that goods and asset markets clear at different speeds. As long as the speeds of adjustment in the various markets are less than infinite, the key factor determining the short run effects of a monetary expansion is the degree of capital mobility. When capital is highly mobile, the exchange rate overshoots its long-run value and when capital is relatively immobile the exchange rate undershoots its long-run value. Within the context of the portfolio-balance model we show that the effects of a monetary expansion on the dynamics of exchange rates and in particular on whether exchange rates overshoot or undershoot their equilibrium path depend critically on the specification of asset choice, on the degree of substitution among assets, and on the quality of the various assets in being an inflation hedge, Specifically, when internationally traded goods are a better inflation hedge than nontraded goods, the nominal exchange rate overshoots the domestic price level and conversely.
Handle: RePEc:nbr:nberwo:0832
Template-Type: ReDIF-Paper 1.0
Title: Can We Sterilize? Theory and Evidence
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0833
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0833
File-URL: http://www.nber.org/papers/w0833.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "Can We Sterilize? Theory and Evidence." The American Economic Review, Vol. 72, No. 2 (May 1982), pp. 45-50.
Abstract: This paper is a highly selective review of our knowledge about the scope for sterilized intervention in foreign exchange markets under alternative exchange-rate regimes. Section I demonstrates the potential importance of simultaneous-equations bias in single-equation econometric studies of the capital-account offset to monetary policy under fixed exchange rates. The empirical record suggests that, in the case of West Germany, sterilization was a feasible short-run monetary strategy in the 1960s. Section II notes that there is considerable recent evidence of imperfect asset substitutability under the managed float. While limited substitution between bonds of different currency denomination is a precondition for the efficacy of sterilized foreign-exchange intervention, it is no guarantee of efficacy. Whether limited substitutability can in fact be exploited in a predictable manner by central banks is a distinct, and unanswered, question.
Handle: RePEc:nbr:nberwo:0833
Template-Type: ReDIF-Paper 1.0
Title: Transitory Terms-of-Trade Shocks and the Current Account: The Case of Constant Time Preference
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0834
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0834
File-URL: http://www.nber.org/papers/w0834.pdf
File-Format: application/pdf
Abstract: The paper uses an intertemporal perfect-foresight optimizing model to analyze the effect of transitory terms-of-trade shocks on a small open . economy's current-account and utility time profiles. An adverse terms-of-trade shift known to be temporary induces the economy to run down its stock of external assets in the period before the terms of trade revert to their initial level. Subsequently, the assets consumed during this period are reaccumulated. The current-account response is due only in part to a desire to smooth out the future consumption stream. In addition, households know that the real value of any debt incurred while the terms of trade are unfavorable will be reduced sharply when the terms of trade improve. This opportunity for intertemporal price speculation causes the time path of instantaneous utility to be discontinuous,
Handle: RePEc:nbr:nberwo:0834
Template-Type: ReDIF-Paper 1.0
Title: Expectations, Life Expectancy, and Economic Behavior
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS EH
Number: 0835
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0835
File-URL: http://www.nber.org/papers/w0835.pdf
File-Format: application/pdf
Publication-Status: published as Hamermesh, Daniel S. "Expectations, Life Expectancy, and Economic Behavior ." Quarterly Journal of Economics, Vol. 100, No. 2, (May 1985), pp. 389-40 8.
Abstract: Unlike price expectations, which are central to macroeconomic theory and have been examined extensively using survey data, formation of individuals' horizons, which are central to the theory of life-cycle behavior, have been completely neglected. This is especially surprising since life expectancy of adults has increased especially rapidly in Western countries in the past ten years. This study presents the results of analyzing responses by two groups--economists and a random sample--to a questionnaire designed to elicit subjective expectations and probabilities of survival. It shows that people do not extrapolate past improvements in longevity when they determine their subjective horizons, though they are fully aware of levels of and movements within today's life tables. They skew subjective survival probabilities in a way that implies the subjective distribution has greater variance than its actuarial counterpart; and the subjective variance decreases with age. They also base their subjective horizons disproportionately on their relatives' longevity, and long-lived relatives increase uncertainty about the distribution of subjective survival probabilities. As one example of the many areas of life-cycle behavior to which the results are applicable, the study examines the consumption-leisure choices of the optimizing consumer over his lifetime. It finds that shortfalls in utility in old age because people's ex ante horizons had to be updated as -- average longevity increased are relatively small. This implies that large subsidies to retirees under today's Social Security system cannot be justified as compensation for an unexpectedly long retirement for which they failed to save.
Handle: RePEc:nbr:nberwo:0835
Template-Type: ReDIF-Paper 1.0
Title: The Nonadjustment of Nominal Interest Rates: A Study of the Fisher Effect
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 0836
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0836
File-URL: http://www.nber.org/papers/w0836.pdf
File-Format: application/pdf
Publication-Status: published as Summers, Lawrence H. "The Nonadjustment of Nominal Interest Rates: A Study of the Fisher Effect." A Synbosium in Honor of Arthur Okun, edited by James Tobin, pp. 201-241. Washington: Brookings Institution, 1983.
Abstract: This paper critically re-examines theory and evidence on the relation- ship between interest rates and inflation. It concludes that there is no evidence that interest rates respond to inflation in the way that classical or Keynesian theories suggest, For the period 1860-1940, it does not appear that inflationary expectations had any significant impact on rates of inflation in the short or long run. During the post-war period interest rates do appear to be affected by inflation. However, the effect is much smaller than any theory which recognizes tax effects would predict. Further- more, all the power in the inflation interest rate relationship comes from the 1965-1971 period. Within the 1950's or 1970's, the relationship is both statistically and substantively insignificant. Various explanations for the failure of the theoretically predicted relationship to hold are considered. The relationship between inflation and interest rates remains weak at the even low frequencies. This is taken as evidence that cyclical factors or errors in measuring inflation expectations cannot account for the failure of the results to bear out Fisher's theoretical prediction. Rather, comparison of real interest rates and stock market yields suggests that Fisher was correct in pointing to money illusion as the cause of the imperfect adjustment of interest rates to expected inflation.
Handle: RePEc:nbr:nberwo:0836
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Collective Bargaining: Can the New Facts Be Explained by Monopoly Unionism?
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: James L. Medoff
Note: LS
Number: 0837
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0837
File-URL: http://www.nber.org/papers/w0837.pdf
File-Format: application/pdf
Publication-Status: Published as "The Impact of the Percentage Organized On Union and Nonunion Wages", Review of Economics and Statistics, Vol. 63, no. 4 (1981): 561-572.
Abstract: In this paper we focus our attention on the question of whether union/nonunion differences in nonwage outcomes can, in fact, be explained in terms of standard price-theoretic responses to real wage effects, as opposed to the real effect of unionism on economic behavior. We reach three basic conclusions. First, unions and collective bargaining have real economic effects on diverse nonwage variables which cannot be explained either in terms of price-theoretic responses to union wage effects or be attributed to the poor quality of our econometric "experiments". Second, we find that while sensitivity analyses of single-equation results and longitudinal experiments provide valuable checks on cross-sectional findings, multiple-equations approaches produced results which are too sensitive to small changes in models or samples to help resolve the questions of concern. Finally, on the basis of these findings we conclude that the search for an understanding of what unions do requires more than the standard price theoretic "monopoly" model of unionism. New (and/or old) perspectives based on institutional or industrial relations realities, contractarian or property rights theories, or other potential sources of creative views are also needed.
Handle: RePEc:nbr:nberwo:0837
Template-Type: ReDIF-Paper 1.0
Title: Consumption, Asset Markets, and Macroeconomic Fluctuations
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 0838
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0838
File-URL: http://www.nber.org/papers/w0838.pdf
File-Format: application/pdf
Publication-Status: published as Shiller, Robert J. "Consumption, Asset Markets, and Macroeconomic Fluctuations." Carnegie-Rochester Conference Series on Public Policy, Vol. 17, (1982), pp. 203-238.
Abstract: A broad exploratory data analysis is conducted to assess the promise of a kind of model in which long-term asset prices change through time primarily due to consumption related changes in the rate of discount. Aggregate consumption data are used to infer ex-post marginal rates of substitution. Prices of stocks, bonds, short debt, land and housing are examined for the period 1890 to 1980, Methods are explored of evaluating this kind of model in the absence of accurate data on consumption.
Handle: RePEc:nbr:nberwo:0838
Template-Type: ReDIF-Paper 1.0
Title: Structural Differences and Macroeconomic Adjustment to Oil Price Increases in a Three-Country Model
Author-Name: Nancy Peregrim Marion
Author-Person: pma1464
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 0839
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0839
File-URL: http://www.nber.org/papers/w0839.pdf
File-Format: application/pdf
Publication-Status: published as Marion, Nancy Peregrim and Lars E. O. Svensson."The Terms of Trade Between Oil Importers," Journal of International Economics, Vol. 20, pp. 99-113, Feb. 1986. IIES Seminar Paper No. 248.
Abstract: In this paper a three-country model based on intertemporal maximizing behavior is constructed in order to analyze the effects of oil price increases on welfare levels and trade balance positions. The model can also be used to assess the effects of oil price increases on the world interest rate, on the final goods terms of trade between oil importers (what is sometimes called the real exchange rate), and on output, investment and savings levels, oil imports, wages, and consumption at each date. The analysis highlights the role of structural asymmetries between oil importers in accounting for differences in trade balance responses. A number of structural differences are isolated in turn in order to determine their influence on the final goods terms of trade, which is the key factor in affecting relative trade balance positions.
Handle: RePEc:nbr:nberwo:0839
Template-Type: ReDIF-Paper 1.0
Title: A Comparison of Tournaments and Contracts
Author-Name: Jerry R. Green
Author-Person: pgr476
Author-Name: Nancy L. Stokey
Number: 0840
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0840
File-URL: http://www.nber.org/papers/w0840.pdf
File-Format: application/pdf
Publication-Status: published as Green, Jerry R. and Nancy L. Stokey. "A Comparison of Tournaments and Contracts." Journal of Political Economy, Vol. 91, Vo. 3, (June 1983), pp. 349- 364.
Abstract: Tournaments, reward structures based on rank order, are compared with individual contracts in a model with one risk-neutral principal and many risk-averse agents. Each agents' output is a stochastic function of his effort level plus an additive shock term that is common to all the agents. The principal observes only the output levels of the agents. It is shown that in the absence of a common shock, using optimal independent contracts dominates using the optimal tournament. Conversely, if the distribution of the common shock is sufficiently diffuse, using the optimal tournament dominates using optimal independent contracts. Finally, it is shown that for a sufficiently large number of agents, a principal who cannot observe the common shock but uses the optimal tournament, does as well as one who can observe the shock and uses independent contracts.
Handle: RePEc:nbr:nberwo:0840
Template-Type: ReDIF-Paper 1.0
Title: Two Notes on Indeterminacy Problems
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Peter M. Garber
Author-Person: pga124
Author-Name: Louis O. Scott
Note: ITI IFM
Number: 0841
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0841
File-URL: http://www.nber.org/papers/w0841.pdf
File-Format: application/pdf
Publication-Status: published as Flood, Robert P., Peter M. Garber, and Louis O. Scott. "Collapsing Exchange Rate Regimes: Some Linear Examples." Journal of International Economics, Volume 17, Issues 1-2, August 1984, Pages 1-13
Abstract: In this paper we show, in an example, that the arbitrary behavior which results in an indeterminacy in the time path of a flexible exchange rate and is associated with "badly behaved" speculation has a manifestation under a regime of fixed rates in an indeterminacy in the time path of government holding of international reserves. Thus, to the extent that arbitrariness is characteristic of agents' behavior it is not resolve6 but only masked by the fixing of exchange rates.
Handle: RePEc:nbr:nberwo:0841
Template-Type: ReDIF-Paper 1.0
Title: International Risk Sharing and the Choice of Exchange-Rate Regime
Author-Name: David A. Hsieh
Note: ITI IFM
Number: 0842
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0842
File-URL: http://www.nber.org/papers/w0842.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Vol. 3, no. 2 (1984): 141-151.
Abstract: This paper examines the argument that the fixed exchange rate regime should be preferred to the flexible rate regime because the former allows risk sharing across countries while the latter does not. The analysis is performed in a two-country overlapping generations model, where markets are incomplete under either exchange regime. In this second best world, it is demonstrated that the ability to share risk across countries in the fixed rate regime does not necessarily lead to higher welfare than the inability to share risk in the flexible rate regime.
Handle: RePEc:nbr:nberwo:0842
Template-Type: ReDIF-Paper 1.0
Title: Tests of Rational Expectations and No Risk Premium in Forward Exchange Markats
Author-Name: David A. Hsieh
Note: ITI IFM
Number: 0843
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0843
File-URL: http://www.nber.org/papers/w0843.pdf
File-Format: application/pdf
Publication-Status: published as Hournal of Interlational Economics, Vol. 12, no.1/2 (1984): 173-184.
Abstract: This paper tests the hypothesis that traders have rational expeatations and charge no risk premium in the forward exchange market. It uses a statistical procedure which is consistent under a large class of heteroscedasticity, and a set of data which takes into account the institutional features of the forward exchange market. The results show that inferences using this procedure are very different from those using the standard assumption of homoscedasticity.
Handle: RePEc:nbr:nberwo:0843
Template-Type: ReDIF-Paper 1.0
Title: The Labor Market Impact of Federal Regulation: OSHA, ERISA, EEO, and Minimum Wage
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Note: LS
Number: 0844
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0844
File-URL: http://www.nber.org/papers/w0844.pdf
File-Format: application/pdf
Publication-Status: published as Kochan, T., D. Mitchell, & L. Dyer (eds.) Industrial Relations Research in the 1970's: Review & Appraisal. Madison, WI: IRRA, 1982.
Abstract: This paper critically evaluates the contribution of labor economics and industrial relations research to our understanding of the impact of government labor market regulation. Recent theoretical and empirical literature is analyzed for four major policies: (a) workplace safety and health; (b) employer-provided pensions; (c) minimums; and (d) employment and pay practices with regard to women and minorities. Studies on EEO and OSHA reforms find small but positive impacts on the outcomes they sought to alter: the minimum wage literature indicates low skilled workers were not benefited much by wage floors; and as yet no analysis exists on whether ERISA improved pension security. Directions for future analysis are suggested, including the role of research in policymaking, whether and how regulatory policy affects labor productivity, and the distributional impact of different forms of regulation on various labor market groups.
Handle: RePEc:nbr:nberwo:0844
Template-Type: ReDIF-Paper 1.0
Title: Expectations and Forecasts from Business Outlook Surveys
Author-Name: Victor Zarnowitz
Note: EFG
Number: 0845
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0845
File-URL: http://www.nber.org/papers/w0845.pdf
File-Format: application/pdf
Abstract: Each quarter since 1968 the National Bureau of Economic Research, in collaboration with the American Statistical Association, has been collecting a large amount of information on the record of forecasting in the U. S. economy. This paper is a progress report on a comprehensive study of the distribution of individual predictions from these surveys. It covers forecasts of quarterly developments in the year ahead for six variables representing inflation, real growth, unemployment, percentage changes in GNP and spending on consumer durables, and business inventory investment. The 79 respondents who participated in at least 12 of the 42 surveys covered constitute a broadly based and diversified group of experts and agents, mostly from the world of corporate business and finance -- executives, analysts, economic consultants, also some government and academic forecasters. The data are in certain respects uniquely rich. The first part of the paper reviews briefly the models of economic expectations and discusses the potential and problems of using survey data for testing these models. The second part offers a comparative analysis of the individual prediction series from the NBER-ASA as well as some earlier surveys. There are gains from combining predictions from different sources, e.g., the group mean forecasts are on the average over time more accurate than most of the corresponding sets of individual forecasts or expectations. But there is also a moderate degree of consistency in the relative 2erformances of individual fore- casters, some of whom score well above average with respect to several variables and predictive horizons. The third section presents the distributions of an array of absolute accuracy measures for the survey respondents, regressions of actual on predicted values, and associated tests of bias and autocorrelation of error. The marginal forecast errors tend to increase, and the correlations between predictions and realizations tend to decrease, as the target quarter recedes into the future. The tests of the joint null hypothesis that the regressions have zero intercepts and unitary slope coefficients are very unfavorable to expectations of inflation, but they show the forecasts of the other variables generally in much better light. Inflation has been largely underestimated, with the predicted rates lagging behind the actual rates. On the other hand, real growth has been on the average overestimated. The incidence of autocorrelation in the prediction errors was also much higher for inflation than for the other variables. A summary of findings is provided. The fifth and last section lists some additional questions raised by this study, to be dealt with in another paper.
Handle: RePEc:nbr:nberwo:0845
Template-Type: ReDIF-Paper 1.0
Title: The Effect of the Minimum Wage on Employment and Unemployment: A Survey
Author-Name: Charles Brown
Author-Person: pbr341
Author-Name: Curtis Gilroy
Author-Name: Andrew Kohen
Author-Person: pko169
Note: LS
Number: 0846
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0846
File-URL: http://www.nber.org/papers/w0846.pdf
File-Format: application/pdf
Publication-Status: published as Brown, Charles; Gilroy, Curtis; and Kohen, Andrew. "The Effect of the Minimum Wage on Employment and Unemployment." Journal of Economic Literature, Vol. 20, No. 2 (June 1982), pp. 487-528.
Abstract: In this paper, we survey theoretical models of the effect of the minimum wage and, in somewhat greater detail, evidence of its effect on employment and unemployment. Our discussion of the theory emphasizes recent work using two-sector and heterogeneous-worker models. We then summarize and evaluate the large literature on employment and unemployment effects of the minimum on teenagers. Finally, we survey the evidence of the effect of the minimum wage on adult employment, and on employment in low-wage industries and areas.
Handle: RePEc:nbr:nberwo:0846
Template-Type: ReDIF-Paper 1.0
Title: Wages and Prices Are Not Always Sticky: A Century of Evidence for the United States, United Kingdom, and Japan
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 0847
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0847
File-URL: http://www.nber.org/papers/w0847.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Robert J. "A Century of Evidence on Wage and Price Stickiness in the United States, the United Kingdom, and Japan." Macroeconomics, Prices, and Quantities, James Tobin, editor, pp. 85- 133. Washington, D.C.: Brookings Inst., 1983.
Abstract: Arthur M. Okun's last book, Prices and Quantities, contributes a theory of universal wage and price stickiness, but provides no explanation at all of historical and cross country differences in behavior. The core of this paper provides a new empirical characterization of price and wage changes over the last century in the U.S., U.K., and Japan, in order to demonstrate the wide variety of historical responses that have occurred. Equations for changes in the GNP deflator, in the hourly manufacturing wage rate, and in the real wage rate are estimated, with attention to the influence of both demand and supply disturbances. Because of the long sample period involved, extending back to 1875 for the U.K. and to 1892 for the other two countries, there is extensive attention to shifts in parameters. My description of U.S. data differs from Okun's framework by rejecting his wage-wage formulation of the postwar U.S. inflation inertia process, by allowing the impact of demand disturbances to depend on both the level and rate of change of aggregate demand, by allowing demand to influence price- setting as well as wage-setting behavior, and by stressing the fact that inertia in the U.S. adjustment process is purely a postwar phenomenon rather than the universal fact implied by Okun. The results for the U.K. and Japan com- pound the conflict with Okun's analysis, since in these two countries wages have been far from sticky, even in postwar years. Prices and wages were particularly flexible in the U.S. during World War I and its aftermath, in Japan since 1914, and in the U.K. since the mid-1950s. The last half of the paper provides an analysis of behavior in labor markets and product markets. The unique nature of the U.S. postwar adjustment reflects its unique institution of three-year staggered wage contracts, and the analysis attempts to explain why we do not observe perfect insulation of nominal wages from shifts in nominal demand. The section on the product markets examines the factors that explain why prices are often pre-set, and why the speed of adjustment to demand shocks is sensitive to the nature of aggregate information available.
Handle: RePEc:nbr:nberwo:0847
Template-Type: ReDIF-Paper 1.0
Title: The New Economics of Accelerated Depreciation
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 0848
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0848
File-URL: http://www.nber.org/papers/w0848.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "The New Economics of Accelerated Depreciation." Boston College Law Review, Vol. 23, No. 5 (September 1982), pp. 1327-1355.
Abstract: The Economic Recovery Tax Act of 1981 included the largest business tax cut in U.S. history, embodied in the Accelerated Cost Recovery System. This paper describes in detail the provisions of the new treatment of depreciable property ,and analyzes in a fairly nontechnical way its economic impact. Particular attention is paid to a novel part of ACRS that creates a "safe harbor" for a wide range of sale-leaseback arrangements, effectively permitting the sale of depreciation deductions by investors without taxable income.
Handle: RePEc:nbr:nberwo:0848
Template-Type: ReDIF-Paper 1.0
Title: The Effects of the Minimum Wage on the Employment and Earnings of Youth
Author-Name: Robert H. Meyer
Author-Name: David A. Wise
Author-Person: pwi45
Note: LS
Number: 0849
Creation-Date: 1982-01
Order-URL: http://www.nber.org/papers/w0849
File-URL: http://www.nber.org/papers/w0849.pdf
File-Format: application/pdf
Publication-Status: published as Meyer, Robert H. and David A. Wise. "The Effects of the Minimum Wage on the Employment and Earnings of Youth." Journal of Labor Economics, Vol. 1, ( 1983), pp. 66-100.
Abstract: The employment and earnings effects of the minimum wage are estimated by parameterizing an hypothesized relationship between underlying market employment and wage relationships versus observed wage and employment distributions in the presence of a legislated minimum. If there had been no minimum during the 1973-78 period, we estimate that employment among out- of-school men 16 to 24 would have been approximately 4 percent higher than it in fact was. Among young men 16 to 19 employment would have been about 7 percent higher and among those 20 to 24, 2 percent higher. Employment among black youth 16 to 24 would have been almost 6 percent higher than it was, as compared with somewhat less than 4 percent for white youth. Although it is sometimes argued that the adverse employment effects of the minimum are offset by increased earnings, we find virtually no earnings effect. Had the minimum not been raised over the 1973-78 period, inflation would have greatly moderated the adverse employment effects of the minimum, with approximately two-thirds of the potential employment gains from elimination of the minimum attained. The weight of our evidence is inconsistent with a general increase in youth wage rates with increases in the real minimum. Our findings support the hypothesis that the effects of the minimum are concentrated on youth with sub-minimum market wage rates.
Handle: RePEc:nbr:nberwo:0849
Template-Type: ReDIF-Paper 1.0
Title: R and D and Productivity at the Industry Level: Is There Still a Relationship?
Author-Name: Zvi Griliches
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Note: PR
Number: 0850
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0850
File-URL: http://www.nber.org/papers/w0850.pdf
File-Format: application/pdf
Publication-Status: published as Griliches, Zvi and Frank Lichtenberg. "R&D and Productivity Growth at the Industry Level: Is There Still a Relationship?" R&D, Patents and Productivity, edited by Zvi Griliches. Chicago: University of Chicago Press, (1984). pp. 465-496.
Abstract: This paper is a re-examination of the relationship between research and development (R&D) activity and total factor productivity (TFP) at the industry level during the period extending from the early 1960's to the mid-1970's. The data base consists of NSF data on applied R&D expenditures by product class, matched to TFP indices derived from the detailed Census-Penn-SRI manufacturing data file. A hypothesis suggested by previous research on the R&D-productivity relationship is that, due, perhaps, to the depletion of scientific opportunities, the "potency'' of R&D as a source of technological progress has declined in recent years. Our findings indicate, however, that the relationship between an industry's R&D-intensity and its productivity growth did not disappear; if anything, the relationship was stronger in recent years. The overall deceleration in productivity in recent years has affected R&D-intensive industries, but to a lesser extent than it has other industries. What cannot be found in the data is strong evidence of the differential effects of the slowdown in R&D itself. The time series appear to be too noisy and the period too short to detect what the major consequences of the retardation in the growth of R&D expenditures may yet turn out to be.
Handle: RePEc:nbr:nberwo:0850
Template-Type: ReDIF-Paper 1.0
Title: Input Price Shocks and the Slowdown in Economic Growth: The Case of U.K.Manufacturing
Author-Name: Michael Bruno
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 0851
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0851
File-URL: http://www.nber.org/papers/w0851.pdf
File-Format: application/pdf
Publication-Status: published as Bruno, Micahel and Jeffrey Sachs. "Input Price Shocks and the Slowdown in Economic Growth: The Case of U.K. Manufacturing." Review of Economic Studies , Vol. 51, No. 159, (1982), pp. 679-706.
Publication-Status: published as Greenhalgh, Layard, and Oswals (eds), The Cause of Unemployment, Clarendon Press: Oxford, England, 1983
Abstract: This paper provides a theoretical and empirical analysis of the effects of input price shocks on economic growth, with a focus on United Kingdom manufacturing in the 1970s. The theoretical model predicts a discrete decline in out- put and productivity after an input price rise, and a longer-run slowdown in productivity growth, real wage growth, and capital accumulation. These features characterize the United Kingdom and most other OECD economies after 1973. The empirical results confirm the important role of input prices in recent U.K. adjustment, but also point to an important role for other supply and demand factors.
Handle: RePEc:nbr:nberwo:0851
Template-Type: ReDIF-Paper 1.0
Title: Energy and Resource Allocation: A Dynamic Model of the "Dutch Disease"
Author-Name: Michael Bruno
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 0852
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0852
File-URL: http://www.nber.org/papers/w0852.pdf
File-Format: application/pdf
Publication-Status: published as Michael Bruno & Jeffrey Sachs, 1982. "Energy and Resource Allocation: A Dynamic Model of the "Dutch Disease"," The Review of Economic Studies, vol 49(5).
Abstract: It is well known that a domestic resource discovery gives rise to wealth effects that cause a squeeze of the tradeable good sector of an open economy. The decline of the manufacturing sector following an energy discovery has been termed the "Dutch disease," and has been investigated in many recent studies. Our model extends the principally static analyses to date by allowing for: (1 ) short-run capital specificity and long-run capital mobility; (2) inter- national capital flows; and (3) far-sighted intertemporal optimizing behavior by households and firms. The model is solved by numerical simulation.
Handle: RePEc:nbr:nberwo:0852
Template-Type: ReDIF-Paper 1.0
Title: The Behavior of Money, Credit, and Prices in a Real Business Cycle
Author-Name: Robert G. King
Author-Person: pki21
Author-Name: Charles I. Plosser
Author-Person: ppl11
Note: EFG
Number: 0853
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0853
File-URL: http://www.nber.org/papers/w0853.pdf
File-Format: application/pdf
Publication-Status: published as King, Robert G. and Charles I. Plosser. "Money, Credit, and Prices in a Real Business Cycle." The American Economic Review, Vol. 74, No. 3, (June 1984), pp. 363-380.
Abstract: This paper analyzes the interaction of money and the price level with a business cycle that is fully real in origin, adopting a view which differs sharply from traditional theories that assign a significant causal influence to monetary movements. The theoretical analysis focuses on a banking system that produces transaction. services on demand and thus reflects market activity. Under one regime of bank regulation and fiat money supply by the monetary authority, the real business cycle theory predicts that (i)movements in external monetary measures should be uncorrelated with real activity and(ii) movements in internal monetary measures should be positively correlated with real activity. Preliminary empirical analysis provides general support for this focus on the banking sector since much of the correlation between monetary measures and real activity is apparently with inside money.
Handle: RePEc:nbr:nberwo:0853
Template-Type: ReDIF-Paper 1.0
Title: Severance Pay, Pensions, and Efficient Mobility
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: LS PE
Number: 0854
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0854
File-URL: http://www.nber.org/papers/w0854.pdf
File-Format: application/pdf
Publication-Status: published as Edward P. Lazear, 1983. "Pensions as Severance Pay," NBER Chapters, in: Financial Aspects of the United States Pension System, pages 57-90 National Bureau of Economic Research, Inc.
Abstract: This paper argues that pensions are used as severance pay devices in an efficient compensation scheme. The major points of the study are: (1) Severance pay, which takes the form of higher pension values for early retirement, is widespread. (2) A major reason for the existence of pensions is the desire to provide an incentive mechanism that can also function as an efficient severance pay device. It is incorrect to think of pensions merely as a tax-deferred savings account. (3) The wage rates that older workers receive exceed their marginal products. This is evidenced by the fact that employers are willing to buy them out with higher pensions if they retire early. These conclusions are based upon examination of a data set which was generated as part of this study. That data set contains detailed information on 244 of the largest pension plans in the country, covering about 8 million workers.
Handle: RePEc:nbr:nberwo:0854
Template-Type: ReDIF-Paper 1.0
Title: Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?
Author-Name: Maurice Obstfeld
Author-Person: pob13
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: ITI IFM
Number: 0855
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0855
File-URL: http://www.nber.org/papers/w0855.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice, and Kenneth Rogoff. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?" Journal of Political Economy, Vol. 91, No. 4, (August 1983), pp. 675-687. Journal of Economic Literature, Vol . 22, No. 1, (March 1984).
Abstract: Knife-edge stability is a common property of dynamic monetary models assuming perfect foresight or rational expectations. These models can be closed with the assumption that the economy's equilibrium lies on the unique convergent path (the saddlepath). While this empirically plausible assumption yields sensible results, aggregative models are not specified in sufficient detail to allow one to prove that the saddlepath is the unique equilibrium path. Brock (1974, 1975) and Brock and Scheinkman (1980) have advanced models in which individual preferences are more fully specified and in which, under certain conditions, the uniqueness and stability of equilibrium can be rigorously demonstrated. This paper shows that these uniqueness conditions are economically unreasonable. Therefore, the question these maximizing models address remains unresolved.
Handle: RePEc:nbr:nberwo:0855
Template-Type: ReDIF-Paper 1.0
Title: New Methods for Analyzing Structural Models of Labor Force Dynamics
Author-Name: James J. Heckman
Author-Name: Christopher J. Flinn
Author-Person: pfl8
Note: LS
Number: 0856
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0856
File-URL: http://www.nber.org/papers/w0856.pdf
File-Format: application/pdf
Publication-Status: published as Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, vol. 18(1), pages 115-168, January.
Abstract: This paper takes a first step toward developing econometric models for the structural analysis of labor force dynamics. Our analysis is presented in continuous time, although most of the points raised here can be applied to discrete time models. We show that in previous attempts to estimate "structural" models of job search, a key source of information necessary to identify certain structural parameters has been neglected. We discuss the conditions under which structural search models can be estimated. In particular, the wage offer distribution must be recoverable -- i.e., it must be the case that the parameters of the untruncated wage offer distribution be estimable from the truncated accepted wage distribution. The wage offer distribution must be assumed to belong to a parametric family. Estimates of structural parameters are shown to be sensitive to the distributional assumption made. A partial equilibrium two state model of employment dynamics is estimated, using data from the National Longitudinal Survey of Young Men. We find employment and nonemployment rates implied by the structural parameter estimates to be generally consistent with those observed for the population of young males.
Handle: RePEc:nbr:nberwo:0856
Template-Type: ReDIF-Paper 1.0
Title: Models for the Analysis of Labor Force Dynamics
Author-Name: Christopher J. Flinn
Author-Person: pfl8
Author-Name: James J. Heckman
Note: LS
Number: 0857
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0857
File-URL: http://www.nber.org/papers/w0857.pdf
File-Format: application/pdf
Publication-Status: published as Flinn, C. and J. Heckman. "New Methods For Analyzing Structural Models Of Labor Force Dynamics," Journal of Econometrics, 1982, v18(1), 115-168.
Abstract: This paper presents new econometric methods for the empirical analysis of individual labor market histories. The techniques developed here extend previous work on continuous time models in four ways: (1) A structural economic interpretation of these models is presented. (2) Time varying explanatory variables are introduced into the analysis in a general way. (3) Unobserved heterogeneity components are permitted to be correlated across spells. (4) A flexible model of duration dependence is presented that accommodates many previous models as a special case and that permits tests among competing specifications within a unified framework. We contrast our methods with more conventional discrete time and regression procedures. The parameters of continuous time models are in- variant to the sampling time unit used to record observations. Problems plague the regression approach to analyzing duration data which do not plague the likelihood approach advocated in this paper. The regression approach cannot be readily adopted to accommodate time varying explanatory variables. The functional forms of regression functions depend on the time paths of the explanatory variables. Ad hoc solutions to this problem can make exogenous variables endogenous to the model and so can induce simultaneous equations bias. Two sets of empirical results are presented. A major conclusion of the first analysis is that the discrete time Markov model widely used in labor market analysis is inconsistent with the data. The second set of empirical results is a test of the hypothesis that "unemployment" and "out of the labor force" are behaviorally different labor market states. Contrary to recent claims, we find that they are separate states for our sample of young men.
Handle: RePEc:nbr:nberwo:0857
Template-Type: ReDIF-Paper 1.0
Title: New Methods for Estimating Labor Supply Functions: A Survey
Author-Name: James J. Heckman
Author-Name: Thomas E. MaCurdy
Note: LS
Number: 0858
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0858
File-URL: http://www.nber.org/papers/w0858.pdf
File-Format: application/pdf
Abstract: This paper surveys new methods for estimatifg labor supply functions. A unified framework of analysis is presented. All recent models of labor supply are special cases of a general index function model developed for the analysis o dummy endogenous variables.
Handle: RePEc:nbr:nberwo:0858
Template-Type: ReDIF-Paper 1.0
Title: Aspects of the Current Account Behavior of OECD Economies
Author-Name: Jeffrey D. Sachs
Note: ITI IFM
Number: 0859
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0859
File-URL: http://www.nber.org/papers/w0859.pdf
File-Format: application/pdf
Abstract: This essay examines some aspects of capital flows within the OECD, and outlines a framework for analyzing current account movements. In both the theoretical and empirical sections, I argue for the importance of including investment and growth in analyses of the current account. I present empirical evidence confirming that shifts in investment rates explain a large part of recent OECD current account behavior. In addition, the links in theory and practice between exchange rates and the current account are scrutinized. A link between current account deficits and depreciation is evident for the large OECD economies, but not for many smaller European economies. It appears that the exchange rate behavior in the smaller economies can be explained by specific exchange rate policies in these economies.
Handle: RePEc:nbr:nberwo:0859
Template-Type: ReDIF-Paper 1.0
Title: Labor Supply under Disability Insurance
Author-Name: Frederic P. Slade
Note: EH
Number: 0860
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0860
File-URL: http://www.nber.org/papers/w0860.pdf
File-Format: application/pdf
Abstract: There has been a significant recent growth in the Social Security Administration's Disability Insurance (DI) program, both in the number of covered workers under the program and in the amount of monthly benefits, One possible factor causing this growth has been labor supply disincentives under the pro- gram. The labor supply decision by an individual involves the effect of the disability benefit structure (potential benefits) on labor force participation. Probit estimates from the 1969 original sample of the Longitudinal Retirement History Study (LRHS) indicated an elasticity of participation with respect to benefits of -0031 for married men aged 58-63, and -.023 for all men of the same age group. The magnitude of these estimates are much less than those found by authors such as Parsons, and suggest relatively insignificant efficiency losses in terns of reduced work effort.
Handle: RePEc:nbr:nberwo:0860
Template-Type: ReDIF-Paper 1.0
Title: LDC Debt in the 1980s: Risk and Reforms
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 0861
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0861
File-URL: http://www.nber.org/papers/w0861.pdf
File-Format: application/pdf
Publication-Status: published as LDC Debt: Problems and Prospects", P. Watchel Ed., Crisis in Economic and Financial Structure, (Lexington Books, 1982)
Abstract: With the rapid increase in LDC indebtedness in the recent decade, the issues of creditworthiness and country risk have gained new importance. This paper offers a theoretical and historical analysis of international capital markets in the presence of default risk. The theoretical model suggests the possibility of a prisoners' dilemma in the loan market, in which a country's dominant noncooperative strategy is to default, though a welfare-improving cooperative strategy is available. The historical analysis suggests that the IMF may play a key role in guiding creditors and debtor nations to reach cooperative solutions.
Handle: RePEc:nbr:nberwo:0861
Template-Type: ReDIF-Paper 1.0
Title: Stabilization Policies in the World Economy: Scope and Skepticism
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 0862
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0862
File-URL: http://www.nber.org/papers/w0862.pdf
File-Format: application/pdf
Publication-Status: published as Sachs, Jeffrey. "Stabilization Policies in the World Economy: Scope and Skepticism." The American Economic Review, Vol. 72, No. 2 (May 1982), pp. 56-6 0.
Abstract: Throughout the industrialized world, macroeconomic performance since the mid-1970s has been very poor, and the prospects in the near term remain bleak. While there is no consensus among macroeconomists regarding the diagnosis (or cure) of these ills, the major competing schools of thought have focused most of their blame on macroeconomic policy. This paper summarizes a series of studies, in collaboration with Michael Bruno, suggesting rather that supply shocks coupled with real wage rigidities are a central source of the poor macroeconomic performance. Various hypotheses are mentioned as a source for the resistance to real wage cuts, and some illustrations of the policy implications of supply shocks are provided.
Handle: RePEc:nbr:nberwo:0862
Template-Type: ReDIF-Paper 1.0
Title: Rational Expectations and the Foreign Exchange Market
Author-Name: Peter R. Hartley
Note: ITI IFM
Number: 0863
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0863
File-URL: http://www.nber.org/papers/w0863.pdf
File-Format: application/pdf
Publication-Status: published as Hartley, Peter R. "Rational Expectations and the Foreign Exchange Market." Exchange Rates and International Macroeconomics, edited by Jacob A. Frenkel . Chicago: University of Chicago Press, (1983), pp. 153-188.
Publication-Status: published as Rational Expectations and the Foreign Exchange Market, Peter R. Hartley. in Exchange Rates and International Macroeconomics, Frenkel. 1983
Abstract: Many models of exchange rate determination imply that movements in money supplies and demands should result in movements in exchange rates. Hence, if rational agents are attempting to forecast exchange rate movements, they should in the first instance forecast movements in the supplies of and demands for money balances. Furthermore, if these underlying variables follow some stable autoregressive processes agents should use those processes to make their forecasts. If we identify the forward rate with the market's expectation for the future spot rate, rationality of expectations will imply testable cross-equation restrictions in a joint model of the autoregressions and exchange rate forecasting equation. This strategy is implemented in the paper using data on the L UK/$US and DM/$US exchange rates from the recent floating rate period.
Handle: RePEc:nbr:nberwo:0863
Template-Type: ReDIF-Paper 1.0
Title: The Excess Sensitivity of Layoffs and Quits to Demand
Author-Name: Robert E. Hall
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: EFG LS
Number: 0864
Creation-Date: 1982-02
Order-URL: http://www.nber.org/papers/w0864
File-URL: http://www.nber.org/papers/w0864.pdf
File-Format: application/pdf
Publication-Status: published as Hall, Robert E. and Edward P. Lazear. "The Excess Sensitivity of Layoffs and Quits to Demand." Journal of Labor Economics, Vol. 2, No. 2, (April 1984), 233-257.
Abstract: Excessive layoffs in bad times and excessive quits in good times both stem from the same weakness in practical employment arrangements: the specific nature of worker-firm relations creates a situation of bilateral monopoly. Institutions which have arisen to avert the associated inefficiency cannot mimic the separation decisions of a perfect-information, first-best allocation rule. Simple employment rules based on predetermined or indexed wages are in many cases the most desirable among the class of feasible employment arrangements. More complicated contracts which seem to deal more effectively with turnover issues are either infeasible because of informational requirements or create adverse incentives on some other dimension.
Handle: RePEc:nbr:nberwo:0864
Template-Type: ReDIF-Paper 1.0
Title: A Reexamination of Purchasing Power Parity: A Multicountry and Multiperiod Study
Author-Name: Craig S. Hakkio
Author-Person: pha431
Note: ITI IFM
Number: 0865
Creation-Date: 1982-03
Order-URL: http://www.nber.org/papers/w0865
File-URL: http://www.nber.org/papers/w0865.pdf
File-Format: application/pdf
Publication-Status: published as Hakkio, Craig S. "A Re-Examination Of Purchasing Power Parity: A Multi-country And Multi-Period Study," Journal of International Economics, 1984, v17(3/4), 265-278.
Abstract: This paper presents a systematic analysis of the purchasing power parity hypothesis (PPP). This hypothesis states that the exchange rate is equal to the ratio of the domestic price level to the foreign price level. It has recently been argued that PPP performs poorly in the 1970s. This paper examines several possible explanations for this poor performance . We examine PPF in the 1920s and the 1970s, using monthly and quarterly data, to see if the relationship has changed over time. We also examine PPP in a multi-exchange rate world, allowing a quite general error process so as to allow deviations from PPP to be autocorrelated and correlated across currencies. We are then able to examine the degree to which the world has become more interdependent. We also provide evidence that deviations from PPP may follow a random walk. Finally, the role of the U.S. dollar as base currency is examined. We find, in general, that PPP holds quite well as a long run proposition, but the deviations from PPP tend to persist.
Handle: RePEc:nbr:nberwo:0865
Template-Type: ReDIF-Paper 1.0
Title: Effects of Regulation on Utility Financing: Theory and Evidence
Author-Name: Robert A. Taggart, Jr.
Note: ME
Number: 0866
Creation-Date: 1982-03
Order-URL: http://www.nber.org/papers/w0866
File-URL: http://www.nber.org/papers/w0866.pdf
File-Format: application/pdf
Publication-Status: published as Taggart, Robert A. "Effects of Regulation on Utility Financing: Theory and Evidence." Journal of Industrial Economics, Vol. 33, No. 3, (March 1985) , pp. 257-276.
Abstract: This paper examines the financing decisions of regulated public utilities. It is argued that the regulatory process affects utility financing choices both by conditioning the environment in which these choices are made and by creating opportunities for firms to influence the regulated price through strategic financing behavior. The nature of this regulatory effect continually changes, however, as economic conditions change and as regulators, firms and consumers adapt to one another's decisions. The direction of the impact on utility financing, therefore, may differ both over time and across regulatory jurisdictions. This theory of regulatory influence is tested by examining several episodes in the financing experience of U.S. electric utilities from 1912 to 1979. Evidence of a regulatory effect on utility financing is found particularly for the early years of state commission regulation. Examples of an adaptive response pattern on the part of regulators, firms and consumers are also cited.
Handle: RePEc:nbr:nberwo:0866
Template-Type: ReDIF-Paper 1.0
Title: Comment on T. J. Sargent and N. Wallace: "Some Unpleasant Monetarist Arithmetic"
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ME
Number: 0867
Creation-Date: 1982-03
Order-URL: http://www.nber.org/papers/w0867
File-URL: http://www.nber.org/papers/w0867.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. "Comment on T.J. Sargent and N. Wallace: 'Some Unpleasant Monetarist Arithmetic'," Monetarism in the United Kingdom, ed. B. Griffiths and G.E. Wood, 1984, London: Macmillan.
Abstract: Sargent and Wallace (S-W) show that, even when inflation is prima facie a strictly monetary phenomenon -- prices are flexible, markets clear and velocity is constant -- inflation is, in the long run, a fiscal phenomenon. This follows from the government budget constraint and the existence of an upper bound on the real per capita stock of interest bearing public debt held by the private sector. Together these ensure that in the long run the growth of the money stock is governed by the fiscal deficit, if we assign to the fiscal authorities the role of Stackelberg leaders and to the monetary authorities that of Stackelberg followers. The discussion of the formal S-W model focuses on the distinct roles of public spending and explicit taxes in their model and on the possibility that optimal policy involves public sector surpluses and a net credit position of the public sector vis-a-vis the private sector. It is also argued that the specification of the demand for and supply of - money is ad hoc, a weakness shared by most existing macro models.. Finally it is shown that if we adjust the published government deficit figures for the effect of inflation on the real value of the stock of nominal government debt (as should be done to obtain a deficit measure appropriate to the S-W model), the inflation-adjusted government deficit has been in balance or surplus in the U.K. in recent years. If the deficit is in addition adjusted for the cycle (as it should be to relate it to the full employment S-W model), the government has been a sizeable net lender. If we then also subtract net public sector capital formation from total public spending (assuming implicitly that the real rate of return on public sector investment equals the real rate of return on public sector debt), we get the inflation-corrected, cyclically adjusted government current account deficit. This is the deficit measure of the S-W model. This "deficit" has been a sizeable surplus in recent years and is likely to remain so in the future. The inflation tax implied by extrapolation of the past and present stance of fiscal policy is therefore a "deflation subsidy.'' The credibility of the Thatcher government's anti-inflationary policy should therefore, if the S-W framework is correct, not have been undermined by large inflation-corrected, cyclically adjusted current account surplus.
Handle: RePEc:nbr:nberwo:0867
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomics of Stagflation under Flexible Exchange Rates
Author-Name: Pentti J.K. Kouri
Note: ITI IFM
Number: 0868
Creation-Date: 1982-03
Order-URL: http://www.nber.org/papers/w0868
File-URL: http://www.nber.org/papers/w0868.pdf
File-Format: application/pdf
Publication-Status: published as Kouri, Pentti J. K. "Macroeconomics of Stagflation under Flexible Exchange Rates." American Economic Review, Vol. 72, No. 2. (1982).
Abstract: The concerns of macroeconomic policy in the industrial countries in recent years have shifted the focus of open-economy macroeconomics to new and interesting problems. Although no synthesis, or a fully coherent theory of policy, has yet emerged from this research, the results have already led to major revisions in views abut the nature of the problems that policy has to deal with. This paper provides a selective survey and discussion of some of the results of recent research with emphasis on their implications for policy.
Handle: RePEc:nbr:nberwo:0868
Template-Type: ReDIF-Paper 1.0
Title: Rational Expectations, the Expectations Hypothesis, and Treasury Bill Yields: An Econometric Analysis
Author-Name: David S. Jones
Author-Name: V. Vance Roley
Note: ME
Number: 0869
Creation-Date: 1982-03
Order-URL: http://www.nber.org/papers/w0869
File-URL: http://www.nber.org/papers/w0869.pdf
File-Format: application/pdf
Publication-Status: published as Jones, David S. and V. Vance Roley. "Rational Expectations and the Expectations Model of the Term Structure: A Test Using Weekly Data." Journal of Monetary Economics, Vol. 12, No. 3 (Spetember 1983), pp. 453- 465. B.V. (North-Holland Publishing).
Abstract: This paper tests the joint hypothesis of rational expectations and the expectations model of the term structure for three- and six-month Treasury bills. Previous studies are extended in three directions. First, common efficient markets-rational expectations tests are compared, and it is shown that four of the five tests considered are asymptotically equivalent, and that the fifth is less restrictive than the other four. Second, the joint hypothesis is tested using weekly data for Treasury bills maturing in exactly 13 and 26 weeks beginning in 1970 and ending in 1979. In contrast, previous studies using comparable data have typically discarded 12/13 of the sample to form a nonoverlapping data set. Finally, a more complete set of possible determinants of time-varying term premiums is tested.
Handle: RePEc:nbr:nberwo:0869
Template-Type: ReDIF-Paper 1.0
Title: The Trade-Off between Wages and Employment in Trade Union Objectives
Author-Name: John H. Pencavel
Author-Person: ppe335
Note: LS
Number: 0870
Creation-Date: 1982-03
Order-URL: http://www.nber.org/papers/w0870
File-URL: http://www.nber.org/papers/w0870.pdf
File-Format: application/pdf
Publication-Status: published as Pencavel, John H. "The Trade-off between Wages and Employment in Trade Union Objectives," Quarterly Journal of Economics, Vol. 99, May 1984, No. 2, pp . 215-232.
Abstract: This paper demonstrates that, contrary to a widely-held opinion, the determination of the goals of unions is fully amenable to empirical analysis. A characterization of the wage and employment-setting process in unionized markets is adopted and its qualitative implications examined. The first-order condition for this model is fitted to time- series data on the newspaper industry from ten cities. The Inter- national Typographical Union 's objective function reveals very restricted opportunities for substituting wages for employment in response to a change in the slope of the employer's labor demand function. Larger union locals place greater emphasis on wages versus employment than smaller union locals.
Handle: RePEc:nbr:nberwo:0870
Template-Type: ReDIF-Paper 1.0
Title: Optimum Contracts for Research Personnel, Research Employment, and the Establishment of "Rival" Enterprises
Author-Name: Ariel Pakes
Author-Person: ppa20
Author-Name: Shmuel Nitzan
Note: LS PR
Number: 0871
Creation-Date: 1982-03
Order-URL: http://www.nber.org/papers/w0871
File-URL: http://www.nber.org/papers/w0871.pdf
File-Format: application/pdf
Publication-Status: published as Pakes, Ariel and Shmuel Nitzan. "Optimum Contracts for Research Personnel, Research Employment, and the Establishment of "Rival" Enterprises." Journalof Labor Economics, Vol. 1, No. 4, (October 1983), pp. 345-365.
Abstract: This paper considers the problem of hiring scientists for research and development projects when one takes explicit account of the fact that the scientist may be able to use the information acquired during the project in a rival enterprise. Management's problem is to determine an optimum labor policy for its project. The policy consists of an employment decision and a labor contract. Given optimum behavior, it is straightforward to analyze the effect of the potential for mobility of scientific personnel on project profitability and on research employment. We also formalize conditions under which one would expect to observe a scientist leaving his employer to set up (or join) a rival.
Handle: RePEc:nbr:nberwo:0871
Template-Type: ReDIF-Paper 1.0
Title: The Tax Treatment of Married Couples and the 1981 Tax Law
Author-Name: Daniel R. Feenberg
Author-Person: pfe56
Note: PE
Number: 0872
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0872
File-URL: http://www.nber.org/papers/w0872.pdf
File-Format: application/pdf
Publication-Status: published as Penner, Rudolph G. (ed.) Taxing the Family. Washington: American Enterprise Institute for Publics Policy Research, 1983.
Abstract: Currently U.S. Federal Income Tax schedules do not maintain marriage neutrality, that is, tax liabilities depend upon marital status. This paper shows the extent and distribution of the departure from neutrality both under current law and the new (1981) tax act. The new tax law establishes a secondary earner's deduction of 10% of secondary earner's wages (up to 3U00 dollars). The child-care credit is also liberalized. Analyses of the revenue, welfare and labor supply effects of these provisions are also given.
Handle: RePEc:nbr:nberwo:0872
Template-Type: ReDIF-Paper 1.0
Title: Aggregation and Stabilization Policy in a Multi-Contract Economy
Author-Name: Alan S. Blinder
Author-Person: pbl41
Author-Name: N. Gregory Mankiw
Note: EFG
Number: 0873
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0873
File-URL: http://www.nber.org/papers/w0873.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. and N. Gregory Mankiw. "Aggregation and Stabilization Policy in a Multi-Contract Economy." Journal of Monetary Economics, Vol. 13, No. 1, (January 1984), pp. 67-86.
Abstract: This paper presents a model of a multi-sector economy in which each sector is characterized by a different type of wage or price stickiness. The various sectors experience the same exogenous shocks and have the same money supply. The analysis shows demand shocks pose no serious problems for stabilization policy. In contrast, supply shocks force the policymaker to choose between stability in one sector and stability in another. The analysis also shows the economy cannot be usefully aggregated into a single sector model. Such an aggregation misleads the economist as to the economy's underlying structure and obscures the tradeoffs the policymaker must confront. In particular, a feedback rule chosen on the basis of an aggregate model could be better or worse than a passive policy.
Handle: RePEc:nbr:nberwo:0873
Template-Type: ReDIF-Paper 1.0
Title: Welfare Aspects of Government Issue of Indexed Bonds
Author-Name: Stanley Fischer
Note: EFG
Number: 0874
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0874
File-URL: http://www.nber.org/papers/w0874.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley. "Welfare Aspects of Government Issue of Indexed Bonds." Inflation, Debt, and Indexation, edited by Rudiger Dornbusch and Mario Henrique Simonsen. Cambridge: M.I.T. Press, (1983), pp. 247-266.
Abstract: Government issue of bonds indexed to the price level has long been recommended by economists, to no observed effect. Recently skepticism has been expressed about the real effects of such government action, or indeed of any government financial intermediation. This paper examines two main approaches that might argue for government issue of indexed bonds. The first asks what financial intermediation can be provided by government that the private sector cannot provide. The answer is that the government can use its taxation powers to make possible intergenerational risk sharing that private markets cannot. This argument suggests government issue of bonds indexed to wage income. The second approach discusses optimal forms of government debt issue in light of the government's ability to manipulate the payoffs on debt which has an uncertain real return. In this context indexed debt has the potential advantage of enforcing consistency in government financing and actions
Handle: RePEc:nbr:nberwo:0874
Template-Type: ReDIF-Paper 1.0
Title: Risk Attitudes in Health: An Exploratory Study
Author-Name: Friedrich Breyer
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: EH
Number: 0875
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0875
File-URL: http://www.nber.org/papers/w0875.pdf
File-Format: application/pdf
Abstract: Recent studies on human decision-making under uncertainty have revealed the following typical behavioral principles: (1) the importance of the status quo as a reference point ("target") for assessing outcomes, (2) the prevalence of risk-aversion for gains, i.e. above-target payoffs, but risk-seeking for potential losses, and (3) a tendency to give more weight or "marginal utility" to a small loss than a gain of the same size. We investigate whether and how these aspects carry over from the money to the health context, examining the responses to a questionnaire by 325 patients from three outpatient facilities in Palo Alto, California. The questionnaire consisted of twelve hypothetical choice situations each with the choice between two alternative modes of treatment for a supposed illness. In each case, one of the options promised a certain (favorable or unfavorable) health effect, the other one a probabilistic effect. The majority choices confirm the relevance for the health context of all three above-mentioned principles. Risk-aversion for gains, risk- seeking for losses and the differences in slope of the utility function were all significant and substantial in magnitude. When trying to trace back differences in risk attitudes to demographic or socioeconomic characteristics of the respondents, we find that education is the most important corre1ate:choices of people with more years of schooling exhibit less risk-aversion for gains and less risk-seeking for losses and thus correspond to a more linear relationship between health and utility.
Handle: RePEc:nbr:nberwo:0875
Template-Type: ReDIF-Paper 1.0
Title: Economic Determinants of the Optimal Retirement Age: An Empirical Investigation
Author-Name: Gary S. Fields
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Note: LS
Number: 0876
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0876
File-URL: http://www.nber.org/papers/w0876.pdf
File-Format: application/pdf
Publication-Status: published as Fields, Gary S. and Olivia S. Mitchell. "Economic Determinants of the Optimal Retirement Age: An Empirical Investigation." Journal of Human Resources, Vol. 19, (Winter 1984).
Abstract: This paper examines how the structure of earnings and pension opportunities affects retirement behavior. We use a life cycle model of labor supply, paying special attention to the institutional features of private pensions and Social Security benefits. This theoretical formulation is used to develop comparative dynamic pre- dictions and to guide empirical modeling. Data from a new survey of workers and their income alternatives are used to implement the empirical model. Along the way, we highlight a number of interesting and little known facts about older workers' income. Contrary to popular opinion we find that private pensions are not always actuarially neutral; Social Security benefits do not typically decline (in present value terms) the longer retirement is deferred; and for many people, retirement income approaches and even exceeds net labor income. On the basis of empirical estimates of retirement parameters, we conclude that (1) people with higher base incomes retire earlier, and (2) those who have more to gain by postponing retirement, retire later. These findings are relevant to proposed reforms of the Social Security system as well as pension programs.
Handle: RePEc:nbr:nberwo:0876
Template-Type: ReDIF-Paper 1.0
Title: Capital Taxation
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0877
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0877
File-URL: http://www.nber.org/papers/w0877.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "The Second Best Theory Of Differential Capital Taxation," Oxford Economic Papers, 1990, v42(1), 256-267.
Abstract: This paper is an introductory chapter to a book that brings together 22 of my papers written between 1965 and 1981. The chapter provides a summary of each paper and a more general discussion of the role of taxation in influencing the process of capita1 accumulation. The four sections of the book are: (1) Household and Corporate Saving; (2) Portfolio Behavior; (3) Business Investment and (4) Tax Incidence in a Growing Economy.
Handle: RePEc:nbr:nberwo:0877
Template-Type: ReDIF-Paper 1.0
Title: What! Another Minimum Wage Study?
Author-Name: Mary Eccles
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0878
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0878
File-URL: http://www.nber.org/papers/w0878.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: The Minimum Wage Study Commission was established in 1977 to aid Congress in investigating the effects and possible consequences of two proposed changes in the minimum wage law: indexing the wage to inflation and providing for a youth differential. This paper seeks to determine to what extent the Minimum Wage Study Commission's work has been helpful in policy debate, and compares the Commission's findings with those of the more conservative American Enterprise Institute. The paper also examines whether the Commission's final product was worth three years of study and $17 million. Our overall finding is that the Commission's report appears to have had little or no policy impact. The research did little to expand upon similar studies done prior to 1977, and cannot be said to be worth three years and $17 million. However, policy-makers still regard the report as a useful and credible examination of the effects of the mini- mum wage on the economy.
Handle: RePEc:nbr:nberwo:0878
Template-Type: ReDIF-Paper 1.0
Title: Piece Rate vs. Time Rate: The Effect of Incentives on Earnings
Author-Name: Eric Seiler
Note: LS
Number: 0879
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0879
File-URL: http://www.nber.org/papers/w0879.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 66, no. 3 (1984): 363-376.
Abstract: This paper presents a detailed examination of the effect of piece rates and other forms of incentive compensation on individual employee earnings. The study examines the impact of incentives on the earnings of over 100,000 employees in 500 firms within the footwear and men's and boys' clothing industries. Two distinct incentive effects are observed. First, incentive workers' earnings are more disperse than identical time workers' earnings within both firms and occupations. This greater variance is maintained with the addition of controls for heterogeneity of individual characteristics between the two sectors. Second, incentive workers receive an earnings premium, in part to compensate for the greater variation in their income, and partially as a result of an incentive- effort effect. The incentive earnings premium averages 14%, controlling for individual characteristics, occupational classification, and individual firms. Subsequent decomposition of the incentive-earnings premium reveals that the compensating differential for variation in earnings accounts for a minority of the incentive earnings premium. This supports the view that increased effort by incentive employees leads to relatively greater earnings.
Handle: RePEc:nbr:nberwo:0879
Template-Type: ReDIF-Paper 1.0
Title: Height and Per Capita Income
Author-Name: Richard H. Steckel
Author-Person: pst352
Note: DAE
Number: 0880
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0880
File-URL: http://www.nber.org/papers/w0880.pdf
File-Format: application/pdf
Publication-Status: published as Richard H. Steckel, 1983. "Height and Per Capita Income," Historical Methods: A Journal of Quantitative and Interdisciplinary History, vol 16(1), pages 1-7.
Abstract: As an aid to interpreting the results of height-by-age studies this paper investigates the relationship between average height and per capita income. The relationships among income, nutrition, medical care, and height at the individual level suggest that average height is nonlinearly related to per capita income and that the distribution of income is an important determinant of average height. Empirical analysis rests on 56 height studies and per capita income estimates for 20 developed or developing countries.
Handle: RePEc:nbr:nberwo:0880
Template-Type: ReDIF-Paper 1.0
Title: The Economic Foundations of East-West Migration During the Nineteenth Century
Author-Name: Richard H. Steckel
Author-Person: pst352
Note: DAE
Number: 0881
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0881
File-URL: http://www.nber.org/papers/w0881.pdf
File-Format: application/pdf
Publication-Status: published as Steckel, Richard H. "The Economic Foundations of East-West Migration Duringthe Nineteenth Century. Explorations in Economic History, Vol. 20, (1983),pp. 14-36.
Abstract: This paper argues that latitude-specific investments in seeds and human capital provided an incentive for farmers to move along east-west lines. The incentives were greatest during the early and mid 1800s. Towards the end of the century migration patterns changed as farmers learned about farming in different environments, as settlement reached the Great Plains and beyond, and as farming declined in importance. Census manuscript schedules and Mormon family-group records form the basis for empirical work.
Handle: RePEc:nbr:nberwo:0881
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis
Author-Name: Fumio Hayashi
Author-Person: pha83
Note: EFG
Number: 0882
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0882
File-URL: http://www.nber.org/papers/w0882.pdf
File-Format: application/pdf
Publication-Status: published as Hayashi, Fumio. "The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis." Quarterly Journal of Economics, Vol. 1985, No. 1, Feb. 1985, pp. 183-206.
Abstract: This paper examines the effect of liquidity constraints on consumption expenditures using a single-time cross-section data set. A reduced-form equation for consumption is estimated on high-saving households by the Tobit procedure to account for the selectivity bias. Since high-saving households are not likely to be liquidity constrained, the estimated equation is an appropriate description of how desired consumption dictated by the life cycle-permanent income hypothesis is related to the variables available in the cross-section data. When the reduced-form equation is used to predict desired consumption, the gap between desired consumption and measured consumption is most evident for young households.
Handle: RePEc:nbr:nberwo:0882
Template-Type: ReDIF-Paper 1.0
Title: Measuring the Fed's Revenue from Money Creation
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 0883
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0883
File-URL: http://www.nber.org/papers/w0883.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J. "Measuring the Fed's Revenue from Money Creation." Economics Letters, (1982).
Abstract: The national accounts include the Fed's payments to the Treasury as a component of corporate taxes. These payments constituted 22% of reported corporate profits taxes in 1981. This paper discusses alternative concepts of inflationary finance. Measures for these concepts are reported for the post-World War I1 period
Handle: RePEc:nbr:nberwo:0883
Template-Type: ReDIF-Paper 1.0
Title: Stock Issues and Investment Policy When Firms Have Information That Investors Do Not Have
Author-Name: Stewart C. Myers
Author-Name: Nicholas S. Majluf
Note: PE
Number: 0884
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0884
File-URL: http://www.nber.org/papers/w0884.pdf
File-Format: application/pdf
Publication-Status: published as Myers, Stewart C. and Nicholas S. Majluf. "Corporate Financing And Investment Decisions When Firms Have Information That Investors Do Not Have," Journal of Financial Economics, 1984, v13(2), 187-221.
Abstract: This paper describes corporate investment and financing decisions when managers have inside information about the value of the firm's existing investment and growth opportunities, but cannot convey that information to investors. Capital markets are otherwise perfect and efficient. In these circumstances, the firm may forego a valuable investment opportunity rather than issue stock to finance it. The decision to issue cannot fully convey the managers' special information. If stock is issued, stock price falls. Liquid assets or financial slack are valuable if they reduce the probability or extent of stock issues. The paper also suggests explanations for some aspects of dividend policy and choice of capital structure.
Handle: RePEc:nbr:nberwo:0884
Template-Type: ReDIF-Paper 1.0
Title: An Intertemporal Model of Saving and Investment
Author-Name: Andrew B. Abel
Author-Person: pab10
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Note: EFG
Number: 0885
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0885
File-URL: http://www.nber.org/papers/w0885.pdf
File-Format: application/pdf
Publication-Status: published as Abel, Andrew B., & Oliver J. Blanchard. "An Intertemporal Model of Saving and Investment." Econometrica, Vol. 51, No. 3, (May 1983), pp. 675-692.
Abstract: The standard model of optimal growth, interpreted as a model of a market economy with infinitely long-lived agents, does not allow separation of the savings decisions of agents from the investment decisions of firms. Investment is essentially passive: the "one good" assumption leads to a perfectly elastic investment supply; the absence of installation costs for investment leads to a perfectly elastic investment demand. On the other hand, the standard model of temporary equilibrium used in macroeconomics characterizes both the savings-consumption decision and the investment decision, or, equivalently, derives a well-behaved aggregate demand which, in equilibrium, must be equal to aggregate supply. Often, however, we want to study the movement of the temporary equilibrium over time in response to a particular shock or policy. The discrepancy between the treatment of investment in the two models makes imbedding the temporary equilibrium model in the growth model difficult. This paper characterizes the dynamic behavior of the optimal growth model with adjustment costs. It shows the similarity between the temporary equilibrium of the corresponding market economy and the short-run equilibrium of standard macroeconomic models: consumption depends on wealth, investment on Tobin's q. Equilibrium is maintained by the endogenous adjustment of the term structure of interest rates. It then shows how the equivalence can be used to study the dynamic effects of policies; it considers various fiscal policies and exploits their equivalence to technological shifts in the optimal growth problem.
Handle: RePEc:nbr:nberwo:0885
Template-Type: ReDIF-Paper 1.0
Title: Interest Rate Implications for Fiscal and Monetary Policies: A Postscript on the Government Budget Constraint
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0886
Creation-Date: 1982-04
Order-URL: http://www.nber.org/papers/w0886
File-URL: http://www.nber.org/papers/w0886.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M., "Interest Rate Implications for Fiscal and Monetary Policies: A Postscript on the Government Budget Constraint," Journal of Money, Credit, and Banking, Vol. 14, No. 3, August 1982, pp. 4 07-412.
Abstract: An earlier paper by the author investigated the quantitative implications, for the effectiveness of fiscal and monetary policies, of a model treating the determination of long-term interest rates by explicitly imposing the market clearing equilibrium condition that the quantity of bonds issued by private borrowers equal the quantity purchased by lenders. One incomplete aspect of that investigation, however, was the failure to allow explicitly for the government budget constraint. This paper reports results based on an expanded model that also imposes an analogous market clearing condition in the U.S. government securities market. The explicit imposition of the government budget constraint makes a major difference for the simulated effectiveness of both fiscal and monetary policies -indeed, a greater difference than that due simply to using the supply-demand representation of the determination of the private bond rate in the earlier paper. As is to be expected on the basis of familiar economic theory, the effect of imposing the government budget constraint is to make the real-sector effects of fiscal policy appear smaller and the real- sector effects of monetary policy appear greater. The main message of these results is that, when relative asset stock effects are the heart of the issue -as is the case in analyzing the implications of the government budget constraint -models that are implicitly consistent with the relevant economic behavior are not the same as models that explicitly represent it.
Handle: RePEc:nbr:nberwo:0886
Template-Type: ReDIF-Paper 1.0
Title: Post-War Capital Accumulation and the Threat of Nuclear War
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 0887
Creation-Date: 1982-05
Order-URL: http://www.nber.org/papers/w0887
File-URL: http://www.nber.org/papers/w0887.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, Joel. "Saving and the Fear of Nuclesar War," Journal of Conflict Resolution, Vol. 30, No. 3, Sept. 1986, pp. 403-419.
Abstract: The hypothesis of this paper is that the performance and, in particular, the rate of capital accumulation of the post-war U.S. economy has been influenced by the changes in the public perception of the threat of a catastrophic nuclear war. An increased threat shortens the expected horizon of individuals and firms, and thus reduces the willingness to postpone present consumption in favor of investment. The hypothesis is tested by expanding a standard savings function estimation technique to include a measure of the perceived threat of nuclear war. Four alternative measures of the perceived threat are considered, all of which are based on the setting of the clock published monthly in Bulletin of the Atomic Scientists, which reflects the editors' judgment about the likelihood of a nuclear conflict. The tests all support a large and statistically significant impact of the threat of nuclear war on the rate of private saving. These tests are not viewed as conclusive evidence in favor of the economic impact of the perceived threat of nuclear war. Nevertheless, this research suggests that economists may have been overlooking an important source of variation in the post-war, post-nuclear U.S. economy. Conceivably, it could affect not only the private savings rate but also such things as the level of investment in human capital, the level of asset prices, the term structure of interest rates, and the rate of inflation.
Handle: RePEc:nbr:nberwo:0887
Template-Type: ReDIF-Paper 1.0
Title: Time-Separable Preference and Intertemporal-Substitution Models of Business Cycles
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: Robert G. King
Author-Person: pki21
Note: EFG
Number: 0888
Creation-Date: 1982-05
Order-URL: http://www.nber.org/papers/w0888
File-URL: http://www.nber.org/papers/w0888.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J. and Robert G. King. "Time-Separable Preferences and Intertemporal-Substitution Models of Business Cycles." Quarterly Journal of Economics, Vol. 99, No. 4, (November 1984), pp. 817- 839.
Abstract: Time-separability of utility means that past work and consumption do not influence current and future tastes. This form of preferences does not restrict the size of intertemporal-substitution effects--notably, we can still have a strong response of labor supply to temporary changes in wages. However, there are important constraints on the relative responses of leisure and consumption to changes in relative-price and in permanent income. When the usual aggregation is permissible, time-separability has some important implications for equilibrium theories of the business cycle. Neglecting investment, we, find that changes in perceptions about the future -- which night appear currently as income effects -- have no influence on current equilibrium output. With investment included, no combination of income effects and shifts to the perceived profitability of investment will yield positive co-movements of output, employment, investment and consumption. Therefore, misperceived monetary disturbances or other sources of changed beliefs about the future cannot be used to generate empirically recognizable business cycles. Some richer specifications of intertemporal production opportunities may eventually yield more satisfactory answers. Because of the positive correlation between cyclical movements of consumption and work, equilibrium theories with time-separable preferences inevitably predict a procyclical behavior for the real wage rate, arising from shifts to labor's marginal product. Empirically, we regard the cyclical behavior of real wages as an open question. Aside from analyzing autonomous real shocks to productivity, we suggest that such shifts may occur as firms vary their capital utilization in response to intertemporal relative prices. However, we still lack some parts of a complete theory.
Handle: RePEc:nbr:nberwo:0888
Template-Type: ReDIF-Paper 1.0
Title: Inflationary Finance under Discrepion and Rules
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 0889
Creation-Date: 1982-05
Order-URL: http://www.nber.org/papers/w0889
File-URL: http://www.nber.org/papers/w0889.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J. "Inflationary Finance under Discretion and Rules." Canadian Journal of Economics, Vol. 16, No. 1, (February 1983), pp. 1-16.
Abstract: Inflationary finance involves first, the tax on cash balances from expected inflation, and second, a capital levy from unexpected inflation. From the standpoint of minimizing distortions, these capital levies are attractive, ex post, to the policymaker. In a full equilibrium two conditions hold: 1) the monetary authority optimizes subject to people's expectations mechanisms, and 2) people form expectations rationally, given their knowledge of the policymaker's objectives. The outcomes under discretionary policy are contrasted with those generated under rules. In a purely discretionary regime the monetary authority can make no meaningful commitments about the future behavior of money and prices. Under an enforced rule, it becomes possible to make some guarantees. Hence, the links between monetary actions and inflationary expectations can be internalized. There is a distinction between fully-contingent rules and rules of simple form. A simple rule allows the internalization of some connections between policy act ion and inflationary expectations, but discretion permits some desirable flexibility of monetary growth.
Handle: RePEc:nbr:nberwo:0889
Template-Type: ReDIF-Paper 1.0
Title: Changes in American and British Stature Since the Mid-Eighteenth Century: A Prelimanary Report on the Usefulness of Data on Height...
Author-Name: Robert W. Fogel
Author-Name: Stanley L. Engerman
Author-Name: Roderick Floud
Author-Name: Richard H. Steckel
Author-Person: pst352
Author-Name: James Trussell
Note: DAE
Number: 0890
Creation-Date: 1982-05
Order-URL: http://www.nber.org/papers/w0890
File-URL: http://www.nber.org/papers/w0890.pdf
File-Format: application/pdf
Abstract: This paper is a progress report on the usefulness of data on physical height for the analysis of long-ten changes in the level of nutrition and health on economic, social, and demographic behavior. It is based on a set of samples covering the U.S. and several other nations over the years from 1750 to the present. The preliminary results indicate that native-born. American Revolution, but there were long periods of declining nutrition and height during the 19th century. Similar cycling has been established for England. A variety of factors, including crop mix, urbanization, occupation, intensity of labor, and immigration affected the level of height and nutrition, although the relative importance of these factors has changed over time. There is evidence that nutrition affected labor productivity. In one of the samples individuals who were one standard deviation above the mean height (holding weight per inch of height constant) were about 8% more productive than individuals one standard deviation below the mean height. Another finding is that death did not choose people at random. Analysis of data for Trinidad indicates that the annual death rate for the shortest quintile of males was more than twice as great as for the tallest quintile of males.
Handle: RePEc:nbr:nberwo:0890
Template-Type: ReDIF-Paper 1.0
Title: The Production and Inventory Behavior of the American Automobile Industry
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Note: EFG
Number: 0891
Creation-Date: 1982-05
Order-URL: http://www.nber.org/papers/w0891
File-URL: http://www.nber.org/papers/w0891.pdf
File-Format: application/pdf
Publication-Status: published as Blanchard, Olivier J. "The Production and Inventory Behavior of the American Automobile Industry." Journal of Political Economy, Vol. 91, No. 3, (June 1983), pp. 365-400. Chicago: University of Chicago Press, 1983.
Abstract: Understanding inventory movements is central to an understanding of business cycles. This paper presents an empirical study of the behavior of inventories in the automobile industry. It finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational expectations. The underlying cost structure appears to have substantial costs of changing production as well as substantial costs of being away from target inventory, the latter being a function of current sales. Given this cost structure, whether inventory behavior is stabilizing or destabilizing depends on the characteristics of the demand process. In the automobile industry, inventory behavior is destabilizing: the variance of production is larger than the variance of sales.
Handle: RePEc:nbr:nberwo:0891
Template-Type: ReDIF-Paper 1.0
Title: Replacing the U.S. Income Tax with a Progressive Consumption Tax: A Sequenced General Equilibrium Approach
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: John B. Shoven
Author-Name: John Whalley
Author-Person: pwh8
Note: PE
Number: 0892
Creation-Date: 1982-05
Order-URL: http://www.nber.org/papers/w0892
File-URL: http://www.nber.org/papers/w0892.pdf
File-Format: application/pdf
Publication-Status: published as Fullerton, Don, John B. Shoven, John Whalley. "Replacing the U.S. Income Tax with a Progresssive Consumption Tax: A Sequenced General Equilibrium Approach." Journal of Public Economics, Vol. 20, (1983) pp. 3-23.
Abstract: This paper examines the welfare consequences of changing the current U.S. income tax system to a progressive consumption tax. We compute a sequence of single period equilibria in which savings decisions depend on the expected future return to capital. In the presence of existing income taxes, the U.S. economy is assumed to lie on a balanced growth path. With the change to a consumption tax, individuals save more and initially consume less. As the capital stock grows, consumption eventually overtakes that of the original path, and the economy approaches the new balanced growth path with higher consumption and a greater capital stock. Both the transition and the balanced growth paths enter our welfare evaluations. We find that the discounted present value of the stream of net gains is approximately $650 billion in 1973 dollars, just over one percent of the discounted present value of national income. Larger gains occur if further reform of capital income taxation accompanies the change. We examine the sensitivity of the results, both to the design of the consumption tax and to the values of elasticity and other parameters. The paper also contains estimates of the time required to adjust from one growth path to the other.
Handle: RePEc:nbr:nberwo:0892
Template-Type: ReDIF-Paper 1.0
Title: Money Stock Control with Reserve and Interest Rate Instruments Under Rational Expectations
Author-Name: Bennett T. McCallum
Author-Name: James G. Hoehn
Note: ME
Number: 0893
Creation-Date: 1982-05
Order-URL: http://www.nber.org/papers/w0893
File-URL: http://www.nber.org/papers/w0893.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. and James G. Hoehn. "Instrument Choice for Money Stock Control with Contemporaneous and Lagged Reserve Requirements." Journal of Money, Credit, and Banking, Vol. 15, No. 1, (February 1983), pp. 96-1 01.
Abstract: This paper conducts a theoretical comparison of the potential effectiveness, in terms of money stock controllability, of interest rate and reserve instruments. Whereas previous studies have been basically static, the present analysis is carried out in the context of a dynamic macroeconomic model with rational expectations. Particular attention is paid to the distinction between contemporaneous and lagged reserve accounting (CRA and LRA). The criterion employed is the expectation of squared deviations of the (log of the) money stock from target values that are reset each period. Analysis in the basic model suggests the following substantive conclusions. (1) With a reserve instrument, monetary control will be more effective under CRA than LRA. (2) With a reserve instrument and LRA, control will be poorer than with an interest rate instrument. (3) For a wide range of parameter values, control will be better with a reserve instrument and CRA than with an interest rate instrument.
Handle: RePEc:nbr:nberwo:0893
Template-Type: ReDIF-Paper 1.0
Title: The Liquidity Trap and the Pigou Effect: A Dynamic Analysis with Rational Expectations
Author-Name: Bennett T. McCallum
Note: EFG
Number: 0894
Creation-Date: 1982-05
Order-URL: http://www.nber.org/papers/w0894
File-URL: http://www.nber.org/papers/w0894.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "The Liquidity Trap and the Pigou Effect: A Dynamic Analysis with Rational Expectations." Economica, Vol. 50, No. 200, (November 1983), pp. 395-405.
Abstract: A Keynesian idea of considerable historical importance is that, in the presence of a liquidity trap, a competitive economy may lack--despite price flexibility--automatic market mechanisms that tend to eliminate excess supplies of labor. The standard classical counterargument, which relies upon the Pigou effect, has typically been conducted in a comparative-static framework. But, as James Tobin has recently emphasized, the more relevant issue concerns the dynamic response (in "real time") of an economy that has been shocked away from full employment. The present paper develops a dynamic analysis, in a rather standard model, under the assumption that expectations are formed rationally. The analysis permits examination of Tobin's suggestion that, because of expectational effects, such an economy could be unstable. Also considered is Martin J. Bailey's conjecture that, in the absence of a stock Pigou effect, Keynesian problems could be eliminated by expectational influences on disposable income.
Handle: RePEc:nbr:nberwo:0894
Template-Type: ReDIF-Paper 1.0
Title: Productivity Measurement Using Capital Asset Valuation to Adjust for Variations in Utilization
Author-Name: Ernst R. Berndt
Author-Name: Melvyn A. Fuss
Note: PR
Number: 0895
Creation-Date: 1982-05
Order-URL: http://www.nber.org/papers/w0895
File-URL: http://www.nber.org/papers/w0895.pdf
File-Format: application/pdf
Publication-Status: published as Berndt, Ernst R. and Melvyn A. Fuss. "Productivity Measurement Using Capital Asset Valuation to Adjust for Variations in Utilization." Journal of Econometrics, November 1986.
Abstract: Although a great deal of empirical research on productivity measuremant has taken place in the last decade, one issue remaining particudarly controversial and deaisive is the manner by which one adjusts the productivity residual for variations in capital and capacity utilization. In this paper we use the Marshallian framework of a short run production or cost function with certain inputs quasi-fixed to provide a theoretical basis for accounting for variations in utilization. The theoretical model implies that the value of services from stocks of quasi-fixed inputs should be altered rather than their quantity. This represents a departure from most previous procedures that have adjusted the quantity of capital services for variations in utilization. In the empirical illustration, we employ Tobin's q to measure the shadow value of capital, and find that for the U.S. manufacturing sector, we can attribute about 50% of the traditionally measured decline in productivity growth during 1973-77 to a decline in capacity utilization. Hence, adjusted for utilization, the 1973-77 productivity slowdown in U.S. manufacturing is considerably less than that measured using traditional productivity accounting techniques.
Handle: RePEc:nbr:nberwo:0895
Template-Type: ReDIF-Paper 1.0
Title: Retirement Annuity Design in an Inflationary Climate
Author-Name: Zvi Bodie
Author-Person: pbo569
Author-Name: James E. Pesando
Author-Person: ppe278
Note: PE
Number: 0896
Creation-Date: 1982-05
Order-URL: http://www.nber.org/papers/w0896
File-URL: http://www.nber.org/papers/w0896.pdf
File-Format: application/pdf
Publication-Status: published as Bodie, Zvi and James E. Pesando. "Retirement Annuity Design in an Inflationary Climate." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: University of Chicago Press, (1983), pp . 291-324 and 322-323.
Publication-Status: published as Retirement Annuity Design in an Inflationary Climate, Zvi Bodie, James E. Pesando. in Financial Aspects of the United States Pension System, Bodie and Shoven. 1983
Abstract: This paper examines the tilt and risk-return characteristics of real retirement incomes provided by variable annuities tied to bills, long-term bonds, stocks and a mixed portfolio which combines all three. The analysis emphasizes the riskiness of the real value of benefits provided by conventional nominal annuities. The Rockefeller Foundation Plan, together with the "ad hoc" cost-of-living adjustments made by many large firms, are interpreted as representative market responses to increased inflation uncertainty. The paper examines the annuity designs implicit in these innovations, and shows them to be variants of the standard variable annuity.
Handle: RePEc:nbr:nberwo:0896
Template-Type: ReDIF-Paper 1.0
Title: The Taxation of Risky Assets
Author-Name: Jeremy I. Bulow
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 0897
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0897
File-URL: http://www.nber.org/papers/w0897.pdf
File-Format: application/pdf
Publication-Status: published as Bulow, Jeremy I. and Lawrence H. Summers. " The Taxation of Risky Assets." Journal of Political Economy, Vol. 92, No. 1, (February 1984), pp. 20-39.
Publication-Status: published as Bulow, Jeremy I. and Lawrence H. Summers. "The Taxation of Risly Investments," Essays in Development and Public Economics in Honor of Arnold Harberger , eds. M. Boskin and L. Sjaastad, 1986.
Abstract: This paper reconsiders the effects of taxation on risky assets, recognizing the importance of variations in asset prices. We show that earlier analyses which assumed that depreciation rates are constant and that the future price of capital goods is known with certainty are very misleading, as guides to the effects of corporate taxes. We then examine the concept of economic depreciation in a risky environment, and show that depreciation allowances, if set ex-ante, should be adjusted to take account of future asset price risk. Some empirical calculations suggest that these adjustments are large, and have important implications for the burdens of, and non-neutralities in, the corporate income tax.
Handle: RePEc:nbr:nberwo:0897
Template-Type: ReDIF-Paper 1.0
Title: Intertemporal Substitution in Macroeconomics
Author-Name: N. Gregory Mankiw
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG
Number: 0898
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0898
File-URL: http://www.nber.org/papers/w0898.pdf
File-Format: application/pdf
Publication-Status: published as Mankiw, N. Gregory, Julio J. Rotemberg and Lawrence H. Summers. "Intertemporal Substitution in Macroeconomics." Quarterly Journal of Economics, Vol. 100, (Feb. 1985, pp. 225-251.
Abstract: Modern neoclassical theories of the business cycle posit that aggregate fluctuations in consumption and employment are the consequence of dynamic optimizing behavior by economic agents who face no quantity constraint. In this paper, we estimate an explicit model :f this type. In particular, we assume that the observed fluctuations correspond to the decisions of an optimizing representative individual. This individual has a stable utility function which is additively separable over time but not necessarily additively separable in consumption and leisure. We estimate three first order conditions which represent three margins on which the individual is optimizing. He can trade off present consumption for future consumption, present leisure for future leisure and present consumption for present leisure. Our results show that the aggregate U.S. data are extremely reluctant to be characterized by a model of this type. Not only are the overidentifying restrictions statistically rejected but, in addition, the estimated utility function is often not concave. Even when it is concave the estimates imply that either consumption or leisure is an inferior good.
Handle: RePEc:nbr:nberwo:0898
Template-Type: ReDIF-Paper 1.0
Title: International Competition and the Unionized Sector
Author-Name: Gene M. Grossman
Author-Person: pgr21
Note: ITI IFM
Number: 0899
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0899
File-URL: http://www.nber.org/papers/w0899.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Gene M. "International Competition and the Unionized Sector." Canadian Journal of Economics, Vol. 17, No. 3, (August 1984), pp. 541-556.
Abstract: This paper studies the wage and employment behavior of a unionized sector that is confronted by an intensification of international competition. After developing a formal model of a monopoly union subject to majority rule, I study the response of a unionized sector operating under a seniority rule for layoffs and rehires to a trend decrease in the international price of its output. Conditions are provided to validate the casual argument that majority voting in unions and the seniority system together provide an explanation for the lack of union wage adjustment. A modified version of the model allows the job queue to deviate from a strict seniority ranking. In this context I ask, what importance can be attached to the seniority system in determining the wage response to international competition?
Handle: RePEc:nbr:nberwo:0899
Template-Type: ReDIF-Paper 1.0
Title: Price Asynchronization and Price Level Inertia
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Note: EFG
Number: 0900
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0900
File-URL: http://www.nber.org/papers/w0900.pdf
File-Format: application/pdf
Publication-Status: published as Infiation, Debt, and Indexation, Dornbusch, R. and M. Simonsen, eds., Cambridge: MIT Press, 1983, pp. 3-25.
Abstract: If price decisions are taken neither continuously nor in perfect synchronization, the process of adjustment of all prices to a new nominal level will imply temporary movements in relative prices. It might then well be that, to avoid these movements in relative prices, each price setter will want to move his own price slowly compared to others. The result will be a slow movement of all prices to their new nominal level, and substantial inertia of the price level. This paper formalizes this intuitive argument and reaches four main conclusions: (1) Even small departures from perfect synchronization can generate substantial price level inertia. (2) If price decisions are desynchronized, even anticipated movements in money will usually have an effect on economic activity. It is however possible to find paths of money deceleration which reduce inflation at no cost in output. (3) Price desynchronization has implications for relative price movements as well as for the price level. Goods early in the chain of production have more price and profit variability than goods further down the chain. (4) Price inertia, if it is due to price desynchronization, may be difficult to remove. It may well be that, given the timing decisions of others, no agent has an incentive to change his own timing decision: the time structure of price desynchronization may be stable.
Handle: RePEc:nbr:nberwo:0900
Template-Type: ReDIF-Paper 1.0
Title: Monetary and Fiscal Policy with Flexible Exchange Rates
Author-Name: William H. Branson
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ITI IFM
Number: 0901
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0901
File-URL: http://www.nber.org/papers/w0901.pdf
File-Format: application/pdf
Publication-Status: published as Branson, William H. and Willem H. Buiter. "Monetary and Fiscal Policy with Flexible Exchange Rates." Economic Interdependence and Flexible Exchange Rates, ed. J.S. Bhandari and B.H. Putnam, pp. 251-285. Cambridge: Massachusetts Institute of Technology Press, 1983.
Abstract: If price decisions are taken neither continuously nor in perfect synchronization, the process of adjustment of all prices to a new nominal level will imply temporary movements in relative prices. It might then well be that, to avoid these movements in relative prices, each price setter will want to move his own price slowly compared to others. The result will be a slow movement of all prices to their new nominal level, and substantial inertia of the price level. This paper formalizes this intuitive argument and reaches four main conclusions: (1) Even small departures from perfect synchronization can generate substantial price level inertia. (2) If price decisions are desynchronized, even anticipated movements in money will usually have an effect on economic activity. It is however possible to find paths of money deceleration which reduce inflation at no cost in output. (3) Price desynchronization has implications for relative price movements as well as for the price level. Goods early in the chain of production have more price and profit variability than goods further down the chain. (4) Price inertia, if it is due to price desynchronization, may be difficult to remove. It may well be that, given the timing decisions of others, no agent has an incentive to change his own timing decision: the time structure of price desynchronization may be stable.
Handle: RePEc:nbr:nberwo:0901
Template-Type: ReDIF-Paper 1.0
Title: Private Pensions and Public Pensions: Theory and Fact
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: PE
Number: 0902
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0902
File-URL: http://www.nber.org/papers/w0902.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. "Private Pensions and Public Pensions: Thoery and Fact," Dec. 1983, Ann Arbor: University of Michigan
Abstract: An economic theory of public and private pensions is developed, and the implications of the theory are compared with some empirical evidence, of both the econometric and casual varieties. Among the questions addressed are: why are there private pensions? why have they grown so rapidly in recent decades? why do they have the particular features that they do? why does the government intervene by regulating the provisions of private pensions and mandating a public pension system? what are the effects of private and public pensions on savings and retirement decisions?
Handle: RePEc:nbr:nberwo:0902
Template-Type: ReDIF-Paper 1.0
Title: Portfolio Composition and Pension Wealth: An Econometric Study
Author-Name: Louis Dicks-Mireaux
Author-Name: Mervyn A. King
Note: PE
Number: 0903
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0903
File-URL: http://www.nber.org/papers/w0903.pdf
File-Format: application/pdf
Publication-Status: published as Dicks-Mireaux, Louis and Mervyn A. King. "Portfolio Composition and Pension Wealth: An Econometric Study." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1983), pp. 399-440.
Publication-Status: published as Portfolio Composition and Pension Wealth: An Econometric Study, Louis-David L. Dicks-Mireaux, Mervyn A. King. in Financial Aspects of the United States Pension System, Bodie and Shoven. 1983
Abstract: There has been very little study of the consequences of pension wealth for the composition of household portfolios. Using individual data for 10,118 Canadian households we estimate the portfolio effect of pension wealth. Because most households do not own all of the assets which we are able to distinguish, we model asset demands as a mixed discrete-continuous portfolio choice problem. We find that whereas there is an identifiable effect of pension wealth on total private savings, the effect on portfolio choice is less significant. Moreover, within the area of portfolio composition the main effect is in terms of the particular number and combination of assets held rather than the amount of any given asset as a proportion of total wealth.
Handle: RePEc:nbr:nberwo:0903
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Implications of Alternative Exchange Rate Models
Author-Name: John F. Helliwell
Author-Person: phe368
Author-Name: Paul M. Boothe
Note: ITI IFM
Number: 0904
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0904
File-URL: http://www.nber.org/papers/w0904.pdf
File-Format: application/pdf
Publication-Status: published as Helliwell, John F. and Paul M. Boothe. "Macroeconomic Implications of Alternative Exchange Rate Models." Exchange Rates in Multicountry Economic Models, edited by P. De Grauwe and T. Peeters. London, Macmillan, (1983) , pp. 21-53.
Publication-Status: published as Princeton Studies in International Finance, No. 54, 1984
Abstract: In this paper we estimate and compare several alternative exchange rate models that have received wide attention, but little comparison, during the 1970s. In order to compare purchasing power parity (PPP), nominal interest rate parity, real interest rate parity, and portfolio balance models, we first strip each down to its essential core and undertake comparable single-equation tests of both 'hard' and 'easy' (more and less constrained) versions of each model. We then embed each of the 'hard' versions in a new macroeconomic model of Canada, and assess their implications for the impacts of monetary and fiscal shocks. Using annual Canadian data from the 1950s and 1970s, all of the models have single-equation errors of about 3%, except for the 'hard' versions of PPP and real interest parity, which are heavily rejected by the data. In a macroeconomic context, the models have modestly different implications for the effects of fiscal shocks, and diverge more widely under monetary shocks.
Handle: RePEc:nbr:nberwo:0904
Template-Type: ReDIF-Paper 1.0
Title: Are Bond-Financed Deficits Inflationary? A Ricardian Analysis
Author-Name: Bennett T. McCallum
Note: EFG
Number: 0905
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0905
File-URL: http://www.nber.org/papers/w0905.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "Are Bond-Financed Deficits Inflationary? A Ricardian Analysis." Journal of Political Economy, Vol. 92, No. 1, (February 1984), pp. 123-135.
Abstract: This paper considers the possible theoretical validity of the following "monetarist hypothesis": that a constant, positive government budget deficit can be maintained permanently and without inflation if it is financed by the issue of bonds rather than money. The question is studied in a discrete-time, perfect-foresight version of the competitive equilibrium model of Sidrauski (1967), modified by the inclusion of government bonds as a third asset. It is shown that the monetarist hypothesis is invalid if the deficit is defined exclusive of interest payments, but is valid under the conventional definition. It is also shown that the stock of bonds can grow indefinitely at a rate in excess of the rate of output growth, provided that the difference is less than the rate of time preference. In addition to the main analysis, the paper includes comments on alternative deficit concepts, a brief consideration of data pertaining to the announced budget plans of the Reagan administration, and a new look at a much- studied issue: whether the operation of a Friedman-type constant money growth rule (with non-activist fiscal rules) would be dynamically feasible.
Handle: RePEc:nbr:nberwo:0905
Template-Type: ReDIF-Paper 1.0
Title: Inflation Uncertainty and Interest Rates: Theory and Empirical Tests
Author-Name: Richard Hartman
Author-Name: John H. Makin
Note: ME
Number: 0906
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0906
File-URL: http://www.nber.org/papers/w0906.pdf
File-Format: application/pdf
Abstract: This paper develops two models, one involving risk neutrality and the other risk aversion, which suggest that inflation uncertainty affects interest rates. Both models give rise to essentially the same interest rate equation for estimation. Empirical evidence supports the hypothesis that inflation uncertainty affects interest rates. Interpreted in terms of the risk neutral model, the empirical results suggest that inflation uncertainty has a negative impact on nominal interest rates and a positive impact on the expected real rate. If the results are interpreted in terms of the risk averse model, inflation uncertainty has a negative impact on nominal interest rates. The expected real rate is not of direct interest in a risk averse world. The results raise real questions about the use of the Fisherian definition of the real interest rate in situations when there is uncertainty about inflation rates. It is argued that even with risk neutrality the Fisherian definition of the real rate is not the appropriate concept upon which to base economic decisions if inflation uncertainty is present. The appropriate concept is an expected real rate which involves an adjustment for uncertainty. Moreover, if the world is risk averse, the expected real rate is not a relevant concept for economic decisions.
Handle: RePEc:nbr:nberwo:0906
Template-Type: ReDIF-Paper 1.0
Title: The Production and Cost of Ambulatory Medical Care In Community Health Centers
Author-Name: Fred Goldman
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 0907
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0907
File-URL: http://www.nber.org/papers/w0907.pdf
File-Format: application/pdf
Publication-Status: published as Goldman, Fred and Michael Grossman. "The Production and Cost of Ambulatory Medical Care In Community Health Centers." Advances in Health Economics and Health Services Research, edited by Richard M. Schettler and Louis F. Rossoter, Vol. 4, Greenwich, Conn.: JAI Press, (1983), pp. 1-56.
Abstract: An assessment of the efficiency of Federally funded community health centers (CHCs) in delivering ambulatory medical care to poverty populations reveals that the centers' input decisions reflect departures from cost-minimizing behavior. In particular, they employ too few physician aids (nurses and physician assistants) relative to primary care physicians and too many medical support and ancillary personnel relative to primary care physicians. The CHC system-wide cost reduction due to the elimination of allocative inefficiency is estimated at $32 million in 1978 dollars or 6 percent of total cost. This modest cost reduction and evidence that allocative inefficiency is not more widespread among CHCs than among private sector physicians seriously question the conventional wisdom that services in the public sector are produced less efficiently than in the private sector. Support is also reported for the hypothesis that, since grants are not tied to particular services rendered, centers who derive most of their revenue from this source relative to Medicaid and private insurance have a greater incentive to provide a given mix of services in the least-cost method.
Handle: RePEc:nbr:nberwo:0907
Template-Type: ReDIF-Paper 1.0
Title: Who Does R&D and Who Patents?
Author-Name: John Bound
Author-Person: pbo406
Author-Name: Clint Cummins
Author-Name: Zvi Griliches
Author-Name: Bronwyn H. Hall
Author-Person: pha54
Author-Name: Adam B. Jaffe
Author-Person: pja49
Note: PR
Number: 0908
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0908
File-URL: http://www.nber.org/papers/w0908.pdf
File-Format: application/pdf
Publication-Status: published as Bound, J. et al. "Who Does R&D and Who Patents?" R&D, Patents and Productivity, edited by Zvi Griliches. Chicago: Univeristy of Chicago Press, (1984).pp. 21-54.
Publication-Status: published as Who Does R&D and Who Patents?, John Bound, Clint Cummins, Zvi Griliches, Bronwyn H. Hall, Adam B. Jaffe. in R&D, Patents, and Productivity, Griliches. 1984
Abstract: This paper describes the construction of a large panel data set covering about 2600 firms in the U.S. manufacturing sector for up to twenty years which contains annual data on financial variables, employment, research and development expenditures, and aggregate patent applications. This data set is to be used in a larger study of R&D, inventive output and technological change. In the present paper we present preliminary results on the R&D and patenting behavior of the 1976 cross section of these firms. We find an elasticity of R&D with respect to sales of close to unity, with both very small and very large firms being slightly more R&D intensive than average. Because only 60% of the firms report R&D expenditures, we attempt to correct for selectivity bias and find that though the correction is small, it increases the estimated complementarity between capital intensity and R&D intensity. In exploring the relationship of the patenting activity of these firms to their contemporaneous R&D expenditures, we look with some care at the choice of econometric specifications since the discrete nature of the patents variable for our smaller firms may cause difficulties with the conventional log linear model. The choice of specification does indeed make a difference, and the negative binomial model, which is a Poisson-type model with a disturbance, is preferred. Substantively, we find a much larger output of patents per R&D dollar for the small firms, with a decreasing propensity to patent with size of R&D programs throughout the sample. However, this conclusion is highly tentative both because of its sensitivity to specification and choice of sample and also because we expect that errors in variables bias due to our focus on R&D and patent applications in a single year is far worse for the small firms.
Handle: RePEc:nbr:nberwo:0908
Template-Type: ReDIF-Paper 1.0
Title: Exchange-Rate Policy After a Decade of "Floating"
Author-Name: William H. Branson
Note: ITI IFM
Number: 0909
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0909
File-URL: http://www.nber.org/papers/w0909.pdf
File-Format: application/pdf
Publication-Status: published as J. Bilson and R.C. Marston, editors. Exchange Rate Theory and Policy. Chicago: University of Chicago Press, 1984.
Publication-Status: published as Exchange Rate Policy after a Decade of "Floating", William H. Branson. in Exchange Rate Theory and Practice, Bilson and Marston. 1984
Abstract: This paper integrates exchange-rate policy into a model of exchange- rate behavior, and examines the data econometrically to infer hypotheses about policy behavior in the 1970s. The model shows how unanticipated movements in money, the current account, and relative price levels will cause first a jump in the exchange rate, and then a movement along a "saddle path" to the new long run equilibrium. Here the role of "news" in moving the exchange rate is clear. The model is used to analyze the options available to the central bank that wants to reduce the jump in the exchange rate following a real or monetary disturbance. The distinction is made between monetary policy and sterilized intervention, and a regime in which the domestic interest rate is used as the policy variable is also studied. Systems of vector autoregressions (VARs) for each of four countries -- the U.S., the U.K., Germany, and Japan -- are estimated, and the correlations among their residuals are studied. These represent the "innovations," or "news" in the time series. A clear pattern emerges in these correlations, in which policy in the U.S. and to a lesser extent Japan, drives exchange rates, and policy in Germany and the U.K. reacts. It appears that U.S. monetary policy is essentially determined by domestic considerations, with the exchange rate moving as a consequence. In Japan, interest rates are varied in response to movement in the current-account and relative price levels, and the effects on the exchange rate are partially neutralized by sterilized intervention. Germany and the U.K. react to movements in their exchange rates by moving interest rates, and sterilized intervention.
Handle: RePEc:nbr:nberwo:0909
Template-Type: ReDIF-Paper 1.0
Title: On Consumption-Indexed Public Pension Plans
Author-Name: Robert C. Merton
Author-Person: pme203
Note: PE
Number: 0910
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0910
File-URL: http://www.nber.org/papers/w0910.pdf
File-Format: application/pdf
Publication-Status: published as Merton, Robert C. "On Consumption-Indexed Public Pension Plans." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1984), pp. 259-290.
Publication-Status: published as On Consumption Indexed Public Pension Plans, Robert C. Merton. in Financial Aspects of the United States Pension System, Bodie and Shoven. 1983
Abstract: Using the known result that life-cycle investors will optimally hold portfolios whose returns are perfectly correlated with aggregate consumption, this paper uses a simple intertemporal general equilibrium model to explore the merits and feasibility of pension plans where both accumulations and benefits are linked to aggregate per capita consumption. Although the analysis is made within the framework of a public pension plan, it applies equally well to organized private pension plans where participation is virtually mandatory and where individually designed programs are not practical. An additional feature of the plans examined is that they provide for life annuities during both the accumulation and retirement phases of the life cycle.
Handle: RePEc:nbr:nberwo:0910
Template-Type: ReDIF-Paper 1.0
Title: A Comparison of Methodologies in Empirical General Equilibrium Models of Taxation
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Yolanda K. Henderson
Author-Name: John B. Shoven
Note: PE
Number: 0911
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0911
File-URL: http://www.nber.org/papers/w0911.pdf
File-Format: application/pdf
Publication-Status: published as Fullerton, Don, Yolanda K. Henderson, John B. Shoven. "A Comparison of Methodologies in Empirical General Equilibrium Models of Taxation." Applied General Equilibrium Analysis, edited by Herbert Scarf and John B. Shoven, pp. 367-410. Cambridge: Cambridge University Press, (1984).
Abstract: Computational general equilibrium models have proven useful in the area of long run analysis of alternative tax policies. A sizable number of studies have been completed which examine policies such as a value-added tax, corporate and personal income tax integration, a consumption or expenditure tax, housing subsidies, and inflation indexation.. This paper reviews the methodologies used in these models. We focus on eight specific models and review in turn: levels of disaggregation, specification of the foreign sector, financial modeling, the measurement of effective tax rates, heterogeneity and imperfect mobility, factor supply, treatment of the government budget, and technical issues associated with implementation. The paper includes some new experiments in connection with simulations of integration of the personal and corporate income tax systems in the United States. We compare the resulting welfare gains in models with different levels of disaggregation, and we discuss alternative justifications for specific disaggregations. We also examine the sensitivity of results to alternative specifications of households' endowments of labor and leisure. Our survey underscores the importance of the assumed elasticities of labor supply with respect to the net of tax wage, and of saving with respect to the net of tax rate of return. Unfortunately, these are also parameters for which there is not a consensus in the economics profession. The survey finds that there are several aspects of modeling that are especially ripe for further progress: the roles of government and business financial decisions, the dynamics of a life-cycle approach, and the measurement of incentive tax and transfer rates.
Handle: RePEc:nbr:nberwo:0911
Template-Type: ReDIF-Paper 1.0
Title: Optimal Control of the Money Supply
Author-Name: Robert B. Litterman
Author-Person: pli374
Note: EFG
Number: 0912
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0912
File-URL: http://www.nber.org/papers/w0912.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Review, Federal Reserve Bank of Minneapolis, Fall 1982, 6(3): 1-9.
Abstract: Using optimal control theory and a vector autoregressive representation of the relationship between money and interest rates, one can derive a feedback control procedure which defines the best possible tradeoff between interest rate volatility and money supply fluctuations and which could be used to reduce both from their current levels.
Handle: RePEc:nbr:nberwo:0912
Template-Type: ReDIF-Paper 1.0
Title: Panel Data
Author-Name: Gary Chamberlain
Note: LS
Number: 0913
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0913
File-URL: http://www.nber.org/papers/w0913.pdf
File-Format: application/pdf
Publication-Status: published as Chamberlain, Gary. "Multivariate Regression Models For Panel Data," Journal of Econometrics, 1982, v18(1), 5-46.
Publication-Status: published as Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches†& M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
Abstract: We consider linear predictor definitions of noncausality or strict exogeneity and show that it is restrictive to assert that there exists a time-invariant latent variable c such that x is strictly exogenous conditional on c. A restriction of this sort is necessary to justify standard techniques for controlling for unobserved individual effects. There is a parallel analysis for multivariate probit models, but now the distributional assumption for the individual effects is restrictive. This restriction can be avoided by using a conditional likelihood analysis in a logit model. Some of these ideas are illustrated by estimating union wage effects for a sample of Young Men in the National Longitudinal Survey. The results indicate that the lags and leads could have been generated just by an unobserved individual effect, which gives some support for analysis of covariance-type estimates. These estimates indicate a substantial omitted variable bias. We also present estimates of a model of female labor force participation, focusing on the relationship between participation and fertility. Unlike the wage example, there is evidence against conditional strict exogeneity; if we ignore this evidence, the probit and logit approaches give conflicting results.
Handle: RePEc:nbr:nberwo:0913
Template-Type: ReDIF-Paper 1.0
Title: The Economic Status of the Elderly
Author-Name: Michael D. Hurd
Author-Person: phu137
Author-Name: John B. Shoven
Note: PE
Number: 0914
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0914
File-URL: http://www.nber.org/papers/w0914.pdf
File-Format: application/pdf
Publication-Status: published as Hurd, Michael D. and John B. Shoven. "The Economic Status of the Elderly." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1983), pp. 359-398.
Publication-Status: published as The Economic Status of the Elderly, Michael D. Hurd, John B. Shoven. in Financial Aspects of the United States Pension System, Bodie and Shoven. 1983
Publication-Status: published as M. Hurd, 1989. "The economic status of the elderly," Science, vol 244(4905), pages 659-664.
Abstract: In the first part of the paper using official data sources, we estimate the real income of the elderly and of the rest of the population during the 1570s. We find that income per household of the elderly has increased more rapidly than income per household of the rest of the population, even though the elderly's fraction of income from work decreased greatly. In the rest of the paper we use the 1969 and 1975 Retirement History Surveys to estimate income, wealth and inflation vulnerability of households whose heads were ages 58 through 63 in 1969. The income data verified the results from the official data. The 1969 wealth data show that a representative person on the eve of retirement has small holdings of financial assets: most of the assets are in housing, Social Security and Medicare. Between 1969 and 1975 real wealth increased slightly on average. There was some tendency for the distribution to tighten. We found that contrary to popular opinion, on average the elderly are not especially vulnerable to a sudden increase in either prices or the rate of inflation. Most of their assets are inflation protected. The wealthy are most vulnerable to inflation.
Handle: RePEc:nbr:nberwo:0914
Template-Type: ReDIF-Paper 1.0
Title: Interest Rate Volatility and Monetary Policy
Author-Name: Carl E. Walsh
Author-Person: pwa23
Note: ME
Number: 0915
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0915
File-URL: http://www.nber.org/papers/w0915.pdf
File-Format: application/pdf
Publication-Status: published as Walsh, Carl E. "Interest Rate Volatility and Monetary Policy." Journal of Money, Credit and Banking, Vol. 16, No. 2, (May 1984), pp. 133-150.
Abstract: In October 1979 the Federal Reserve shifted from an interest rate oriented operating procedure to a reserves oriented procedure. It is argued in this paper that part of the very large increase in interest rate volatility which resulted from the policy switch may have been due to shifts in the parameters of the money demand equation, shifts due to the adoption-of a reserve aggregates operating procedure. This result is derived by comparing rational expectations equilibria in a simple theoretical model under alternative policy rules. This allows the variance of interest rates to be explicitly expressed as a function of the policy rule.
Handle: RePEc:nbr:nberwo:0915
Template-Type: ReDIF-Paper 1.0
Title: Productivity Growth and R&D at the Business Level: Results From the PIMS Data Base
Author-Name: Kim B. Clark
Author-Name: Zvi Griliches
Note: PR
Number: 0916
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0916
File-URL: http://www.nber.org/papers/w0916.pdf
File-Format: application/pdf
Publication-Status: published as Clark, Kim B. and Zvi Griliches. "Productivity Growth and R&D at the Business Level: Results from the PIMS Data Base." R&D, Patents and Productivity,edited by Zvi Griliches. Chicago: UCP, (1984). pp. 393-416.
Publication-Status: published as Griliches, Zvi. "Productivity Growth and R&D at the Business Level: Results from the PIMS Data Base." R&D and Productivity: The Econometric Evidence, by Zvi Griliches, Chicago: UCP, (1998), pp. 134-156.
Publication-Status: published as Productivity Growth and R&D at the Business Level: Results from the PIMS Data Base, Kim B. Clark, Zvi Griliches. in R&D, Patents, and Productivity, Griliches. 1984
Publication-Status: published as Productivity Growth and R&D at the Business Level: Results from the PIMS Data Base, Zvi Griliches. in R&D and Productivity: The Econometric Evidence, Griliches. 1998
Abstract: This paper presents the results of a study of productivity growth and R&D in the 1970s using data on narrowly defined 'business units within a firm. Estimates are developed under different assumptions about technology ,industry effects, and changes in the return to R&D over time. The R&D data are broken down into process and product expenditures, and some information is available on past success in developing proprietary technology, andontheincidenceofma3or changes in technology in the recent past. The results suggest a significant relationship between R&D and the growth of productivity; in versions using total factor productivity as the dependent variable, the estimated rate of return to R&D investment is about 20 percent. We find some evidence that R&D has its biggest effect on productivity in those markets where major changes in technology have occurred in the recent past. Previous success in developing proprietary process technology affects total factor productivity directly, but appears to have little effect on estimated returns to R&D. The notion that the productivity of R&D declined in the l970sfinds Little support in this data. Irrespective of model specification, trends in the R&D coefficient are substantively arid statistically insignificant. Our calculations suggest that reduced investment in R&D may have accounted for at least 10 percent of the decline in total factor productivity growth in the l970s.
Handle: RePEc:nbr:nberwo:0916
Template-Type: ReDIF-Paper 1.0
Title: Federal Reserve Policy, Interest Rate Volatility, and the U.S. Capital Raising Mechanism
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0917
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0917
File-URL: http://www.nber.org/papers/w0917.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Federal Reserve Policy, Interest Rate Volatility, and the U.S. Capital Raising Mechanism." Journal of Money, Credit, and Banking, Vol. 14, No. 4, (November 1982, part 2), pp. 721-745.
Abstract: The evidence presented in this paper leads to three conclusions about possible effects on the U.S. long-term capital. raising mechanism due to the sharp increase in interest rate volatility that has followed the Federal Reserve System's adoption of new monetary policy procedures in 1979. First, the increased volatility has probably led nonfinancial corporations to finance less of their external funds requirements at long term than they would other- wise have done. Second, the increased volatility has probably led underwriters of high grade corporate bonds to increase the spread of a typical new issue's yield over the prevailing market yield on comparable bonds already outstanding. Third, there is little firm basis (reported here, anyway) to conclude that the increased volatility in particular has affected investors' portfolio behavior in the bond market.
Handle: RePEc:nbr:nberwo:0917
Template-Type: ReDIF-Paper 1.0
Title: The Economics of Mortgage Terminations: Implications for Mortgage Lenders and Mortgage Terms
Author-Name: Patric H. Hendershott
Author-Name: Sheng Cheng Hu
Author-Name: Kevin E. Villani
Note: ME
Number: 0918
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0918
File-URL: http://www.nber.org/papers/w0918.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H., Sheng Hu, and Kevin E. Villani. "The Economics of Mortgage Terminations: Implications for Mortgage Lender and Mortgage Terms."Housing Finance Review, Vol. 2, No. 2. (April 1983), pp. 127-142.
Abstract: The paper begins with the development of models explaining the mortgage refinancing and assumption decisions of households Having identified the economic variables influencing these decisions, we then simulate the models for different values to determine under what conditions households will refinance or assume. Finally, we draw some implications of these results for: (1) the impact of a decline in mortgage rates on the asset portfolio yields of mortgage lending institutions and (2) the effect of the observed rise in interest rate volatility, including the optimal terminations response of mortgage borrowers, on the terms of the mortgage contract and the returns to mortgage lenders on recently issued mortgage loans.
Handle: RePEc:nbr:nberwo:0918
Template-Type: ReDIF-Paper 1.0
Title: Domestic Tax Policy and the Foreign Sector: The Importance of Alternative Foreign Sector Formulations to Results from a General Equilibrium
Author-Name: Lawrence H. Goulder
Author-Name: John B. Shoven
Author-Name: John Whalley
Author-Person: pwh8
Note: PE
Number: 0919
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0919
File-URL: http://www.nber.org/papers/w0919.pdf
File-Format: application/pdf
Publication-Status: published as Goulder, Lawrence H., John B. Shoven, and John Whalley. "Domestic Tax Policy and the Foreign Sector: The Importance of Alternative Foreign Sector Formulations ..." Chapter 10 in Behavioral Simulation Methods in Tax Policy Analysis, ed. Martin Feldstein. Chicago:UCP, (1983).
Abstract: There is a growing recognition among public finance economists of the inappropriateness of closed economy models for analyzing alternative U.S. tax policies. In response to this, this paper reports on four different external sector specifications for the Fullerton-Shoven-Whalley general equilibrium tax model of the U.S. The alternative formulations permit an assessment of their impact on model findings and provide the enhanced capability for analysis of tax policies which connect closely with foreign trade issues (such as a VAT). Results indicate that the different external sector formulations can substantially affect the model's findings. When the model permits international capital flows, the effect of a tax policy can be quite different from what a closed economy model would predict. Capital mobility substantially increases the efficiency gain implied by corporate tax integration, while it more than eliminates the efficiency advantage of moving from an income tax to a consumption tax (unless adjustments are made in the foreign tax credit). The sensitivity of the efficiency evaluation of domestic tax policies to the functioning of international capital markets suggests the need for further research to determine precisely how those markets operate.
Handle: RePEc:nbr:nberwo:0919
Template-Type: ReDIF-Paper 1.0
Title: Unemployment Insurance and Labor Force Transitions
Author-Name: Kim B. Clark
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: LS
Number: 0920
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0920
File-URL: http://www.nber.org/papers/w0920.pdf
File-Format: application/pdf
Publication-Status: published as Clark, Kim B. and Lawrence H. Summers. "Unemployment Insurance and Labor Market Transitions." Workers, Jobs, and Inflation, edited by Martin N. Baily, pp. 279-318. Washington: Brookings Insitution, 1982.
Abstract: This paper reports preliminary estimates of an econometric simulation model capable of a comprehensive evaluation of the effects of unemployment insurance on measured and actual employment, unemployment and non-participation. The data are longitudinal comprising information on 75,000 households sampled in the Current Population Surveys of March and April 1978. The simulation model is constructed from multi- nomial logit equations characterizing individuals' labor force transitions. These equations provide estimates of the effects of UI on job loss, labor force exit, and entry into the labor force, as well as the effect of UI on unemployment duration and temporary layoffs. The results are rather inconclusive, but suggest the importance of further research on I21 and transitions in and out of the labor force.
Handle: RePEc:nbr:nberwo:0920
Template-Type: ReDIF-Paper 1.0
Title: International Interest-Rate and Price-Level Linkages Under Flexible Exchange Rates: A Review of Recent Evidence
Author-Name: Robert E. Cumby
Author-Person: pcu115
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0921
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0921
File-URL: http://www.nber.org/papers/w0921.pdf
File-Format: application/pdf
Publication-Status: published as Cumby, Robert E., Maurice Obstfeld. "International Interest-Rate and Price- Level Linkages under Flexible Exchange Rates: A Review of Recent Evidence." Exchange Rate Theory and Practice, ed. by John F. O. Bilson and Richard C. Marston. Chicago UCP. (1984), pp. 121-151
Publication-Status: published as International Interest Rate and Price Level Linkages under Flexible Exchange Rates: A Review of Recent Evidence, Robert E. Cumby, Maurice Obstfeld. in Exchange Rate Theory and Practice, Bilson and Marston. 1984
Abstract: In an open economy, the scope for activist stabilization policy depends on the nature of the lincages between domestic and international markets for goods and assets. Tgo important relationships--purchasing power parity and uncovered interest-rate parity--have received extensive empirical atpention in recent years and are fundamental building blocks of several eipirical ex- change rate models. This paper reviews and extends recent econometric findings on these two classical parity relationships and on their corollary, the international equality of expected real interest rates. Econometric tests assuming rationality of expectations are on the whole unfavorable to the classical parity relationships: with few exceptions, they are strongly rejected. A central theme in the review of empirical work is the conditional heteroskedasticity of inflation and exchange rate forecast errors and the bias this statistical problem may impart to tests of inter- national parity relationships. The paper proposes and implements a test for conditional heteroskedasticity which in many cases produces strong evidence that the problem is indeed important.
Handle: RePEc:nbr:nberwo:0921
Template-Type: ReDIF-Paper 1.0
Title: Investing for the Short and the Long Term
Author-Name: Stanley Fischer
Note: PE
Number: 0922
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0922
File-URL: http://www.nber.org/papers/w0922.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley. "Investing for the Short and the Long Term." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1983), pp. 153-176.
Publication-Status: published as Investing for the Short and the Long Term, Stanley Fischer. in Financial Aspects of the United States Pension System, Bodie and Shoven. 1983
Abstract: If asset returns have different dynamics, then their short and long run risk characteristics differ. For instance, if returns on one asset follow a random walk, it is very risky to hold for the long term even if it is quite safe for the short term. This paper examines the effects of different returns dynamics of assets on optimal portfolio behavior, for Portfolios held for differing lengths of times. It then examines the evidence on the dynamics of stock and bill returns in the United States. The evidence is that bill returns are more highly serially correlated than stock returns. Thus their riskiness relative to that of stocks rises the longer they are held. optimal portfolios are simulated, and it is shown that optimal port- folio proportions are not very sensitive to the length of the holding period of the portfolio.
Handle: RePEc:nbr:nberwo:0922
Template-Type: ReDIF-Paper 1.0
Title: Trade Structure and Transmission of Inflation: Theory and Japanese Experience
Author-Name: Jongmoo Jay Choi
Author-Name: M. Ishaq Nadiri
Note: ITI IFM
Number: 0923
Creation-Date: 1982-06
Order-URL: http://www.nber.org/papers/w0923
File-URL: http://www.nber.org/papers/w0923.pdf
File-Format: application/pdf
Abstract: The international price linkage in a single commodity model can be explained trivially by the law of one price or the quantity theory of money. In this paper, we formulate a simple sectoral, general equilibrium model with money. The transmission of price pressures from the world market to nontradable sectors of a domestic economy depends on industry structure, and the size of the direct price substitution effect and the indirect money and income effect through the balance of payments. The structural model is then empirically implemented for Japan, 1956-77. Various dynamic simulations conducted show both the overall magnitude of imported inflation and the relative importance of three major channels of transmission (price, money and income) in Japanese inflation during the period covered. These results imply that closing of one channel of transmission such as the monetary channel by a completely sterilizing monetary policy does not insulate the domestic economy from foreign price disturbances.
Handle: RePEc:nbr:nberwo:0923
Template-Type: ReDIF-Paper 1.0
Title: Who Owns the Assets in a Defined Benefit Pension Plan
Author-Name: Jeremy I. Bulow
Author-Name: Myron S. Scholes
Note: PE
Number: 0924
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0924
File-URL: http://www.nber.org/papers/w0924.pdf
File-Format: application/pdf
Publication-Status: published as Bulow, Jeremy I. and Myron S. Scholes. "Who Owns the Assets in a Defined Benefit Pension Plan." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1983), pp. 17-36.
Publication-Status: published as Who Owns the Assets in a Defined-Benefit Pension Plan?, Jeremy I. Bulow, Myron S. Scholes. in Financial Aspects of the United States Pension System, Bodie and Shoven. 1983
Abstract: The liability to employees in a defined benefit pension plan is the present value of vested benefits, the present value of the benefits that employees would receive on the immediate termination of the pension plan. This is the literal and simple definition of the liability. Although it leads to an understanding of the economics of the promise of a pension, several common provisions of pension plans make it necessary to expand the definition. Anomalies such as vesting, early retirement benefits, lump sum provisions, and ad hoc increases in benefits for retired employees indicate that employees accrue benefits that exceed their benefits on a termination of the plan. These anomalies, however, can be explained by requiring that employees as a group possess specific human capital. Although losing one or a few employees from the group would be a small loss, losing the group of employees would be a great loss. In this group model, employees bargain with the stockholders over the compensation of the entire group; they allocate . their compensation according to marginal product, returns from previous equity investments in the human capital of the group, and to purchases and sales of claims on this capital. The model explains the anomalies as a natural outgrowth of the transactions of members within the group. In addition, the model explains the use of defined benefit pension plans, and how employees could have claims, in excess of vested benefits, on the assets in the pension plan.
Handle: RePEc:nbr:nberwo:0924
Template-Type: ReDIF-Paper 1.0
Title: LDC Borrowing with Default Risk
Author-Name: Jeffrey Sachs
Author-Name: Daniel Cohen
Author-Person: pco389
Note: ITI IFM
Number: 0925
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0925
File-URL: http://www.nber.org/papers/w0925.pdf
File-Format: application/pdf
Publication-Status: published as Kredit and Kapital, 1985
Abstract: This paper presents a theoretical model to describe the effects of default risk on international lending to LDC sovereign borrowers. The threat of defaults in international lending is shown to give rise to many characteristics of the syndicated loan market: (1) quantity rationing of loans; (2) LDC policies designed to enhance creditworthiness; (3) prevalence of short maturities on international loans; and (4) a prevalence of bank lending relative to bond-market lending
Handle: RePEc:nbr:nberwo:0925
Template-Type: ReDIF-Paper 1.0
Title: Effects of U.S. Monetary Restraint on the DM-$ Exchange Rate and the German Economy
Author-Name: Jacques R. Artus
Note: ITI IFM
Number: 0926
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0926
File-URL: http://www.nber.org/papers/w0926.pdf
File-Format: application/pdf
Publication-Status: published as Artus, Jacques R. "Effects of U.S. Monetary Restraint on the DM-$ Exchange Rate and the Germany Economy." Exchange Rate Theory and Practice, ed. by John F. O. Bilson and Richard C. Marston. Chicago UCP. (1984).
Abstract: This paper assesses the quantitative effects of a shift to monetary restraint in the United States on the DM-$ exchange rate and the German economy. The results indicate that such effects are large. If Germany keeps its money growth unchanged, it will tend to experience a sharp and sustained depreciation of the deutsche mark and a significant increase in inflation and in unemployment. If it adopts an equivalent policy of monetary restraint, it will tend to benefit from a marked decline in inflation, but the cost in terms of lost output is extremely large.
Handle: RePEc:nbr:nberwo:0926
Template-Type: ReDIF-Paper 1.0
Title: Economic Implications of ERISA
Author-Name: Jeremy I. Bulow
Author-Name: Myron S. Scholes
Author-Name: Peter Menell
Note: PE
Number: 0927
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0927
File-URL: http://www.nber.org/papers/w0927.pdf
File-Format: application/pdf
Publication-Status: published as Bulow, Jeremy I., Myron S. Scholes and Peter Menell. "Economic Implicationsof ERISA." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: University of Chicago Press, (1983), pp . 37-56.
Publication-Status: published as Economic Implications of ERISA, Jeremy I. Bulow, Myron S. Scholes, Peter Menell. in Financial Aspects of the United States Pension System, Bodie and Shoven. 1983
Abstract: If the intent of the Employee Retirement Income Security Act, ERISA, was to assure that beneficiaries of insolvent pension plans receive adequate pension benefits, sharp increases in nominal rates of interest have blunted that purpose. Without an increase in these rates, the Pension Benefit Guarantee Corporation, PBGC, the insurance agency established to guarantee benefits, faced large liabilities on the terminations of pension plans. We examine the economics of pension funds and the funding of pension funds before and after the enactment of ERISA. The Act changed the economics of pension funds. The PBGC, the employer, and the employees have interests in the assets of the pension plan. The PBGC can tax corporations to pay off liabilities and to fund guaranteed benefits; employers can terminate pension plans or overfund them; employees can ask for more benefits or claim the assets in the fund. Although the PBGC insures benefits, the insurance agent forbears, not acting quickly to protect its own interests. To prevent potential huge increases in its liabilities, the PBGC could require that employers hedge the guaranteed benefits, and fund their increases in promised benefits. Given its policies, these requirements could protect the PBGC.
Handle: RePEc:nbr:nberwo:0927
Template-Type: ReDIF-Paper 1.0
Title: Public Policy and Employment Discrimination in the U.S.
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 0928
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0928
File-URL: http://www.nber.org/papers/w0928.pdf
File-Format: application/pdf
Publication-Status: published as Glazer, Nathan and Ken Young (eds.) Ethnic Pluralism and Public Policy, 1984.
Abstract: This paper examines evidence on employment practices in the U.S. with respect to race and the impact of governmental anti-bias activity on these practices. It shows a striking difference in the responses of American employers to job applications differing in race from the responses of British employers and asks whether these differences can be attributed to the greater U.S. effort to aid minority workers. It reviews the recent research by Jonathan Leonard on the effect of court suits and affirmative action compliance activity and concludes that much of the improved status of minorities in the U.S. is indeed due to governmental activity and public policy.
Handle: RePEc:nbr:nberwo:0928
Template-Type: ReDIF-Paper 1.0
Title: Taxes and the User Cost of Capital for Owner-Occupied Housing
Author-Name: Patric H. Hendershott
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 0929
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0929
File-URL: http://www.nber.org/papers/w0929.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. and Joel Slemrod. "Taxes and the User Cost of Capital for Owner-Occupied Housing." Real Estate Economics, American Real Estate and Urban Economics Association, Vol. 10, No. 4 (December 1982) , pp. 375-393.
Abstract: Owner-occupied housing is said to be favored in the tax code because mortgage interest and property taxes can be deducted in the computation of one's income tax base in spite of the fact that the returns from owner- occupied housing = not taxed. The special tax treatment reduces the user cost of capital for owner-occupied homing. The issue treated in this paper is the measurement of the tax rate to be employed in the user cost calculations. It is argued that different tax rates am appropriate for the tenure choice and quantity-demanded decisions, and that these values depend on the detailed tax position of the household and the method of finance. Average 1977 tax rates for households in different income ranges are calculated using the NBER TAXSIM microeconomic data file on individual tax returns
Handle: RePEc:nbr:nberwo:0929
Template-Type: ReDIF-Paper 1.0
Title: Consumption During Retirement: The Missing Link in the Life Cycle
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 0930
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0930
File-URL: http://www.nber.org/papers/w0930.pdf
File-Format: application/pdf
Publication-Status: published as Hamermesh, Daniel S. "Consumption During Retirement: The Missing Link in the Life Cycle." Review of Economics and Statistics, Vol. 66, No. 1, (February 1984), pp. 1-7.
Abstract: This study presents the first evidence on the relation of consumption to lifetime wealth, based on data from the 1973 and 1975 Retirement History Survey that have been linked to Social Security earnings records. Nearly 500 white, married, fully retired couples ages 62-69 form the basis of the analysis. On average their consumption early in retirement exceeds by 14 percent the income that their financial, pension and Social Security wealth can generate. This implies that their saving, both private and through Social Security, is insufficient to sustain consumption throughout the rest of their lives. Additional evidence based on changes in spending between 1973 and 1975 shows that these households respond by reducing their real consumption at a rate sufficient to generate positive changes in net financial worth within a few years after retirement. These two pieces of evidence can be rationalized by a rate of time preference much higher than the interest rate, coupled with either a bequest motive or uncertainty about the length of life. They also imply that, even when combined with private pensions and savings, Social Security in the United States today does not enable most recipients to maintain their living standard at the levels they enjoyed before they retired.
Handle: RePEc:nbr:nberwo:0930
Template-Type: ReDIF-Paper 1.0
Title: Investment in R&D, Costs of Adjustment and Expectations
Author-Name: Mark Schankerman
Author-Name: M. Ishaq Nadiri
Note: PR
Number: 0931
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0931
File-URL: http://www.nber.org/papers/w0931.pdf
File-Format: application/pdf
Publication-Status: published as Schankerman, Mark and M. Ishaq Nadiri. "Investment in R&D, Cost of Adjustment and Expectations." R&D, Patents and Productivity, edited by Zvi Griliches. Chicago University of Chicago Press, (1984).
Publication-Status: published as Investment in R&D, Costs of Adjustment, and Expectations, Mark Schankerman, M. Ishaq Nadiri. in R&D, Patents, and Productivity, Griliches. 1984
Abstract: This paper proposes a framework which integrates convex costs of adjustment and expectations formation in the determination of investment decisions in R&D at the firm level. The model is based on cost minimization subject to the firm's expectations of the stream of output and the price of R&D, and results in equations for actual and multiple-span planned investment in R&D and for the realization error as functions of these expectations. The model accommodates alternative mechanisms of expectations formation and provides a methodology for testing these hypotheses empirically. We derive estimable equations and testable parameter restrictions for the rational, adaptive and static expectations hypotheses. The empirical results using pooled firm data strongly reject the rational and static expectations hypotheses and generally support adaptive expectations.
Handle: RePEc:nbr:nberwo:0931
Template-Type: ReDIF-Paper 1.0
Title: The Optimal Use of Fines and Imprisonment
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 0932
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0932
File-URL: http://www.nber.org/papers/w0932.pdf
File-Format: application/pdf
Publication-Status: published as Polinsky, A. Mitchell and Steven Shavell. "The Optimal Use of Fines and Imprisonment." Journal of Public Economics, Vol. 24, (1984), pp. 89-99.
Abstract: This paper examines the use of fines and imprisonment to deter individuals from engaging in harmful activities. These sanctions are analyzed separately as well as together, first for identical risk-neutral individuals and then for two groups of risk-neutral individuals who differ by wealth. When fines are used alone and individuals are identical, the optimal fine and probability of apprehension are such that there is some "underdeterrence." If individuals differ by wealth, then the optimal fine for the high wealth group exceeds the fine for the low wealth group. When imprisonment is used alone and individuals are identical, the optimal imprisonment term and probability may be such that there is either underdeterrence or overdeterrence. If individuals differ by wealth, the optimal imprisonment term for the high wealth group may be longer or shorter than the term for the low wealth group. When fines and imprisonment are used together, it is desirable to use the fine to its maximum feasible extent before possibly supplementing it with an imprisonment term. The effects of risk aversion on these results are also discussed.
Handle: RePEc:nbr:nberwo:0932
Template-Type: ReDIF-Paper 1.0
Title: Estimating Distributed Lags in Short Panels with an Application to the Specification of Depreciation Patterns and Capital Stock Constructs
Author-Name: Ariel Pakes
Author-Person: ppa20
Author-Name: Zvi Griliches
Note: PR
Number: 0933
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0933
File-URL: http://www.nber.org/papers/w0933.pdf
File-Format: application/pdf
Publication-Status: published as Pakes, Ariel and Zvi Griliches. "Estimating Distributed Lags in Short Panels with an Application to the Specification of Depreciation Patterns and Capital Stock Constructs." Review of Economic Studies, No. LI(2), No. 165, (April 1984), pp. 243-262.
Abstract: In this paper, we investigate the problem of estimating distributed lags in short panels. Estimates of the parameter of distributed lag relationships based on single time-series of observations have been usually rather imprecise. The promise of panel data is in the N repetitions of the time-series that it contains which should allow one to estimate the identified lag parameters with greater precision. On the other hand, panels tend to track their observations only over a relatively short time interval. Thus, some assumptions will have to be made on the contribution of the unobserved presample x's to the current values of y before any lag parameters can be identified from such data. In this paper we suggest two such assumptions; both of which are, at least in part, testable, and outline appropriate estimation techniques. The first places reasonable restrictions on the relationship between the presample and in sample x's while the second imposes conventional functional form constraints on the lag coefficients. The paper concludes with an example which investigates empirically how to construct a "capital stock" for profit or rate of return regressions.
Handle: RePEc:nbr:nberwo:0933
Template-Type: ReDIF-Paper 1.0
Title: The American Fiscal Deficit: Facts and Effects
Author-Name: Herschel I. Grossman
Note: EFG
Number: 0934
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0934
File-URL: http://www.nber.org/papers/w0934.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Herschel I. "The American Fiscal Deficit: Facts and Effects." American Enterprise Institute, (November 1982).
Abstract: The main objective of this paper is to understand and to evaluate recently expressed popular anxiety about large American fiscal deficits. The paper begins with a discussion of problems involved in measuring the fiscal deficit. A general conclusion is that all interesting measures of the federal fiscal deficit have increased substantially over the past eight presidential terms and are likely to increase further in the near future. The paper goes on to analyze possible connections between fiscal deficits and inflation, economic growth, and fluctuations in the level and composition of economic activity. Important conclusions are that monetary policy, inflation, and aggregate economic activity are all largely independent of the fiscal deficit, but that the fiscal deficit can have major effects on the division of output between consumption and investment. Key elements in the analysis are the effects of taxation on consumption and investment demands and the relations between real and financial developments.
Handle: RePEc:nbr:nberwo:0934
Template-Type: ReDIF-Paper 1.0
Title: Optimal Funding and Asset Allocation Rules for Defined-Benefit Pension Plans
Author-Name: J. Michael Harrison
Author-Name: William F. Sharpe
Note: PE
Number: 0935
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0935
File-URL: http://www.nber.org/papers/w0935.pdf
File-Format: application/pdf
Publication-Status: published as Harrison, J. Michael and William F. Sharpe. "Optimal Funding and Asset Allocation Rules for Defined-Benefit Pension Plans." Financial Aspects of the U .S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1983), pp. 91-106.
Publication-Status: published as Optimal Funding and Asset Allocation Rules for Defined-Benefit Pension Plans, J. Michael Harrison, William F. Sharpe. in Financial Aspects of the United States Pension System, Bodie and Shoven. 1983
Abstract: This paper considers a world in which pension funds may default, the cost of the associated risk of default is not borne fully by the sponsoring corporation, and there are differential tax effects. The focus is on ways in which the wealth of the shareholders of a corporation sponsoring a pension plan might be increased if the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC) follow simple and naive policies. Under the conditions examined, the optimal policy for pension plan funding and asset allocation is shown to be extremal in a certain sense. This suggests that the IRS and the PBGC may wish to use more complex regulatory procedures than those considered in the paper.
Handle: RePEc:nbr:nberwo:0935
Template-Type: ReDIF-Paper 1.0
Title: A Framework for Monetary and Banking Analysis
Author-Name: Stanley Fischer
Note: EFG
Number: 0936
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0936
File-URL: http://www.nber.org/papers/w0936.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley. "A Framework for Monetary and Banking Analysis." The Economic Journal, (March 1983) pp. 1-16.
Abstract: The paper sets out and analyzes a simple model of money, banking, and price level determination. The model is first used to illustrate recent developments in the theory and analysis of banking, particularly the distinction between the portfolio management services provided by banks and their provision of transactions services. The assumptions are then extended to analyze price level determination in an economy that becomes an inside money economy as high-powered money goes out of use. The paper concludes by discussing the major unresolved questions about banking, money, and price level determination.
Handle: RePEc:nbr:nberwo:0936
Template-Type: ReDIF-Paper 1.0
Title: Products Liability, Consumer Misperceptions, and Market Power
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Author-Name: William P. Rogerson
Note: LE
Number: 0937
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0937
File-URL: http://www.nber.org/papers/w0937.pdf
File-Format: application/pdf
Publication-Status: published as Polinsky, A. Mitchell and William P. Rogerson. "Products Liability, Consumer Misperceptions, and Market Power." Bell Journal of Economics, Vol. 14, No. 2, (Autumn 1983), pp.581-589.
Abstract: This paper compares alternative liability rules for allocating losses from defective products when consumers under- estimate these losses and producers may have some market power. If producers do not have any market power, the rule of strict liability .leads to both the first-best accident probability and industry output. If producers do have some market power, strict liability still leads to the first-best accident probability, but there will now be too little output of the industry. It is shown that if market power is sufficiently large, a negligence rule is preferable. Under this rule, firms can still be induced to choose the first-best accident probability, but now the remaining damages are borne by consumers. Since consumers underestimate these damages, they buy more than under strict liability. However, there is a limit to how much the negligence rule can encourage extra consumption. It is shown that if market power is sufficiently large, the rule of no liability may then be preferred to the negligence rule. Without any liability imposed, producers will not choose the first-best accident probability. However, this may be more than compensated for by the increased output of the industry.
Handle: RePEc:nbr:nberwo:0937
Template-Type: ReDIF-Paper 1.0
Title: Pension Funding Decisions, Interest Rate Assumptions and Share Prices
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Randall Morck
Author-Person: pmo146
Note: PE
Number: 0938
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0938
File-URL: http://www.nber.org/papers/w0938.pdf
File-Format: application/pdf
Publication-Status: published as Bodie, Zvi and John B. Shoven (eds.) Financial Aspects of the U.S. Pension System. Chicago: University of Chicago Press, 1983.
Abstract: This paper explores how unfunded pension obligations affect the market values of firms. Finns appear to choose the interest rate they use in discounting future benefit obligations so as to balance the tax advantages of a low rate against the more healthy looking annual reports a high rate allows. Investors seem to penetrate this ruse and value firms as if obligations were figured at a standard rate. The rate thus used seems to be much lower than current long term interest rates. Pension liabilities are therefore overemphasized by the market. There is also some evidence that pension assets are undervalued. This suggests that growth of the private pension system might increase savings by investors and firms.
Handle: RePEc:nbr:nberwo:0938
Template-Type: ReDIF-Paper 1.0
Title: Torts in Which Victim and Injurer Act Sequentially
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 0939
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0939
File-URL: http://www.nber.org/papers/w0939.pdf
File-Format: application/pdf
Publication-Status: published as Shavell, Steven. "Torts in Which Victim and Injurer Act Sequentially." Journal of Law and Economics, Vol. 26, (October 1983), pp. 589-612.
Abstract: The effect of liability rules on accident avoidance is studied in two types of situations in which potential victims and potential injurers act sequentially: those where victims act first and injurers second; and those where the reverse is true. What is of special interest about the working of liability rules in such sequential situations is that the party who acts second behaves in response to the party who acts first, and that the party who acts first takes this into account. The major result shown is that liability rules induce optimal behavior provided that they lead the party who acts second to act optimally if and only if the first party did so. In an important extension of the basic model considered, however, this result may not hold.
Handle: RePEc:nbr:nberwo:0939
Template-Type: ReDIF-Paper 1.0
Title: Minimum Hours Constraints and Retirement Behavior
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 0940
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0940
File-URL: http://www.nber.org/papers/w0940.pdf
File-Format: application/pdf
Publication-Status: published as Gustman, Alan L. Gustman and Thomas L. Steinmeier. "Minimum Hours Constraints and Retirement Behavior." Contemporary Policy Issues, (Supplement to Economic Inquiry), No. 3, (April 1983), pp. 77-91.
Abstract: This paper presents statistics which confirm the existence of minimum hours constraints for jobs held by a majority of prime aged male workers who are not self employed. It then considers the implications of these constraints for studies of retirement behavior and related policy analyses. Potential biases associated with conventional analyses, which either ignore the existence of minimum hours constraints or assume they are pervasive, are discussed in the context of structural life cycle retirement models. A more realistic but still imperfect specification, which can be estimated given available data, assumes minimum hours constraints on the main job and variable hours elsewhere.
Handle: RePEc:nbr:nberwo:0940
Template-Type: ReDIF-Paper 1.0
Title: The Leading Indicator Approach to Economic Forecasting--Retrospect and Prospect
Author-Name: Philip A. Klein
Author-Name: Geoffrey H. Moore
Note: EFG
Number: 0941
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0941
File-URL: http://www.nber.org/papers/w0941.pdf
File-Format: application/pdf
Publication-Status: published as Klein, P. A. and G. H. Moore. "The Leading Indicator Approach To Economic Forecasting - Retrospect And Prospect," Journal of Forecasting, 1983, v2(2), 119-136.
Abstract: For many years a system of leading, coincident, and lagging economic indicators, first developed in the 1930s by the National Bureau of Economic Research (NBER), has been widely used in the United States to appraise the state of the business cycle. Since 1961 the current monthly figures for these indicators have been published by the U.S. Department of Commerce in Business Conditions Digest. Similar systems have been developed by government or private agencies in Canada, Japan, the United Kingdom, and more recently in many other countries. A few years ago the Organization for Economic Cooperation and Development (OECD) set up a working party to develop this type of analysis and most of the member countries participated. The Center for International Business Cycle Research at Rutgers University has given guidance in this field to some fifteen countries during the past three years, in Europe, Asia, the Middle East, Africa and South America. Our purpose in this paper is to explain briefly the theory and rationale underlying this approach to economic forecasting, describe the more important statistical procedures used, and review the evidence on how the indicators have performed in practice. The tests of performance concentrate on data not used in the selection of the indicators, in the United States and nine other countries. We conclude with some suggestions for future research and development, including the application of the approach to the analysis of inflation.
Handle: RePEc:nbr:nberwo:0941
Template-Type: ReDIF-Paper 1.0
Title: World Shocks, Macroeconomic Response, and the Productivity Puzzle (Rev)
Author-Name: Michael Bruno
Note: ITI IFM
Number: 0942
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0942
File-URL: http://www.nber.org/papers/w0942.pdf
File-Format: application/pdf
Publication-Status: published as Bruno, Michael. "World Shocks, Macroeconomic Response, and the Productivity Puzzle (rev.)." Slower Growth in the Western World, edited by R.C.O. Matthews. London, (1982).
Abstract: On the basis of a comparative growth analysis of ten major industrial countries, it is shown that the productivity slowdown of the 1970s can be attributed to a combination of the energy and raw material price shocks and the contractionary macroeconomic policies that were followed in response to these shocks. For a raw material intensive sector the rise in the relative price of material inputs has lowered gross output per unit of the other complementary factors, labour and capital. For the aggregated manufacturing sector of the ten economies this explains on average about 60% of the productivity slowdown. A more disaggregated analysis for U.K. manufacturing industries is also given. On the demand side, terms of trade deterioration has reduced real income and consumption and the profit squeeze has lowered investment demand. Fear of inflation and current account deficits has imparted a further deflationary bias to aggregate demand management in most industrial countries. Depressed demand and greater output variability have hampered factor reallocation in response to the exogenous shocks. The overriding role of demand contraction, particularly in the non- manufacturing industries, is shown in a comparative analysis of the aggregate business sector and a partial view of labour productivity growth in the service industries of these economies. The industrial countries can be contrasted with the middle income developing countries where output and productivity continued to grow more evenly after 1973, at the cost of large current account deficits and higher persistent inflation. This provides further evidence that productivity growth is closely linked to macroeconomic response.
Handle: RePEc:nbr:nberwo:0942
Template-Type: ReDIF-Paper 1.0
Title: Are Inflation Rates Different for the Elderly?
Author-Name: Michael J. Boskin
Author-Name: Michael D. Hurd
Author-Person: phu137
Note: PE
Number: 0943
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0943
File-URL: http://www.nber.org/papers/w0943.pdf
File-Format: application/pdf
Publication-Status: published as Boskin, Michael J. and Michael D. Hurd. "Indexing Social Security Benefits: A Separate Price Index for the Elderly?" Public Finance Quarterly, Vol. 1 3, No. 4, Oct. 1985, pp. 436-449.
Abstract: This paper presents new evidence on cost-of-living indices and annual inflation rates for the elderly population as well as the general population. It employs a now fairly widely accepted adjustment for the inappropriate treatment of housing in the Consumer Price Index. We disaggregate by five-year age cohorts for the elderly, and analyze various features of the differences in the inflation faced by the elderly and the general population, as well as within the elderly group itself. We conclude that, conditional on a housing adjustment, the inflation experience of the elderly from 1961-1981 was quite similar to the general population, both cumulatively and year-by-year.
Handle: RePEc:nbr:nberwo:0943
Template-Type: ReDIF-Paper 1.0
Title: Pensions as Severance Pay
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: LS PE
Number: 0944
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0944
File-URL: http://www.nber.org/papers/w0944.pdf
File-Format: application/pdf
Publication-Status: published as Lazear, Edward P. "Pensions as Severance Pay." Financial Aspects of the U.S . Pension System, ed. by Zvi Bodie and John B. Shoven. Chicago: Universityof Chicago Press, (1984), pp. 57-85.
Publication-Status: published as Pensions as Severance Pay, Edward P. Lazear. in Financial Aspects of the United States Pension System, Bodie and Shoven. 1983
Abstract: Earlier claims that pensions serve as severance pay are corroborated by a new data set drawn from the 1980 Banker's Trust corporate pension plan study. A model is developed that shows how pension values which vary with the age of retirement make both workers and firms better off by moving the equilibrium in the direction of a perfect-information, first-best optimum. This requires that pension values decline with the age of retirement beyond a certain point. Evidence from the 1975 and 1980 data sets supports this claim. To the extent that any significant change has occurred between 1975 and 1980, most important is that the ratio of early retirement pension value to normal retirement pension value has increased.
Handle: RePEc:nbr:nberwo:0944
Template-Type: ReDIF-Paper 1.0
Title: Bubbles, Rational Expectations and Financial Markets
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Author-Name: Mark W. Watson
Author-Person: pwa582
Note: EFG
Number: 0945
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0945
File-URL: http://www.nber.org/papers/w0945.pdf
File-Format: application/pdf
Publication-Status: published as Blanchard, Olivier J. and Mark W. Watson. Bubbles, Rational Expectations and Financial Markets." Crises in the Economic and Financial Structure, Paul Wachtel, editor, pp. 295-316. Lexington, MA: D.C. Heathand Company, (1982).
Abstract: This paper investigates the nature and the presence of bubbles in financial markets. Are bubbles consistent with rationality? If they are, do they, like Ponzi games, require the presence of new players forever? Do they imply impossible events in finite time, such as negative prices? Do they need to go on forever to be rational? Can they have real effects? These are some of the questions asked in the first three sections. The general conclusion is that bubbles, in many markets, are consistent with rationality, that phenomena such as runaway asset prices and market crashes are consistent with rational bubbles. In the last two sections, we consider whether the presence of bubbles in a particular market can be detected statistically. The task is much easier if there are data on both prices and returns. In this case, as shown by Shiller and Singleton, the hypothesis of no bubble implies restrictions on their joint distribution and can be tested. In markets in which returns are difficult to observe, possibly because of a nonpecuniary component, such as gold, the task is more difficult. We consider the use of both "runs tests" and "tail tests" and conclude that they give circumstantial evidence at best.
Handle: RePEc:nbr:nberwo:0945
Template-Type: ReDIF-Paper 1.0
Title: Cost Implications of Hospital Unionization: A Behavioral Analysis
Author-Name: David S. Salkever
Author-Person: psa1313
Note: EH
Number: 0946
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0946
File-URL: http://www.nber.org/papers/w0946.pdf
File-Format: application/pdf
Publication-Status: published as Salkever, David S. "Cost Implications of Hospital Unionization: A Behavioral Analysis." Health Services Research, Vol. 19, No. 5, (December 1984),pp. 639-664.
Abstract: The growth of unionization among hospital workers was sharply accelerated by the 1974 amendments to the NLRA covering voluntary hospital workers. With continuing inflationary pressures in the hospital sector, the cost implications of the recent and projected growth of hospital unions is of some concern to policy-makers . This paper presents estimates of union cost impacts based on data from hospitals in the states of Maryland, Massachusetts, New York, and Pennsylvania. Cross-sectional regressions with data for 1975 yield positive union impacts of 3.3 percent on total costs, 4.1 to 5.9 percent on cost per case, and 6.1 percent on cost per day. Re-estimation of the model with data on changes over the 1971 -75 period yields similar results. We also find that the cost impact of unionization varies with the pattern of coverage (being lower for service employees and RN's) and with the extent of cost-based reimbursement. This suggests that future cost impacts of union growth may be moderated as prospective payment systems for hospital s become more widespread.
Handle: RePEc:nbr:nberwo:0946
Template-Type: ReDIF-Paper 1.0
Title: Domestic Saving and International Capital Movements in the Long Run and the Short Run
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: ITI IFM
Number: 0947
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0947
File-URL: http://www.nber.org/papers/w0947.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Domestic Saving and International Capital Movements inthe Long Run and the Short Run." European Economic Review, Vol. 21, (1983),pp. 129-151.
Publication-Status: published as Domestic Saving and International Capital Movements in the Long Run and the Short Run, Martin Feldstein. in International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, de Ménil and Gordon. 1991
Abstract: The evidence and analysis in this paper support the earlier findings of Feldstein and Horioka (1980) that sustained increases in domestic savings rates induce approximately equal increases in domestic rates of investment. New estimates for the post-OPEC period 1974-79 imply that each extra dollar of domestic saving increases domestic investment by approximately 85 cents in a sample of 17 OECD countries. An explicit analysis of the problems of identification and simultaneous equations bias suggests that the regression estimates are more relevant as a guide to the long-run response of international capital flows than to their short-run behavior. Coefficient estimates based on annual variations in savings and investment are subject to potentially severe simultaneous equations bias that is not present when annual observations are averaged over a decade or more and the regression is estimated with a cross-country sample of these averages. A portfolio model of international capital allocation that is presented in the paper indicates that the short-run change in the rate of net foreign investment in response to a sustained increase in domestic saving is likely to be substantially greater than the ultimate steady state response.
Handle: RePEc:nbr:nberwo:0947
Template-Type: ReDIF-Paper 1.0
Title: Are High Income Individuals Better Stock Market Investors?
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Shlomo Yitzhaki
Author-Person: pyi12
Note: PE
Number: 0948
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0948
File-URL: http://www.nber.org/papers/w0948.pdf
File-Format: application/pdf
Abstract: This paper presents evidence that the corporate stock owned by high income investors appreciates substantially faster than the stock owned by investors with lower incomes. Those with very high incomes enjoy the greatest success on their investments while those with incomes under $20,000 have the least success. The evidence indicates that the differences are large and that they have persisted for a long time.
Handle: RePEc:nbr:nberwo:0948
Template-Type: ReDIF-Paper 1.0
Title: A Synthesis of Keynesian, Monetary, and Portfolio Approaches to FlexibleExchange Rates
Author-Name: Thorvaldur Gylfason
Author-Person: pgy1
Author-Name: John F. Helliwell
Author-Person: phe368
Note: ITI IFM
Number: 0949
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w0949
File-URL: http://www.nber.org/papers/w0949.pdf
File-Format: application/pdf
Publication-Status: published as Gylfason, Thorvaldur and John F. Helliwell. "A Synthesis of Keynesian, Monetary, and Portfolio Approaches to Flexible Exchange Rates." The Economic Journal, Vol. 93, No. 372, (December 1983), pp. 820-831.
Abstract: This paper presents a simple synthesis of Keynesian, monetary, and portfolio approaches to macroeconomic theory under flexible exchange rates. By including the key features of all the partial approaches in a general model, we show that some of the important contrasts that have been drawn between the approaches are due to a neglect of repercussions elsewhere in the economy. After reconciling these false contrasts, we show how some of the approaches still give different predictions about the effects of monetary and fiscal policy using differing assumptions about the international mobility of goods and financial assets.
Handle: RePEc:nbr:nberwo:0949
Template-Type: ReDIF-Paper 1.0
Title: General Equilibrium and Business Cycles
Author-Name: Fischer Black
Note: EFG
Number: 0950
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0950
File-URL: http://www.nber.org/papers/w0950.pdf
File-Format: application/pdf
Publication-Status: published as Black, Fischer. "General Equilibrium and Business Cycles," Business Cyclesand Equilibrium, October 1987. Basil Blackwell.
Abstract: The general equilibrium models in this paper, with complete markets, can give the major features of business cycles. The models include real investment, but information is costless and is available to everyone at the same time. Fluctuations in the match between resources and wants across many sectors create major fluctuations in output and unemployment, because moving resources from one sector to another is costly. Fluctuations in the demand for the services of durable goods causes much larger fluctuations in the output of durables, and causes unemployment that takes the form of temporary layoffs. Since specialized factors cooperate in producing goods and services, it makes sense to lay people off in groups rather than lowering wages and waiting for them to quit. Similarly, a vacancy is created when a specialized factor is missing from such a group. Technology comes with varying levels of risk and expected return associated with the degree of specialization. More specialization means more severe fluctuations and a higher average level of unemployment, along with a higher average level of output and growth. Monetary policy, interest rates, and fiscal policy have no special roles to play in the model.
Handle: RePEc:nbr:nberwo:0950
Template-Type: ReDIF-Paper 1.0
Title: Tax Effects on the Allocation of Capital Among Sectors and Among Individuals: A Portfolio Approach
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 0951
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0951
File-URL: http://www.nber.org/papers/w0951.pdf
File-Format: application/pdf
Abstract: This paper deals with the allocational effects and implications for efficiency of a tax system in which the rate of tax on capital income differs depending on the recipient of the income and on the type of capital producing the income. It suggests that, in their attempts to measure the distortionary effect of the U.S. capital income tax system, economists may have been looking in the wrong places. In the presence of uncertainty, the intersectoral distortion may be much less than had previously been imagined. However, the tax system distorts at two other margins which have not received much attention. It distorts the inter-household allocation of the housing stock, since the after-tax rate of interest is one component of the opportunity cost of owner-occupied housing. It also distorts the inter-household allocation of risk-bearing. Calculations using a simple commutable general equilibrium model suggest that the excess burden from these latter two distortions are significant components of the total distortionary impact of the tax system.
Handle: RePEc:nbr:nberwo:0951
Template-Type: ReDIF-Paper 1.0
Title: Long Run Trends in Patenting
Author-Name: John J. Beggs
Note: PR
Number: 0952
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0952
File-URL: http://www.nber.org/papers/w0952.pdf
File-Format: application/pdf
Publication-Status: published as Beggs, John J. "Long Run Trends in Patenting." R&D, Patents and Productivity, ed. by Zvi Griliches. Chicago: University of Chicago Press. (1984).
Publication-Status: published as Long-Run Trends in Patenting, John J. Beggs. in R&D, Patents, and Productivity, Griliches. 1984
Abstract: This paper examines the patenting in the U.S. from its origins in 1790 up to 1980. The prime intent was to identify relationships between patenting and the rate of industrial development, and to further look for any regular cyclical patterns in the time series of patents themselves. To this end, detailed records were gathered on annual patenting, along with key descriptive data on industry structure for a sample of twenty industries for the period 1850 through 1940. In general the correlations between changes in the rate of patenting and changes in industry characteristics are small. A tentative conclusion is that the rate of change in patenting may move inversely with the rate of change in value added. This leads the author to speculate on a "defensive R&D hypothesis" which may reflect strongly the choice of sample industries. The industries in the study were in existence in 1850 and managed to ward off challenges from other new industries so as to still be in existence in 1940. At each new challenge from a new product or a foreign competitor these industries have attempted to protect their existing capital stock by upgrading the production process and final product. While these changes do not normally represent major technological advances they are of a "tinkering" variety which are likely to produce large numbers of patents. A spectral analysis of the 190 year time series of patents issued suggests that the rate of change of this variable might be characterized as a moving average process with lags at five and eight years. An interpretation of this result is offered, along with caution against over interpretation.
Handle: RePEc:nbr:nberwo:0952
Template-Type: ReDIF-Paper 1.0
Title: OSHA Enforcement, Industrial Compliance and Workplace Injuries
Author-Name: Ann P. Bartel
Author-Name: Lacy Glenn Thomas
Note: LS
Number: 0953
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0953
File-URL: http://www.nber.org/papers/w0953.pdf
File-Format: application/pdf
Publication-Status: published as Bartel, Ann P. and Lacy Glenn Thomas. "Direct and Indirect Effects of Regulation: A New Look at OSHA's Impact." Journal of Law and Economics, Vol. 28, No. 1, (April 1985), pp. 1-25.
Abstract: This paper develops and tests a three-equation simultaneous model of OSHA enforcement behavior, industrial compliance and workplace injuries. The enforcement equation is based on the assumption that OSHA acts as a political institution that gains support through the transfer of wealth from firms to employees; the empirical results are largely consistent with this notion. Contrary to previous work, we find that OSHA enforcement efforts have, indeed, had a statistically significant impact on industrial compliance and, further, that this compliance has led to a statistically significant decrease in worker injuries. The point estimate of the elasticity of the lost workday rate with respect to the OSHA inspection rate is -.04.
Handle: RePEc:nbr:nberwo:0953
Template-Type: ReDIF-Paper 1.0
Title: The Theory of Local Public Goods Twenty-Five Years After Tiebout: A Perspective
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 0954
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0954
File-URL: http://www.nber.org/papers/w0954.pdf
File-Format: application/pdf
Publication-Status: published as Stiglitz, Joseph E. "The Theory of Local Public Goods Twenty-five Years After Tiebout: A Perspective." Local Provision of Public Services: The Tiebout Model after Twenty-five Years, Academic Press, (1983), pp. 17-53.
Abstract: This paper asks, under what conditions can the Fundamental Theorem of Welfare Economics be extended to economies with local public goods? We show that there are some fairly restrictive sets of assumptions under which a competitive local public goods equilibrium (if it exists) is efficient; more generally, however, competitive local public goods equilibria may be inefficient in the allocation of individuals among communities, in the number of communities, and in the level and kinds of public goods provided. The primary sources of inefficiency are identified and analyzed; these "market" failures are closely related to some important policy issues concerning, for instance, urban concentralization, fiscal decentralization, and regional redistribution. In communities in which landlords control the public sector, the level and kinds of public goods provided may be incorrect, and what goods are provided are supplied inefficiently. In contrast, in communities in which renters control the public sector, there are no incentives for efficiency in the supply of public goods. Because of what we refer to as rental capitalization, there may in fact be perverse incentives with respect to the kinds of public goods or "bads" provided. Not only is it the case that not every competitive equilibrium is Pareto optimal, but not every Pareto efficient allocation can be sustained by a competitive local public goods equilibrium (with the appropriate lump sum redistributions) . Just as the Fundamental Theorem of Welfare Economics does not adequately reflect the vices and virtues of competition in the market economy with purely private goods, so too here: the virtues of a decentralized mechanism for providing public goods may be vastly underestimated by our analysis.
Handle: RePEc:nbr:nberwo:0954
Template-Type: ReDIF-Paper 1.0
Title: Taxes, Firm Financial Policy and the Cost of Capital: An Empirical Analysis
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 0955
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0955
File-URL: http://www.nber.org/papers/w0955.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "Taxes, Firm Financial Policy and the Cost of Capital: An Empirical Analysis." Journal of Public Economics, Vol. 23, No. 1/2, (February/March 1984), pp. 27-57.
Abstract: This paper develops a theoretical model of firm behavior consistent with the maximization of shareholder utility, and derives empirically testable implications of different theories of equity finance. Using data on firm earnings and previous investment and financial behavior, we assess whether firms treat new share issues as a more expensive source of finance than retentions, and whether such behavior varies across firms according to the composition of their shareholders. Our results strongly support the hypothesis that firms perceive a higher cost of capital when issuing new shares, and that the cost of capital varies significantly across firms having different estimated tax clienteles, as theory would predict.
Handle: RePEc:nbr:nberwo:0955
Template-Type: ReDIF-Paper 1.0
Title: Valuing Pensions (Annuities) with Different Types of Inflation Protection in Total Compensation Comparisons
Author-Name: James E. Pesando
Author-Person: ppe278
Note: PE
Number: 0956
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0956
File-URL: http://www.nber.org/papers/w0956.pdf
File-Format: application/pdf
Publication-Status: published as Pesando, James E. "Valuing Pensions (Annuities) with Different Types of Inflation Protection in Total Compenstation Comparisons." Canadian Journal of Economics, Vol. XVII, No.3, (August 1984), pp. 569-587.
Abstract: Pensions provided in the public sector are often indexed, while pensions in the private sector typically are not. To conduct the total compensation comparisons that ostensibly guide government pay policy, one must value annuities which differ in their degree of inflation protection. This paper conducts this exercise from the viewpoint of modem finance theory, and contrasts the results with those of a representative government, the Government of Canada. The results suggest that governments may typically understate the value of indexed pensions and overstate the value of pensions which receive incomplete inflation protection. A contributing factor is the apparent belief that standardizing actuarial assumptions is sufficient to ensure comparability, in spite of the fact that risk is ignored and that interest rate and inflation assumptions are typically not those of the market.
Handle: RePEc:nbr:nberwo:0956
Template-Type: ReDIF-Paper 1.0
Title: Pension Funding, Pension Asset Allocation, and Corporate Finance: Evidence From Individual Company Data
Author-Name: Benjamin M. Friedman
Note: ME PE
Number: 0957
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0957
File-URL: http://www.nber.org/papers/w0957.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Pension Funding, Pension Asset Allocation, and Corporate Finance: Evidence from Individual Company Data." Financial Aspects ofthe U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1984), pp. 107-147.
Publication-Status: published as Pension Funding, Pension Asset Allocation, and Corporate Finance: Evidence from Individual Company Data, Benjamin M. Friedman. in Financial Aspects of the United States Pension System, Bodie and Shoven. 1983
Abstract: This paper examines the relationship between U.S. corporations' management of their pension plans and their management of the more familiar aspects of corporate financial structure. The chief conclusion, on the basis of data for 7,828 pension plans sponsored by 1,836 companies and their subsidiaries, is that corporations do not manage the pension plans which they sponsor as if these plans had nothing to do with the corporation. Different responses appear to characterize firms' behavior in different contexts, but the evidence persistently indicates clear relationships between decisions about pension assets and liabilities and decisions about the other assets and liabilities of the firm. At the same time, the pattern of these relation- ships is, more often than not, inconsistent with familiar hypotheses that have emerged thus far in the theoretical literature analyzing pension aspects of corporate finance. Hence the conclusion from the data is also that the connections between pension decisions and corporate financial decisions in the more conventional sense are, at least as yet, not well understood.
Handle: RePEc:nbr:nberwo:0957
Template-Type: ReDIF-Paper 1.0
Title: The Reaction of Stock Prices to Unanticipated Changes in Money
Author-Name: Douglas K. Pearce
Author-Name: V. Vance Roley
Note: ME
Number: 0958
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0958
File-URL: http://www.nber.org/papers/w0958.pdf
File-Format: application/pdf
Publication-Status: published as Pearce, Douglas K. and V. Vance Roley. "The Reaction of Stock Prices to Unanticipated Changes in Money: A Note." Journal of Finance, editor Michael Brennan, Waverly Press, Inc. Vol. 38, No. 4, (September 1983), pp. 132 3-1333.
Abstract: This paper investigates the short-run effect of unexpected changes in the weekly money stock on common stock prices. Survey data on money market participants' forecasts of money changes are employed to construct the measure of unanticipated movements in the money stock. The results indicate that an unexpected increase in money depresses stock prices and, consistent with the efficient markets hypothesis, only the unexpected part of the weekly money announcement causes stock price fluctuations. The October 1979 change in Federal Reserve operating procedures appears to have made stock prices somewhat more sensitive to large money surprises.
Handle: RePEc:nbr:nberwo:0958
Template-Type: ReDIF-Paper 1.0
Title: Optimal Currency Diversification for a Class of Risk Averse International Investors
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Note: ITI IFM
Number: 0959
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0959
File-URL: http://www.nber.org/papers/w0959.pdf
File-Format: application/pdf
Publication-Status: published as de Macedo, Jorge Braga. "Optimal Currency Diversification for a Class ofRisk Averse International Investors." Journal of Economic Dynamics and Control ,Vol. 5, No. 2. (February 1983) pp. 173-185.
Abstract: In the framework of continuous-time finance theory, this paper derives the optimal consumption and portfolio rules for an international investor with constant expenditure shares [alpha, sub j] and constant relative risk aversion [1-gamma] in a dynamic context. The index of value obtained from the consumption rule is used to obtain real returns on N different currencies in terms of their purchasing power over N goods. The portfolio rule is expressed in terms of the determinants of the purchasing powers, namely exchange rates and prices expressed in the numeraire currency. The optimal portfolio is interpreted as a capital position given by the expenditure shares and hedging zero net-worth portfolios depending on unanticipated inflation and risk aversion. It is shown that the minimum variance portfolio is independent of returns, but depends on expenditure patterns. While the speculative portfolio depends on risk aversion and real return differentials. When the effect of references on real return differentials is made explicit, it is shown that the minimum variance portfolio is affected by risk aversion. In that case, the effect of an increase in [alpha, sub i] on the portfolio proportions [x, sub i] will be positive when relative risk aversion is greater than one, as generally presumed. Actual data from eight major countries is used to compute optimal portfolios based on real return differentials for different weighting schemes, degrees of risk aversion and sample periods when exchange rates and prices are assumed to be Brownian.
Handle: RePEc:nbr:nberwo:0959
Template-Type: ReDIF-Paper 1.0
Title: International Portfolio Diversification: Short-Term Financial Assets and Gold
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Author-Name: Jeffrey A. Goldstein
Author-Name: David M. Meerschwam
Note: ITI IFM
Number: 0960
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0960
File-URL: http://www.nber.org/papers/w0960.pdf
File-Format: application/pdf
Publication-Status: published as Goldstein, Jeffrey A., Jorge Braga De Macedo, David M. Meerschwam. "International Portfolio Diversification: Short-Term Financial Assets and Gold." Exchange Rate Theory and Practice, ed. by John F. O.Bilson and Richard C. Marston. Chicago UCP. (1984), pp. 199-232 and 237- 238.
Publication-Status: published as International Portfolio Diversification: Short-Term Financial Assets and Gold, Jorge Braga de Macedo, Jeffrey Goldstein, David Meerschwam. in Exchange Rate Theory and Practice, Bilson and Marston. 1984
Abstract: Using a continuous-time finance-theoretic framework, this paper presents the optimal portfolio rule of an international investor who consumes N national composite goods and who holds N domestic-currency-denominated assets with known nominal interest rates in an environment where prices of goods, assets and exchange rates follow geometric Brownian motion. It is shown that the currency portfolio rule described in Macedo (1982a) is applicable to the case where there are N assets with a known price and one asset, gold, with a random rice in terms of the numeraire. Under these assumptions, it is found that the optimal portfolio of an investor consuming goods from all major industrialized countries (according to their weight in total trade) would be dominated in March 1981 by long positions in U.S. dollars (25%), yen (17%), D. marks (16%), French francs (15%) and pounds sterling (10%). An investor consuming only U.S. goods, by contrast, would hold 96% of his optimal portfolio in U.S. dollars. Because of the covariance of exchange rates and gold, the exclusion of the latter generates substantial reshuffling. The analysis of the evolution of portfolios over time shows that shares changed dramatically at the beginning of the period and did not begin to approach their March 1981 values until the end of 1975. In the case of the yen and the pound there were oscillations throughout the period. With respect to the dollar share in the optimal portfolio of the U.S. and international investor, it is found that, in the period between late 1974 and mid-1976, a period in which the dollar is considered to have been "strong", a large decline in its optimal share took place.
Handle: RePEc:nbr:nberwo:0960
Template-Type: ReDIF-Paper 1.0
Title: Comparing Productivity Growth: An Exploration of French and U.S. Industrial and Firm Data
Author-Name: Zvi Griliches
Author-Name: Jacques Mairesse
Author-Person: pma712
Note: PR
Number: 0961
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0961
File-URL: http://www.nber.org/papers/w0961.pdf
File-Format: application/pdf
Publication-Status: published as Griliches, Zvi and Jacques Mairesse. "Comparing Productivity Growth: An Exploration of French and U.S. Industrial and Firm Data." European Economic Review, Vol. 21, Vol. 1/2. North Holland Publishing Company. (March/April 1983), pp. 89-119.
Publication-Status: published as Comparing Productivity Growth: An Exploration of French and U.S. Industrial and Firm Data, Zvi Griliches, Jacques Mairesse. 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 Comparing Productivity Growth: An Exploration of French and U.S. Industrial and Firm Data, Zvi Griliches. in R&D and Productivity: The Econometric Evidence, Griliches. 1998
Abstract: This paper compares and analyzes the growth of productivity in the manufacturing industries and firms in France and the U.S. based on newly assembled comparable data sets in both countries. Three explanations of the recent productivity slowdown are reviewed: shortfall in physical investment, rise in materials prices, and a decline in the intensity or fecundity of R&D investment, and found not to bear on the differences in productivity growth between and within the two countries, either at the industry or the firm levels.
Handle: RePEc:nbr:nberwo:0961
Template-Type: ReDIF-Paper 1.0
Title: Pension Wealth and Household Savings: Tests of Robustness
Author-Name: Louis Dicks-Mireaux
Author-Name: Mervyn A. King
Note: PE
Number: 0962
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0962
File-URL: http://www.nber.org/papers/w0962.pdf
File-Format: application/pdf
Publication-Status: published as Dicks-Mireaux, Louis and Mervyn A. King. "Pension Wealth and Household Savings: Tests of Robustness." Journal of Public Economics, Vol. 23, No. 1, 1984, pp. 115-139.
Abstract: A substantial literature exists on the impact of pension schemes, both public and private, on the level of household saving. Yet there is no clear consensus on the impact of pensions on private saving. In this paper we show how beliefs about this displacement effect are modified by prior beliefs both about variables which ntight be relevant in an equation for private savings and about the magnitude of the displacement effect. Using data for 8,279 Canadian households, and estimates of pension wealth (both private and social security) which we construct for each household in the sample, the estimated displacement effects are found to be relatively robust with respect to both types of prior belief.
Handle: RePEc:nbr:nberwo:0962
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rates, Inflation and the Sterilization Problem: Germany, 1975-1981
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 0963
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0963
File-URL: http://www.nber.org/papers/w0963.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "Exchange Rates, Inflation, and the Sterilization Problem. Germany, 1975-1981." European Economic Review, Vol. 21, No. 1/2 (March /April 1983), pp.161-189.
Abstract: When the goals of internal and external macroeconomic equilibrium are in conflict, sterilized intervention in the foreign exchange market may provide an independent policy instrument through which the central bank can resolve its dilemma in the short run. This paper is concerned with the West German Bundesbank's use of sterilization during the recent years of exchange- rate flexibility. The paper asks whether the Bundesbank pursued sterilization during the years 1995-1981, and whether sterilized foreign exchange intervention exerts a significant influence on the exchange rate in the German case. Estimation of a stylized Bundesbank reaction function suggests an affirmative answer to the first of these questions. To assess the efficacy of sterilized intervention, a structural portfolio balance model of German asset markets and prices is estimated. Dynamic perfect-foresight simulations of the empirical model are used to ascertain whether imperfect substitutability between foreign and domestic bonds is sufficient to allow the Bundesbank to attain independent internal and external goals over the short run of about a month. The model's verdict is that the Bundesbank has little if any power to influence the exchange rate over that time span without altering current or expected future money-market conditions.
Handle: RePEc:nbr:nberwo:0963
Template-Type: ReDIF-Paper 1.0
Title: The Economic Effects of Government Expenditures
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 0964
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0964
File-URL: http://www.nber.org/papers/w0964.pdf
File-Format: application/pdf
Abstract: This paper discusses conceptual problems of distinguishing "expenditure" policy from "tax" policy and "deficit" policy. The paper argues that each of these concepts is ill-defined and does not provide a useful basis for examining the government" underlying fiscal policies. The fundamentals of fiscal policy involve changes in marginal incentives, inframarginal intra- and intergenerational redistribution, and direct government consumption. The paper reviews some of the effects of these fundamental policy choices on economic growth.
Handle: RePEc:nbr:nberwo:0964
Template-Type: ReDIF-Paper 1.0
Title: Government Debt and Private Leverage: An Extension of the Miller Theorem
Author-Name: Robert L. McDonald
Note: PE
Number: 0965
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0965
File-URL: http://www.nber.org/papers/w0965.pdf
File-Format: application/pdf
Publication-Status: published as McDonald, Robert L. "Government Debt and Private Leverage: An Extension ofthe Miller Theorem." Journal of Public Economics, Vol. 22, No. 3, (December 1983), pp. 303-325.
Abstract: This paper shows how government financing decisions can influence the corporate decision to use debt or equity finance. In particular, it is shown that an increase in the stock of taxable government debt reduces the equilibrium quantity of corporate debt, and that an increase in the stock of tax-free government debt reduces the equilibrium quantity of corporate equity. The effects of inflation rate and tax rate changes are also considered.
Handle: RePEc:nbr:nberwo:0965
Template-Type: ReDIF-Paper 1.0
Title: The Fiscal Framework of Monetary Policy
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: EFG PE
Number: 0966
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0966
File-URL: http://www.nber.org/papers/w0966.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "The Fiscal Framework of Monetary Policy." Economic Inquiry, Vol. 21, No. 1 (January 1983), pp. 11-23.
Abstract: This paper illustrates the importance of the fiscal framework for monetary analysis by discussing three separate issues. I begin by examining how the fiscal framework changes the macroeconomic equilibrium associated with different steady state rates of money growth. This includes a summary of research that I have presented elsewhere and comments on several additional aspects of the way in which the fiscal structure destroys the neutrality of monetary policy. The second section deals with the short-run impact of changes in monetary policy. Here again the fiscal structure complicates the economy's response to monetary policy. The final section looks at the effect of the fiscal structure on the central bank's choice of monetary policies. Because fiscal structures affect the costs and benefits of monetary policies, they are likely to influence the policies adopted.
Handle: RePEc:nbr:nberwo:0966
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy and Foreign Direct Investment in the United States
Author-Name: David G. Hartman
Note: PE
Number: 0967
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0967
File-URL: http://www.nber.org/papers/w0967.pdf
File-Format: application/pdf
Publication-Status: published as Hartman, David G. "Tax Policy and Foreign Direct Investment in the United States." National Tax Journal, Vol. 37, No. 4, (December 1984), pp. 475-48 7.
Abstract: This paper provides some evidence on one aspect of international investment, the impacts of domestic tax policy on foreign direct investment in the United States. The possible impacts, which are discussed in the first section, are complex. For example, an investment incentive which applies to both domestic and foreign investors would be expected to result in an increased foreign investment in the U.S. On the other hand, a savings incentive, which has no direct impact on foreign investors, would nevertheless tend to increase domestic investors' demand for capital assets, thereby driving down the returns expected by foreign investors and possibly resulting in significant decreases in foreign investment. Because of measurement difficulties, we are only partly successful in obtaining precise estimates of this sort of impact. However, the results we do obtain suggest that foreign investment in the U.S. is strongly affected, in the manner predicted, by changes in domestic tax policy.
Handle: RePEc:nbr:nberwo:0967
Template-Type: ReDIF-Paper 1.0
Title: An Extended Accelerator Model of R&D and Physical Investment
Author-Name: Jacques Mairesse
Author-Person: pma712
Author-Name: Alan K. Siu
Note: PR
Number: 0968
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0968
File-URL: http://www.nber.org/papers/w0968.pdf
File-Format: application/pdf
Publication-Status: published as Mairesse, Jacques and Alan K. Siu. "An Extended Accelerator Model of R&D and Physical Investment." R&D, Patents and Productivity, edited by Zvi Griliches. Chicago: Univeristy of Chicago Press. (1984).
Publication-Status: published as An Extended Accelerator Model of R&D and Physical Investment, Jacques Mairesse, Alan K. Siu. in R&D, Patents, and Productivity, Griliches. 1984
Abstract: Using a multivariate autoregressive framework, we have found a simple causal structure for the variables of interest q, s, r, and i, which is consistent with our data. As expected from the stock market efficiency hypothesis, q, the stock market one period holding rate of return, is exogenous relative to the other three variables (or Granger causes them). As postulated in the traditional accelerator model of investment, the rate of growth of sales, s, can be also treated as exogenous to the rates of growth of R&D and physical. investment, r and i. Moreover, no strong feed- back interaction is detected between the last two (r and i). Within the simple structure of the extended accelerator model, the substantive conclusion is that R&D and physical investment react very similarly to the growth of the sales and to movements in q; the response of R&D is, however, more stable or less irregular than that of physical investment. Expected demand and expected profitability thus both appear to be important determinants for R&D expenditures and physical investment.
Handle: RePEc:nbr:nberwo:0968
Template-Type: ReDIF-Paper 1.0
Title: The Welfare Cost of Social Security's Impact on Private Saving
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0969
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0969
File-URL: http://www.nber.org/papers/w0969.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "The Welfare Cost of Social Security's Impact on Private Saving," ed. M. Boskin, Essays in Honor of Arnold Harberger, Oxford: England, Basil Blackwell, Inc., 1987, pp. 1-13.
Abstract: Although there have been several studies of the effect of social security on private saving, there has been no attempt to measure the welfare cost of this distortion. The present paper develops an analytic framework for this evaluation and presents numerical calculations.
Handle: RePEc:nbr:nberwo:0969
Template-Type: ReDIF-Paper 1.0
Title: The Optimal Level of Social Security Benefits
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 0970
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0970
File-URL: http://www.nber.org/papers/w0970.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "The Optimal Level of Social Security Benefits." Quarterly Journal of Economics, Vol. 100, No. 2, (May 1985), pp. 303-320.
Abstract: The optimal level of Social Security benefits depends on balancing the protection that these benefits offer to those who have not provided adequately for their own old age against the welfare costs of distorting economic behavior. The primary such cost is the distortion in private saving. The present paper derives the level of Social Security benefits that is optimal in three basic cases. In the first section of the paper, the optimal level of benefits is derived for an economy in which all individuals do not anticipate retirement at all and therefore do not save. The second and third sections then derive the optimal benefits for economies with two different definitions of attitudes toward retirement and saving.
Handle: RePEc:nbr:nberwo:0970
Template-Type: ReDIF-Paper 1.0
Title: Anticipations, Recessions and Policy: An Intertemporal Disequilibrium Model
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Author-Name: Jeffrey Sachs
Note: EFG
Number: 0971
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0971
File-URL: http://www.nber.org/papers/w0971.pdf
File-Format: application/pdf
Publication-Status: published as Blanchard, Olivier J. and Jeffrey Sachs. "Anticipations, Recessions and Policy: An Intertemporal Disequilibrium Model." Annales De L'Insee, Vol. 47/48 , (December 1982), pp. 117-144.
Abstract: This paper presents an intertemporal disequilibrium model with rational expectations, i.e. a model in which agents anticipate the future rationally, but in which prices and wages may not adjust fast enough to maintain continuous market clearing. Therefore, optimizing firms and households base their intertemporal plans on anticipations of both future quantity constraints and future prices. Such a model shows clearly that the effect of a policy depends not only on its current values but its anticipated path, After a presentation of the model and its basic dynamics, we therefore consider the effects of various paths of fiscal policy on the economy.
Handle: RePEc:nbr:nberwo:0971
Template-Type: ReDIF-Paper 1.0
Title: A Theory of Expropriation and Deviations From Perfect Capital Mobility
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Mark Gersovitz
Note: ITI IFM
Number: 0972
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0972
File-URL: http://www.nber.org/papers/w0972.pdf
File-Format: application/pdf
Publication-Status: published as Eaton, Jonathan and Mark Gersovitz. "A Theory of Expropriation and Deviations From Perfect Capital Mobility." The Economic Journal, Vol. 94, (March 1984), pp. 16-40.
Abstract: This paper develops a theory of capital movements in the presence of potential expropriation. The threat of expropriation is derived from utility maximizing behavior by host countries. Potential investors, anticipating this behavior, modify their investment plans to avoid expropriation. When- ever the host country faces competitive foreign investors expropriation represents part of a time-consistent but suboptimal plan of the type discussed by Kydland and Prescott (1977). The consequent equilibrium may be characterized by a number of distortions. In the simplest model we analyze, a host country faces a large number of potential, competitive foreign investors. We explore the implications of the threat of expropriation for shadow pricing in the host country and for the optimal technology choice by potential investors. We consider variants of the model in which the potential investor is in a monopoly position vis-a-vis the host country, in which the foreign investment project is subject to risk which is unresolved at the time of the expropriation decision, and in which factors affecting the optimality of expropriation by the host country are unresolved at the time of the investment decision. The larger the penalty incumbent on the host country in the event of expropriation, the greater its welfare in the simple, competitive model. When the foreign investor is a monopolist, however, this result is reversed.
Handle: RePEc:nbr:nberwo:0972
Template-Type: ReDIF-Paper 1.0
Title: A Transactions Based Model of the Monetary Transmission Mechanism: Part 1
Author-Name: Sanford J. Grossman
Author-Person: pgr108
Author-Name: Laurence Weiss
Note: EFG
Number: 0973
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0973
File-URL: http://www.nber.org/papers/w0973.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Sanford J. and Laurence Weiss. "A Transactions Based Model of the Monetary Transmission Mechanism: Part 1." American Economic Review, Vol. 7 3, No. 5, (December 1983), pp. 871-880.
Abstract: What are the effects of open market operations? How do these differ from money falling from heaven? We propose a new explanation of how open market operations can change real and nominal interest rates which emphasizes three often mentioned but seldom explicitly articulated features of actual monetary economies: i) going to the bank is costly so that people will tend to bunch cash withdrawals, ii) people don't all go to the bank simultaneously and, because of these, iii) at any instant of time agents hold different amounts of cash. We show that these considerations imply that an open market purchase of a bond for fiat money will drive down nominal and real interest rates, lead to a delayed positive price response, and have damped persistent effects on both prices and nominal interest rates if agents have logarithmic utility of consumption. We assume output is exogenous, so that the model can shed only indirect light on the relationship between money and aggregate output. The model has emphasized how a change in the money supply affects the spending decision of those agents making withdrawals at the time of an open market operation. Considerations of intertemporal substitution imply that the real rate must decline to induce these agents to consume more. Because this new money is spent gradually, prices will rise slowly and reach their steady state level long after the interval of time between trips to the bank.
Handle: RePEc:nbr:nberwo:0973
Template-Type: ReDIF-Paper 1.0
Title: A Transactions Based Model of the Monetary Transmission Mechanism: Part 2
Author-Name: Sanford J. Grossman
Author-Person: pgr108
Note: EFG
Number: 0974
Creation-Date: 1982-08
Order-URL: http://www.nber.org/papers/w0974
File-URL: http://www.nber.org/papers/w0974.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Sanford and Laurence Weiss. "A Transactions-Based Model Of The Monetary Transmission Mechanism," American Economic Review, 1983, v73(5), 871-880.
Abstract: In Part 1 the dynamics of an open market operation were analyzed for the case of logarithmic utility. Though such a utility function is useful for illustrative purposes, the implication that current prices are independent of current and future monetary injections is unsatisfactory. This implication results from the fact that with logarithmic utility future consumption is independent of the rate of return to savings. In Part 2 the logarithmic utility assumption is replaced by the more general assumption that utility is of the constant elasticity form such that future consumption is an increasing function of the interest rate. Though a closed form solution cannot be derived for this case, it is shown that the basic results of Part 1 still hold: An increase in money causes a sluggish response of the price level and a fall in interest rates.
Handle: RePEc:nbr:nberwo:0974
Template-Type: ReDIF-Paper 1.0
Title: Unemployment with Observable Aggregate Shocks
Author-Name: Sanford J. Grossman
Author-Person: pgr108
Author-Name: Oliver D. Hart
Author-Person: pha222
Author-Name: Eric Maskin
Author-Person: pma498
Note: ME
Number: 0975
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0975
File-URL: http://www.nber.org/papers/w0975.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Sanford J., Oliver Hart and Eric Maskin. "Unemployment with Observable Aggregate Shocks." Journal of Political Economy. (December 1983), pp. 907-928.
Abstract: Consider an economy subject to two kinds of shocks: (a) an observable shock to the relative demand for final goods which causes dispersion in relative prices, and (b) shocks, unobservable by workers, to the technology for transforming intermediate goods into final goods. A worker in a particular intermediate goods industry knows that the unobserved price of his output is determined by (1) the technological shock that determines which final goods industry uses his output intensively and (2) the price of the final good that uses his output intensively. When there is very little relative price dispersion among final goods, then it doesn't matter which final goods industry uses the worker's output. Thus the technological shock is of very little importance in creating uncertainty about the worker's marginal product when there is little dispersion of relative prices. Hence an increase in the dispersion of relative prices amplifies the effect of technological uncertainty on a worker's marginal value product. We consider a model of optimal labor contracts in a situation where the workers have less information than the firm about their marginal value product. A relative price shock of the type described above increases the uncertainty which workers have about their marginal value product. We show that with an optimal asymmetric information employment contract the industries which are adversely affected by the relative price shock will contract more than they would under complete information (i.e., where workers could observe their marginal value product). On the other hand the industry which is favorably affected by the relative price shock will - not expand by more than would be the case under complete information. Hence an observed relative demand shock, which would leave aggregate employment unchanged under complete information, will cause aggregate employment to fall under asymmetric information about the technological shock.
Handle: RePEc:nbr:nberwo:0975
Template-Type: ReDIF-Paper 1.0
Title: Life-Cycle Effects on Consumption and Retirement
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 0976
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0976
File-URL: http://www.nber.org/papers/w0976.pdf
File-Format: application/pdf
Publication-Status: published as Hamermesh, Daniel S. "Life-Cycle Effects on Consumption and Retirement." Journal of Labor Economics, Vol.2, No. 3, (July 1984), pp. 353-370.
Abstract: The effects on consumption and retirement of characteristics of the life cycle, especially the length of the horizon, are examined. At any given age people will work more and consume less if they expect to live longer. This and other propositions are tested on several sets of data. The Terman sample of gifted individuals (320 in 1972, 228 in 1977) is used to relate work status to the length of the horizon, as proxied by parents' longevity. The results suggest the expected positive effect on effort, but its magnitude is quite small. The panel from the Retirement History Survey is used, and life-cycle effects on consumption and retirement are estimated jointly for 1973 and 1975. There is a weak small effect of a more distant horizon (proxied by the number of living parents) in increasing work effort and a stronger, but still fairly small effect in reducing consumption; goods and leisure are consumed jointly, suggesting their complementarity in household production; and spending propensities out of Social Security wealth are far below those out of pension wealth. The small effect of changes in the horizon on work effect suggests the rapid secular increase in longevity has produced a disproportionate increase in people's lifetime demand for leisure. The implied small increase in lifetime income and the slight reduction in consumption among persons with longer horizons indicate that increased longevity has not been met with sufficient spending cuts to enable people to maintain real consumption over their longer lifetimes.
Handle: RePEc:nbr:nberwo:0976
Template-Type: ReDIF-Paper 1.0
Title: Labor Force Participation: Timing and Persistence
Author-Name: Kim B. Clark
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: LS
Number: 0977
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0977
File-URL: http://www.nber.org/papers/w0977.pdf
File-Format: application/pdf
Publication-Status: published as Clark, Kim B. and Lawrence H. Summers. "Labor Force Participation: Timingand Persistence." Review of Economic Studies, Vol. 49, (1982), pp. 825-84 4.
Abstract: This paper examines the relative importance of timing and persistence elements in explaining cyclical fluctuations in labor supply. Data from the natural experiment provided by World War I1 and cross-sectional data on American local labor markets, as well as aggregate time-series data are used in the empirical work. We find little evidence that timing effects play an important role in labor market dynamics. The evidence suggests that views emphasizing persistence are more accurate, and that previous employment tends to raise the probability of subsequent employment.
Handle: RePEc:nbr:nberwo:0977
Template-Type: ReDIF-Paper 1.0
Title: A Monetary Equilibrium Model with Transactions Costs
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Note: EFG
Number: 0978
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0978
File-URL: http://www.nber.org/papers/w0978.pdf
File-Format: application/pdf
Publication-Status: published as Rotemberg, Julio J. "A Monetary Equilibrium Model with Transactions Costs." Journal of Political Economy, Vol. 92, No. 1, (February 1984), pp. 40-58 .
Abstract: This paper presents the competitive equilibrium of an economy in which people hold money for transactions purposes. It studies both the steady states which result from different rates of monetary expansion and the effects of such non-steady state events as an open market operation. Even though the model features no uncertainty and perfect foresight, open market operations affect aggregate output. In particular, a simultaneous increase in money and governmental holdings of capital temporarily raises aggregate capital and output while it lowers the real rate of interest on capital.
Handle: RePEc:nbr:nberwo:0978
Template-Type: ReDIF-Paper 1.0
Title: Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?
Author-Name: Christopher J. Flinn
Author-Person: pfl8
Author-Name: James J. Heckman
Note: LS
Number: 0979
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0979
File-URL: http://www.nber.org/papers/w0979.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 1, no. 1 (January 1983): pp. 28-42.
Abstract: This paper formulates and tests the hypothesis that the categories unemployed and out of the labor force are behaviorally distinct labor force states. Our empirical results indicate that they are. In the empirically relevant range the exit rate from unemployment to employment exceeds the exit rate from out of the labor force to employment. This evidence is shown to be consistent with a simple job search model of productive unemployment with log concave wage offer distributions. We prove that if unemployed workers receive job offers more frequently than workers out of the labor force, and if wage offer distributions are log concave, the exit rate from unemployment to employment exceeds the exit rate from out of the labor force to employment.
Handle: RePEc:nbr:nberwo:0979
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy with a Credit Aggregate Target
Author-Name: Benjamin M. Friedman
Note: ME
Number: 0980
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0980
File-URL: http://www.nber.org/papers/w0980.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Monetary Policy with a Credit Aggregate Target." Carnegie-Rochester Conference Series on Public Policy, Vol. 18, (1983), pp. 11 7-148.
Abstract: The principal criteria for the selection of an intermediate target for monetary policy are (1) that the target be closely related to the nonfinancial objectives of monetary policy, (2) that it contain information about the future movements of those relevant aspects of the nonfinancial economy, (3) that it be closely connected to the instruments over which the central bank can exert direct control, and (4) that data on it be readily available on a timely basis. The evidence presented in this paper indicates that, on each of the four criteria considered, total net credit is just as suitable as any of the monetary aggregates to serve as an intermediate target for monetary policy in the United States. As long as the Federal Reserve Sys tem continues to use an intermediate target procedure, this evidence is consistent with adopting a two-target framework based on both money and credit, thereby drawing on information from both sides of the public's balance sheet for the set of signals that govern the systematic response of monetary policy to economic events.
Handle: RePEc:nbr:nberwo:0980
Template-Type: ReDIF-Paper 1.0
Title: Production Technology Differences Between Canadian-Owned and Foreign-Owned Firms Using Translog-Production Functions
Author-Name: Vittorio Corbo
Author-Name: Oli Havrylyshyn
Note: ITI IFM
Number: 0981
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0981
File-URL: http://www.nber.org/papers/w0981.pdf
File-Format: application/pdf
Abstract: The discussion of foreign ownership in Canada frequently refers to a conventional view that foreign-owned firms are larger, more capital-intensive, pay higher wages and are more efficient. Evidence for these characterizations has unfortunately come from comparisons of partial productivity measures of labor or measures of average capital-intensity, with all the uncertainty that this entails. It is the object of this paper to compare the technology characteristics of Canadian and US-owned establishments in Canada by means of a translog production function estimate, utilizing micro level data. While we find strong evidence for the view that the two groups operate with different technologies, and that US-owned establishments are larger, we do not find support for the conventional view that US-owned establishments are more capital-intensive, have higher labor productivity, or lower costs of production.
Handle: RePEc:nbr:nberwo:0981
Template-Type: ReDIF-Paper 1.0
Title: Issues in the Coordination of Monetary and Fiscal Policy
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 0982
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0982
File-URL: http://www.nber.org/papers/w0982.pdf
File-Format: application/pdf
Publication-Status: published as in "Monetary Policy Issues in the 1980s", pp. 3-34. Kansas City: Federal Reserve Bank of Kansas City.
Abstract: This paper examines issues in the current debate over coordination between fiscal and monetary policies. Section I1 uses the traditional targets-instruments approach to assess the potential gains from greater coordination. Since greater coordination is often equated with looser money and tighter fiscal policy, two econometric models of the economy are used to estimate the quantitative importance of the policy mix. Expectational effects that arise from the government budget constraint are also analyzed. Section III shows that our attitudes toward the non- coordination problem may be quite different depending on why policies were not coordinated to begin with, and argues that there are plausible circumstances under which it may be better to have uncoordinated policies. Section IV turns to the design of a coordination system. The game-theoretic aspects of having two independent authorities are stressed, and I offer a general reason to expect that uncoordinated behavior will result in tight money and loose fiscal policy even when both parties would prefer easy money and tight fiscal policy. Finally, Section V considers the old "rules versus discretion" debate from the particular perspective of this paper.
Handle: RePEc:nbr:nberwo:0982
Template-Type: ReDIF-Paper 1.0
Title: Equilibrium and Disequilibrium Exchange Rates
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 0983
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0983
File-URL: http://www.nber.org/papers/w0983.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "Equilibrium and Disequilibrium Exchange Rates." Zeitschrift fur Wirtschaftsund Sozialwissenschaften, Vol. 102, No. 6, (1982) pp. 573-599.
Abstract: The paper reviews theoretical developments in the field of exchange rate theory and assesses the empirical evidence. Since the empirical evidence does not lend support to the models that have been formulated, a number of reasons for that failure are suggested. These include the argument that the current account has been overrated as an exchange rate determinant and that the role of "news" as yet remains to be tested in an extensive way. Four exchange rate problems are identified as possibly giving justification to exchange market intervention or other policies. They are the possibility of speculative bubbles, the peso problem, the use of irrelevant information and the problem of real appreciation in the case of monetarist stabilization. In each case the exchange rate can deviate from fundamentals, following the asset market rather than the goods market and thus disturbing macroeconomic equilibrium.
Handle: RePEc:nbr:nberwo:0983
Template-Type: ReDIF-Paper 1.0
Title: Covered Interest Parity, Uncovered Interest Parity, and Exchange Rate Dynamics
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 0984
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0984
File-URL: http://www.nber.org/papers/w0984.pdf
File-Format: application/pdf
Publication-Status: published as Eaton, Jonathan and Stephen J. Turnovsky. "Covered Interest Parity, Uncovered Interest Parity, and Exchange Rate Dynamics." Economic Journal, Vol. 93, No. 3. Cambridge University Press, (Sept. 1983), pp. 555-575. Journal of Economic Literature Vol. 22, No.1, (March 1984).
Abstract: A number of macroeconomic models of open economies under flexible exchange rate assume a strong version of perfect capital mobility which implies that currency speculation commands no risk premium. If this assumption is dropped a number of important results no longer obtain. First, the exchange rate and interest rate cannot be in steady state unless both the government deficit and current account equal zero, not simply their sum, as would otherwise be the case. Second, even in steady state the domestic interest rate can deviate from the foreign interest rate by an amount which de ends upon relative domestic asset supplies. Finally, introducing risk aversion on the part of speculators can reduce the response on impact of the exchange rate to changes in domestic asset supplies. In this sense rational speculators, if they are less risk averse than other agents, can destabilize exchange markets.
Handle: RePEc:nbr:nberwo:0984
Template-Type: ReDIF-Paper 1.0
Title: Union Wage Settlements During a Disinflation
Author-Name: John B. Taylor
Author-Person: pta174
Note: EFG
Number: 0985
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0985
File-URL: http://www.nber.org/papers/w0985.pdf
File-Format: application/pdf
Publication-Status: published as Taylor, John B. "Union Wage Settlements During a Disinflation." The American Economic Review, Vol. 73, No. 5, (December 1983), pp. 981-993.
Abstract: This paper examines the role of union wage contracts in the persistence of inflation, and the implication of these contracts for the problem of disinflation in the United States. A quantitative model of overlapping con- tracts explicitly oriented toward the major union sector is developed. The model takes account of expectations of future wage, price, and employment conditions as in more aggregated models that have been used in macroeconomic research. In addition, the distribution of workers according to contract length as well as deferred wage increases and escalator clauses are explicitly used in the model. The main aim of the model is to determine the constraints which these contracts impose on disinflation paths. The model indicates that the maximum speed of disinflation is extremely slow in the early phases -- if a rise in unemployment is to be avoided -- but increases considerably before the new lower rate of inflation is reached. The disinflation path is considerably slower than that observed after hyperinflation periods. However, the existence of a path of inflation reduction raises questions about whether the institution of union wage con- tracts is really the direct cause of costly disinflations, or whether their influence works indirectly by raising credibility problems about a monetary disinflation.
Handle: RePEc:nbr:nberwo:0985
Template-Type: ReDIF-Paper 1.0
Title: Social Security and Labor Supply Incentives
Author-Name: Roger H. Gordon
Author-Person: pgo95
Note: PE
Number: 0986
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0986
File-URL: http://www.nber.org/papers/w0986.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Roger H. "Social Security and Labor Supply Incentives." Contemporary Economic Policy, Vol. 1, no. 3. (April 1983), pp. 16-22.
Abstract: Many provisions of the Social Security Program distort an individual's labor supply incentives. In particular, the payroll tax, the earnings test, the offsetting actuarial adjustment, and the dependence of the size of future benefits on the level of current earnings all affect the net return to extra work. The purpose of this paper is to estimate the size of the net tax rate on labor income in a variety of circumstances, taking into account all these provisions, as well as the personal income tax. We find that the Social Security Program on net in the past has provided a large subsidy to labor supply, which for many people effectively offset the personal income tax. This subsidy rate, however, has been declining steadily over time.
Handle: RePEc:nbr:nberwo:0986
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Monetary Velocity, and Welfare
Author-Name: Paul R. Krugman
Author-Person: pkr10
Author-Name: Torsten Persson
Author-Person: ppe28
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: EFG
Number: 0987
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0987
File-URL: http://www.nber.org/papers/w0987.pdf
File-Format: application/pdf
Publication-Status: published as Krugman, Paul, Torsten Persson and Lars E.O. Svensson. "Inflation, Interest Rates, and Welfare," Quarterly Journal of Economics, Vol. 100, 1985, pp. 6 77-695.
Abstract: This paper develops a simple general equilibrium model of a monetary economy with a capital market, in which monetary demand arises from a "cash-in-advance" constraint rather than from any direct role in the utility function. Uncertainty gives rise to a meaningful portfolio choice between money and bonds. We show that monetary velocity is increasing in the rate of inflation, and that the optimal monetary policy is that which maximizes real balances. We also show that the real rate of interest is not invariant to monetary policy: inflation lowers the real rate.
Handle: RePEc:nbr:nberwo:0987
Template-Type: ReDIF-Paper 1.0
Title: Identification in Tax-Price Regression Models: The Case of Charitable Giving
Author-Name: Daniel R. Feenberg
Author-Person: pfe56
Note: PE
Number: 0988
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0988
File-URL: http://www.nber.org/papers/w0988.pdf
File-Format: application/pdf
Publication-Status: published as "Are Tax Price Models Really Identified: The Case of Charitable Giving." National Tax Journal, Vol. 40, No. 4, pp. 629-633, (December 1987).
Abstract: In this paper we use an instrumental variable estimator to exploit sources of independent variation, which allows unbiased estimation of the tax-price elasticity under more general conditions. The estimator is applied to the demand for charitable giving. A charitable giving equation is an appropriate test for this procedure because it represents the purest case of a tax-price coefficient. That is, taxes are the sole source of variance in the price. The deduction is also an important policy issue. In 1982, 1.8 percent of gross income was deducted for this reason, about as much as the capital gains deduction.
Handle: RePEc:nbr:nberwo:0988
Template-Type: ReDIF-Paper 1.0
Title: The Role of Overlapping-Generations Models in Monetary Economics
Author-Name: Bennett T. McCallum
Note: EFG
Number: 0989
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0989
File-URL: http://www.nber.org/papers/w0989.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, edited by Karl Brunner and Allan H. Meltzer, Vol. 18, pp. 9-44, (Spring 1983). Amsterdam: North-Holland Publishing Co.
Abstract: The main arguments of this paper can be summarized as follows. (1) The overlapping-generations (OG) structure provides a useful framework for the analysis of macroeconomic issues involving intertemporal allocation. (2) As a "model of money," the basic OG setup -- which excludes cash-in-advance or money-in-the-utility-function (MIUF) features -- is inadequate and misleading because it neglects the medium-of-exchange property that is the distinguishing characteristic of money. (3) That this neglect obtains is verified by noting that, in contrast with an axiomatic "traditional presumption," the same aggregate leisure/consumption bundles are available in equilibria in which "money" is valued and valueless. (4) That the model may be misleading is demonstrated by examples in which three of its most striking properties --tenuousness of monetary equilibrium, optimality of zero money growth, and price level invariance to open-market exchanges -- disappear in the presence of modifications designed to reflect the medium-of-exchange property. (5) There is no compelling reason why cash-in-advance, MIUF, or other appendages should not be used in conjunction with the OG framework.
Handle: RePEc:nbr:nberwo:0989
Template-Type: ReDIF-Paper 1.0
Title: Unionization and Firm Performance: The Impact on Profits, Growth and Productivity
Author-Name: Kim B. Clark
Note: LS
Number: 0990
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0990
File-URL: http://www.nber.org/papers/w0990.pdf
File-Format: application/pdf
Publication-Status: published as Clark, Kim B. "Unionization and Firm Performance: The Impact on Profits, Growth and Productivity." American Economic Review, Vol. 74, No. 5, (December 1984), pp. 893-919.
Abstract: This paper examines the impact of unionization on profit- ability, growth and productivity using time series data on over 900 product line businesses in the North American manufacturing sector (predominantly U.S.). The first section of the paper develops a simple theoretical framework for studying the effect of the union on firm performance. A key result of this analysis is that information about union wage and productivity effects is not sufficient to permit prediction of the sign (or magnitude) of consequent changes in the rate of return on capital; one must know the parameters of production and demand. Expanding the model to allow for the effects of market structure and alternative bargaining regimes establishes the need to examine several indicators of firm performance in assessing the impact of the union. The empirical analysis reveals sizeable negative union effects on profitability, but growth, productivity and the capital-labor ratio appear to be little affected by unionization in this data. The data are thus consistent with a model of union-firm interaction in which collective bargaining affects the distribution of profits, but leaves real magnitudes unchanged. The evidence suggests, however, that unionization may have longer term implications for efficiency since the impact on profitability appears to fall most heavily on firms with relatively little market power.
Handle: RePEc:nbr:nberwo:0990
Template-Type: ReDIF-Paper 1.0
Title: Oil Prices, Welfare and the Trade Balance: An Intertemporal Approach
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 0991
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0991
File-URL: http://www.nber.org/papers/w0991.pdf
File-Format: application/pdf
Publication-Status: published as Svensson, Lars E.O. "Oil Prices, Welfare and the Trade Balance: An Intertemporal Approach." Quarterly Journal of Economics, Vol. 99, 1984, pp. 649-672 .
Abstract: The paper examines welfare effects and the trade balance response to changes in the world oil prices and interest rates for a small oil-importing economy. The trade balance is mainly seen as the difference between saving and investment, and these are derived from intertemporal optimization. It is shown that the welfare effects consist of static terms of trade effects, intertemporal terms of trade effects, and employment effects. The trade balance deteriorates for temporary oil price increases, whereas its response is ambiguous for permanent oil price increases. For a fall in the world interest rate, the trade balance deteriorates, if the economy is a net borrower.
Handle: RePEc:nbr:nberwo:0991
Template-Type: ReDIF-Paper 1.0
Title: On Variable Capital Utilization and International Trade Theory
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 0992
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0992
File-URL: http://www.nber.org/papers/w0992.pdf
File-Format: application/pdf
Publication-Status: published as Svensson, Lars E.O. "On Variable Capital Utilization and International Trade Theory." Economics Letters, Vol. 11, No. 4, (1983), pp. 377-384.
Abstract: The paper makes two points as to how standard international trade theory is modified when an endogenous degree of capital utilization is introduced. The first point is that, if capital utilization during a period is less than full because of an exogenous time-dependent variation in productivity within the period, there is no modification of the standard theory. In particular, there is no need to adjust capital-intensity estimates according to the degree of capital utilization. This is in contrast to what has been argued in the literature. The other point is that, if capital utilization is less than full because of higher wages during part of the period, the night of a day and night, say, the required modification of trade theory is that of introducing several kinds of labor and endogenous labor supply, or, equivalently, of introducing nontraded goods.
Handle: RePEc:nbr:nberwo:0992
Template-Type: ReDIF-Paper 1.0
Title: Money Surprises and Short-Term Interest Rates: Reconciling ContradictoryFindings
Author-Name: John H. Makin
Note: ME
Number: 0993
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0993
File-URL: http://www.nber.org/papers/w0993.pdf
File-Format: application/pdf
Publication-Status: published as Makin, John H. "Real Interest, Money Surprises, Anticipated Inflation And Fiscal Deficits," Review of Economics and Statistics, 1983, v65(3), 374-384.
Abstract: This note attempts to reconcile contradictory findings regarding the impact of money surprises on short term interest rates. Expectations effects regarding anticipated monetary policy and anticipated inflation suggest a positive relationship. Liquidity and output effects of monetary surprises suggest a negative relationship. It is shown that intra-day data and end-of-period data will capture expectations effects while period average data will capture liquidity/output effects. Seemingly contradictory results are reconciled by differences in dependent variables employed by various authors.
Handle: RePEc:nbr:nberwo:0993
Template-Type: ReDIF-Paper 1.0
Title: Do We Really Know That Financial Markets Are Efficient?
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG PE
Number: 0994
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0994
File-URL: http://www.nber.org/papers/w0994.pdf
File-Format: application/pdf
Publication-Status: published as Summers, Lawrence H. "Do We Really Know that Financial Markets are Efficient?" Corporate Financial Policy, ed. J. Edwards. New Yotk, Cambridge University Press, 1986, pp. 13-24
Publication-Status: published as Summers, Lawrence H. "Does the Stock Market Rationally Reflect Fundamental Values?" Journal of Finance. Vol. 41, No. 3, (July 1986), pp. 591-601.
Abstract: This paper examines the power of statistical tests commonly used to examine the efficiency of speculative markets. It shows that for markets with "long horizons" such as the stock markets, or the market for long term bonds, these tests have very low power. Market valuations can differ substantially and persistently from the rational expectation of the present value of cash flows without leaving statistically discernible traces in the pattern of ex-post returns. This observation also suggests that speculation is unlikely to insure rational valuations, since similar problems of identification plague both financial economists and would-be speculators.
Handle: RePEc:nbr:nberwo:0994
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy, the Rate of Return, and Savings
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG PE
Number: 0995
Creation-Date: 1982-09
Order-URL: http://www.nber.org/papers/w0995
File-URL: http://www.nber.org/papers/w0995.pdf
File-Format: application/pdf
Publication-Status: published as Summers, Lawrence H. "The After-Tax Rate Of Return Affects Private Savings," American Economic Review, 1984, v74(2), 249-253.
Abstract: The theoretical and empirical results in this paper make a strong prima facie case for the proposition that increases in the after tax rate of return caused by tax policy are likely to bring forth significant increases in saving. Theoretical analysis using a variety of standard models tends to suggest that the aggregate response to savings incentives is likely to be substantial. It is argued that the existing empirical evidence sheds little light on the question. Empirical analyses are then conducted using three alternative approaches. All three confirm the hypothesis of a significant positive response of savings to changes in the rate of return.
Handle: RePEc:nbr:nberwo:0995
Template-Type: ReDIF-Paper 1.0
Title: Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets
Author-Name: Gary Chamberlain
Author-Name: Michael Rothschild
Author-Person: pro48
Note: ME
Number: 0996
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w0996
File-URL: http://www.nber.org/papers/w0996.pdf
File-Format: application/pdf
Publication-Status: published as Chamberlain, Gary and Michael Rothschild. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets." Econometrica, Vol. 51, No. 5 (Sept. 1983), pp. 1281-1304. Also "Funds, Factors and Diversification in Arbitrage Pricing Models, by Gary Chamberlian, see above info.
Abstract: We examine the implications of arbitrage in a market with many assets. The absence of arbitrage opportunities implies that the linear functionals that give the mean and cost of a portfolio are continuous; hence there exist unique portfolios that represent these functionals. These portfolios span the mean-variance efficient set. We resolve the question of when a market with many assets permits so much diversification that risk-free investment opportunities are available. Ross 112, 141 showed that if there is a factor structure, then the mean returns are approximately linear functions of factor loadings. We define an approximate factor structure and show that this weaker restriction is sufficient for Ross' result. If the covariance matrix of the asset returns has only K unbounded eigenvalues, then there is an approximate factor structure and it is unique. The corresponding K eigenvectors converge and play the role of factor loadings. Hence only a principal component analysis is needed in empirical work.
Handle: RePEc:nbr:nberwo:0996
Template-Type: ReDIF-Paper 1.0
Title: Adjustment to Expected and Unexpected Oil Price Changes
Author-Name: Nancy Peregrim Marion
Author-Person: pma1464
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 0997
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w0997
File-URL: http://www.nber.org/papers/w0997.pdf
File-Format: application/pdf
Publication-Status: published as Marion, N.P. and Svensson, L., Canadian Journal of Economics, Vol.17, no.1, pp. 15-31, February 1984.
Abstract: For oil importers, differences in economic performance after the 1973-74 oil price increase and after the 1979-80 increase can be attributed to a number of factors, including the fact that the 1973-74 oil price increase was unexpected whereas the 1979-80 increase was largely expected. In this paper, we analyze how an economy's adjustment to expected oil price increases might differ from its adjustment to unexpected increases. By expected oil price increases, we shall mean ones that were anticipated in the past, and by unexpected oil price increases, we shall mean those that were not anticipated in the past but occur unexpectedly in the present. We model this distinction using a three- period model, where the periods are called the past, present and future.
Handle: RePEc:nbr:nberwo:0997
Template-Type: ReDIF-Paper 1.0
Title: Cost-of-Living Adjustment Clauses in Union Contracts
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Leif Danziger
Author-Name: Gee San
Note: LS
Number: 0998
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w0998
File-URL: http://www.nber.org/papers/w0998.pdf
File-Format: application/pdf
Publication-Status: published as Ehrenberg, Ronald G., Leif Danziger and Gee San. "Cost-of-Living Adjustment Clauses in Union Contracts: A Summary of Results." Journal of Labor Economics, Vol. 1, No. 3, (July 1983), pp. 215-245.
Abstract: Our paper seeks to provide an explanation for why the prevalence of COLA provisions and their characteristics vary widely across U.S. industries. We develop models of optimal risk sharing between a firm and union that allows us to investigate the determinants of a number of characteristics of union contracts. These include the presence of wage indexation, the degree of wage indexation if it exists, the magnitude of deferred noncontingent (on the price level) wage increases, the duration of labor contracts and the trade-off between temporary layoffs and wage indexation. Preliminary empirical tests of some of the implications of the model are conducted using industry data on both the prevalence of COLA provisions and layoff rates, and using contract level data on the characteristics of COLA provisions and contract duration. One key finding is that the level of unemployment insurance benefits appears to simultaneously influence the level of layoffs and the extent of COLA coverage.
Handle: RePEc:nbr:nberwo:0998
Template-Type: ReDIF-Paper 1.0
Title: Factor Trade and Goods Trade
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 0999
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w0999
File-URL: http://www.nber.org/papers/w0999.pdf
File-Format: application/pdf
Publication-Status: published as Svensson, Lars E. O. "Factor Trade and Goods Trade." Journal of International Economics, Vol. 16, 1984, pp. 365-378.
Abstract: Previous work by Dixit and Woodland on the effect of inter-country factor endowment differences on goods trade is extended to include simultaneous factor trade and goods trade. The goods trade pattern with factor trade is compared to that without factor trade. It is for instance shown that goods trade and factor trade may be substitutes or complements, depending upon whether traded and nontraded factors are "cooperative" or "non-cooperative." The asymmetry between the effects of differences in endowments of traded and differences in endowments of nontraded factors is emphasized.
Handle: RePEc:nbr:nberwo:0999
Template-Type: ReDIF-Paper 1.0
Title: Partial Retirement and Wage Profiles of Older Workers
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 1000
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w1000
File-URL: http://www.nber.org/papers/w1000.pdf
File-Format: application/pdf
Publication-Status: published as Gustman, Alan L. and Thomas L. Steinmeier. "The Effect of Partial Retirement on Wage Profiles of Older Workers." Industrial Relations, Vol. 24, No. 2, (Spring 1985), pp. 257-265.
Abstract: Older workers are likely to face different wage offers for work while not retired than for work while partially retired. Conventional analyses of wage profiles pool all waqe observations without distin-guishing among individuals according to retirement status.Our empirical analysis suggests the following conclusions.1)Wages for work while not retired and for work while partially retiredare significantly different from one another.2) wage offers facing older workers may vary considerably between those who do and do not face lower limit constraints requiring full-time work or none at all on their main job. 3) Failing to distinguish between wages paid to the partially retired and to the not retired causes a sizable exaggeration of the decline with experience in the wage offer for work while not retired.
Handle: RePEc:nbr:nberwo:1000
Template-Type: ReDIF-Paper 1.0
Title: The Response of Short-Term Interest Rates to Weekly Money Announcements
Author-Name: V. Vance Roley
Note: ME
Number: 1001
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w1001
File-URL: http://www.nber.org/papers/w1001.pdf
File-Format: application/pdf
Publication-Status: published as Roley, V. Vance. "The Response of Short-Term Interest Rates to Weekly Money Announcements." Journal of Money, Credit, and Banking, edited by Willaim DeWald, Vol. 15, No.3. (August 1983) pp. 344-54.
Abstract: The response of short-term interest rates to weekly money announcements since the Federal Reserve's change in operating procedures on October 6, 1979, is examined in this paper. The results indicate that the response increased significantly since October 1979, and that it varies nonlinearly according to the relation of money growth to the Federal Reserve!s long-run targets. The results also suggest that the increase in the response and the rise in the volatility of unanticipated money have contributed about equally to the large rise in interest rate volatility during this period.
Handle: RePEc:nbr:nberwo:1001
Template-Type: ReDIF-Paper 1.0
Title: Sex-Related Wage Differentials and Women's Interrupted Labor Careers--The Chicken or the Egg
Author-Name: Reuben Gronau
Author-Person: pgr333
Note: LS
Number: 1002
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w1002
File-URL: http://www.nber.org/papers/w1002.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, vol. 6, no. 3, pp. 277-301, July 1988.
Abstract: Sex-related wage differentials are almost universal. Economists traditionally tend to attribute a major fraction of the differential to the difference in on-the-job training. This difference is in turn often explained by the lower profitability of this investment for women who plan to interrupt their careers for family reasons. An alternative explanation that women do not invest because of lack of investment opportunities owing to employers'expectation that they will drop out of the market has been given little attention in the literature. The present paper tries to ascertain, theoretically and empirically, the validity of this argument. Employers have little stake in their employees' investment in general human capital. Thus, if employers' decisions affect investment, this has to be investment in firm-specific human capital. The paper explores the way employers and employees share in such an investment and the way employers' conceptions about women's labor force attachment can affect the size of the investment, women's wages, and their labor-force separation rate. To test the hypothesis that employers' expectations affect women's wages,I examine the effect of plans for labor-force separation on wages. It is assumed that employers are not aware of individual plans, so that absence of a plan's effect on wages can serve as prima facie evidence for the hypothesis. In a simultaneous-equation system it is observed that wages affect plans but plans do not affect wages. Further investigation indicates that the skill intensity of jobs which men and women occupy is a major determinant of the wage gap. This variable is very sensitive to past performance (as measured by labor-force experience and tenure) and future plans in the case of men, but is hardly affected at all by these variables in the case of women.
Handle: RePEc:nbr:nberwo:1002
Template-Type: ReDIF-Paper 1.0
Title: Money and the Terms of Trade
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Note: EFG
Number: 1003
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w1003
File-URL: http://www.nber.org/papers/w1003.pdf
File-Format: application/pdf
Publication-Status: published as Rotemberg, J., Journal of International Economics, Vol. 19, 1985, pp. 141-1 60.
Abstract: This paper examines the connection between money and the terms of trade in the context of a simple monetary equilibrium model with flexible prices. Money is held for transactions purposes. Because carrying out financial transactions is costly, households visit their financial intermediaries only occasionally. An important feature of the model is that different households visit the financial intermediaries at different times. This is sufficient to ensure that even though the model features perfect foresight and competitive markets, monetary policies affect output under both fixed and flexible exchange rates. Moreover, in the latter regime expansionary monetary policies tend to worsen the terms of trade while this is not the case under fixed exchange rates.
Handle: RePEc:nbr:nberwo:1003
Template-Type: ReDIF-Paper 1.0
Title: An Optimal Taxation Approach to Fiscal Federalism
Author-Name: Roger H. Gordon
Author-Person: pgo95
Note: PE
Number: 1004
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w1004
File-URL: http://www.nber.org/papers/w1004.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Roger H. "An Optimal Taxation Approach to Fiscal Federalism." Quarterly Journal of Economics, Vol. 98, No. 4, Nov. 1983, pp. 567-586.
Abstract: In a Federal system of government, each unit of government decides independently how much of each type of public good to provide, and what types of taxes, and which tax rates, to use in funding the public goods. In this paper we explore what types of problems can arise from this decentralized form of decision-making. In particular, we describe systematically the types of externalities that one unit of government can create for nonresidents, through both its public goods decisions and its taxation decisions. The paper also explores briefly what the central government might do to lessen the costs of decentralized decision-making.
Handle: RePEc:nbr:nberwo:1004
Template-Type: ReDIF-Paper 1.0
Title: Profitability, Employment and Structural Adjustment in France
Author-Name: Pentti J.K. Kouri
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Author-Name: Albert J. Viscio
Note: ITI IFM
Number: 1005
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w1005
File-URL: http://www.nber.org/papers/w1005.pdf
File-Format: application/pdf
Publication-Status: published as Kouri, Pentti J.K., Jorge Braga de Macedo, and Albert J. Viscio. "Profitability, Employment and Structural Adjustment in France." Annales De I'Insee, Nos. 47-48, (December 1982), pp. 85-112.
Abstract: In this paper, we present a dynamic model which explains output, enployment and energy consumption in the French manufacturing sector in terms of the expectedand actual path of wage rates and energy prices in units of output. The modelhas two distinguishing features: First, the rate of capacity utilization isdetermined explicitly from profit-maximizing behavior and it is viewed as the crucial adjusting variable in the short run. Second, we assume complete lack of substitutability between capital, labor and energy inputs ex post.The model is motivated by a brief discussion of French growth, focusing on the decline of profitability and employment in manufacturing, and simulated using annual data from 1950 to 1979. The wage explosion and the energy shock of the early seventies are interpreted (in a model allowing for overhead labor) in terms of changes in expected real factor prices,and their effects on the utilizationand the profitability of each vintage are quantified. Aggregating over vintages,the model generates the observed decline in profitability and utilization of existing capacity. The results of the simulation are very encouraging, and a simultaneous estimation of the model under static expectations is rejected by the data. There are two limitations of the analysis which will be relaxed in further work. Investment is exogenous and open-economy aspects only appear indirectly, say via constraints on the energy price and the price of output.
Handle: RePEc:nbr:nberwo:1005
Template-Type: ReDIF-Paper 1.0
Title: The Determination of the Union Status of Workers
Author-Name: Henry S. Farber
Note: LS
Number: 1006
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w1006
File-URL: http://www.nber.org/papers/w1006.pdf
File-Format: application/pdf
Publication-Status: published as Farber, Henry S. "The Determination of the Union Status of Workers," Econometrica, Vol. 51, No. 5, 1983
Abstract: A model of the determination of the union status of workers is developed that incorporates the separate decisions of workers and potential union employers in a framework which recognizes the possibility of an excess supply of workers for existing union jobs.This theoretical framework results in an empirical problem of partial observability because information on union status is not sufficient to determine whether nonunion workers are nonunion because they do not desire union representation or because they were not hired by union employers despite a preference for union representation.The problem is solved by using data from the Quality of Employment Survey that have a unique piece of information on worker preferences which allows identification and estimation of the model.The empirical results yield some interesting insights into the process of union status determination that cannot be gained from a simple logit or probit analysis of unionization. Chief among these relate to the unioniza-tion of nonwhites and southerners.The well-known fact that nonwhites are more likely to be unionized than otherwise equivalent whites is found largelyto be due to a greater demand for union representation on the part of non-white workers. The equally well-known lower propensity to be unionized among southern workers is found to be due to a combination of a lower demand for union representation on the part of southern workers and a supply of union jobs which is more constrained relative to demand than in the North.
Handle: RePEc:nbr:nberwo:1006
Template-Type: ReDIF-Paper 1.0
Title: The Transition from School to Work: The Experiences of Blacks and Whites
Author-Name: Robert H. Meyer
Author-Name: David A. Wise
Author-Person: pwi45
Note: LS
Number: 1007
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w1007
File-URL: http://www.nber.org/papers/w1007.pdf
File-Format: application/pdf
Publication-Status: published as Meyer, Robert H. and David A. Wise. "The Transition from School to Work: The Experiences of Blacks and Whites." Research and Labor Economics, 1984.
Abstract: Because much of the concern about youth unemployment is motivated by the large differences between the rates for blacks and whites, we have pursued our earlier work by analyzing separately for black and white youth the relationship between high school preparation and early labor force experience. We find no striking differences between the determinants of weeks worked by whites and non-whites upon graduation from high school. Although vocational training in high school bears little relationship to weeks worked upon graduation, hours worked while in high school bear a strong relationship to later employment for students and non-students, white and non-white. Academic performanceas measured by standardized test scores and high school class rank isalso positively related to later weeks worked by non-students, both white and non-white. Young persons find jobs in large part through friends and relatives or through direct application to employers orpossibly a combination of the two. Persons who are not looking forwork--and would then be classified as out of the labor force, according to standard definitions--are apparently quite distinct from personswho are looking for work. Those out of the labor force seem not tobe "discouraged workers" for the most part. Controlling for other individual attributes, non-whites are much more likely than whites to be in a post-secondary school full-time (although without controlling for these attributes the reverse is true). A large proportion of young men in school are also working part-time and a significant number are working full-time. A sizeable proportion of persons in post-secondary schools would be classified as unemployed based on official definitions. Indeed the unemployment rate among these full-time students is generally more than twice the rate among young men not inschool. Few high school graduates are chronically unemployed.
Handle: RePEc:nbr:nberwo:1007
Template-Type: ReDIF-Paper 1.0
Title: The Diffusion of Innovations: A Methodological Reappraisal
Author-Name: Manuel Trajtenberg
Author-Person: ptr35
Author-Name: Shlomo Yitzhaki
Author-Person: pyi12
Note: PR
Number: 1008
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w1008
File-URL: http://www.nber.org/papers/w1008.pdf
File-Format: application/pdf
Publication-Status: published as Trajtenberg M. and S. Yitzhaki, "The Diffusion of Innovations: A Methodological Reappraisal." Journal of Business and Economics Statistics, Vol. 7, no. 1, pp. 35-47, January 1989.
Abstract: Studies of diffusion have traditionally relied on specific distributions-primarily the logistic- to characterize and estimate those processes.We argue here that such approach gives rise to serious problems of comparability and interpretation, and may result in large biases inthe estimates of the parameters of interest. We propose instead the Gini's expected mean differenceas ameasure of diffusion speed, discuss its advantages over the traditional approach, and tackle with it the problems of truncated processes, inter-group comparisons, and related issues. We also elaborateon the use of the hazardrate, and suggest some possible extensions. The diffusion of CT scanners is presented as an illustration.
Handle: RePEc:nbr:nberwo:1008
Template-Type: ReDIF-Paper 1.0
Title: Recent Trends in U.S. Trade and Investment
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 1009
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w1009
File-URL: http://www.nber.org/papers/w1009.pdf
File-Format: application/pdf
Publication-Status: published as in "Problems of Advanced Economies, Proceedings of the Third Conference on Advanced Societies," Miyawaki, Nagasada (ed.) Berlin and Heidelberg: Springer-Verlag, 1984.
Abstract: This paper reviews some of the main recent developments in U.S.trade and overseas investment against the background of long-term trends.The United States, and particularly the agricultural sector, has become more linked with the rest of the world. The commodity distributionof trade has moved toward being in large part an exchange of U.S. manufactured goods for other countriest manufactures even though the shareof developed countries in U.S. trade has declined. The fall in the U.S.share of world trade which began around 1950 has slowed down or evenstopped, as has the fall in the terms of trade of the United States andother developed countries.The U.S. share of new direct investment outflows has fallen while that of Japan and Germany have increased, but the United States has become one of the major recipients of direct investment from other countries. U.S. firms have increasingly accepted less than 100 per cent or even majority ownership, but majority ownership is still the usual form,by a large margin, in industries in which technology is important.U.S.-owned affiliates in foreign countries, particularly those in the smaller Asian countries, have shifted their activities towards exporting.In most areas U.S. affiliates increased their exports more in recent years than did other firms in their host countries, thus increasing their share of exports from these countries.
Handle: RePEc:nbr:nberwo:1009
Template-Type: ReDIF-Paper 1.0
Title: The Natural-Rate Hypothesis, the Rational-Expectations Hypothesis, and the Remarkable Survival of Non-Market-Clearing Assumptions
Author-Name: Herschel I. Grossman
Note: EFG
Number: 1010
Creation-Date: 1982-10
Order-URL: http://www.nber.org/papers/w1010
File-URL: http://www.nber.org/papers/w1010.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Herchel I. "The Natural-Rate Hypothesis, the Rational-Expectations Hypothesis, and the Remarkable Survival of Non-Market-Clearing Assumptions." Carnegie-Rochester Conference Series on Public Policy, ed. K. Brunnerand A. Meltzer, Vol. 19, (1983), pp. 225-245.
Abstract: Non-market-clearing models continue to dominate analysis of macroeconomic fluctuations and discussions of macroeconomic policy. This situation is remarkable because non-market-clearing assumptions seem to be inconsistent with the essential presumption of neoclassical economic analysis that market outcomes exhaust opportunities for mutually advantageous exchange. Non-market-clearing models apparently have survived because they have evolved to incorporate both the natural-rate hypothesis and the rational-expectations hypothesis and because the alternative "equilibrium" approach has failed empirically.This paper expands on these ideas and briefly discusses some of the problems that we face in attempting to evaluate empirically the recent vintage of non-market-clearing models. The main difficulties seem to involve accounting for shifts in the natural levels of real aggregates and specifying the timing of the past anticipations that determine the effects of current monetary policy.
Handle: RePEc:nbr:nberwo:1010
Template-Type: ReDIF-Paper 1.0
Title: Unemployment Insurance and Reservation Wages
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 1011
Creation-Date: 1982-07
Order-URL: http://www.nber.org/papers/w1011
File-URL: http://www.nber.org/papers/w1011.pdf
File-Format: application/pdf
Publication-Status: published as Felstein, Martin and James Poterba. "Unemployment Insurance and Reservation Wages." Journal of Public Economics, Vol. 23, (1984), pp. 141-167.
Abstract: The present paper examines the reservation wages reported by a largesample of unemployed individuals in the United States in May 1976. The majorityof unemployedindividuals report reservation wages that are at least as highas the wage they were paid on their last job. Approximately one-fourth of alljob seekers required a wage that is at least 10 percent higher than the wage ontheir previous job.Our econometric evidence shows that the level of unemployment benefitsrelative to previous wages has a powerful effect on the individual's reservation wage. A ten percent increase in the U.I. replacement ratio increases the reservation wage by about percent for job losers who are not on layoff and bysomewhat less for other unemployed groups. Separate regressions to analyze the high reservation wage per se show that a ten percent increase in the U.I. replacement ratio also increases by about four percentage points the probability that an unemployed individual will require a wage increase of 10 percent or more.These estimates imply that reducing net unemployment insurance benefits (by lowering gross benefits or by taxing unemployment benefits) could significantly lower the average duration of unemployment and the relative number of long duration spells of unemployment. Because of the non-linear response of the unemployment duration to the reservation wage, reducing a high unemployment insurance ratio by ten percentage points is likely to have a greater impact on unemployment than reducing a low unemployment insurance ratio by ten percentage points.
Handle: RePEc:nbr:nberwo:1011
Template-Type: ReDIF-Paper 1.0
Title: Moving and Housing Expenditure: Transaction Costs and Disequilibrium
Author-Name: Steven F. Venti
Author-Name: David A. Wise
Author-Person: pwi45
Number: 1012
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1012
File-URL: http://www.nber.org/papers/w1012.pdf
File-Format: application/pdf
Publication-Status: published as Venti, Steven F. and David A. Wise. "Moving and Housing Expenditure: Transaction Costs and Disequilibrium." Journal of Public Economics, Vol. 23, ( 1984), pp. 207-243.
Abstract: The paper emphasizes initially the effects of moving transaction costs on the potential effect of government rent subsidy programs. As a concomitant to this analysis, the paper reaffirms the low income elasticities of housing expenditure among low-income renters found by others. Moving transaction costs are high on average among renters in our sample but vary widely between geographic regions and evidently vary a great deal among families as well. By our measure, transaction costs reflect monetary and especially non-monetary gains and losses associated with moving. Moving transaction costs in conjunction with low income elasticities make government lump-sum transfers very ineffective in increasing housing expenditure among low-incomerenters.A dollar of unconstrained transfer payment would increase housing expenditure by only 2 to 7 cents in the two cities in our data set. Minimum rent plans, that make the transfer payment conditional on spending at leasta minimum amount on rent, have larger effects on average than unconstrained transfers. Typical programs might increase rent by 10 to 30 cents per dollar of transfer payment. But families who spend the least on rent a real so those least likely to benefit from the minimum rent programs. To obtain payments under these plans, families who would otherwise spend less than the minimum must surmount the transaction costs associated with moving and must also reallocate income to favor housing in proportions that may be far from their preferred allocations. Thus only a small proportion of families with initial market rents below the minimum will ultimately participate in the programs. And of the total payments to these families, 15 to 32 percent is dead weight loss, according to our estimates. In addition, we find that because moving transaction costs and income elasticities vary widely among regions, the effects of any given government program are also likely to vary greatly from one region to the other.As a fortuitous benefit of the housing allowance demand experiment data that we used, we were also able to check our model results against experimental results. The model predictions and the experimental results correspond quite closely. The differences that are found can apparently be explained in large part by the impact of self-selection on the estimated experimental treatment effects. The self-determination of enrollment and the attrition inherent in the estimated experimental effects seriously detract from the potential benefits of experimental randomization. Therefore our model estimates may be more reliable than the experimental ones in this instance. Of course this judgment depends in large part on the experiment having been done so that we could check our model predictions against the experimental outcomes.
Handle: RePEc:nbr:nberwo:1012
Template-Type: ReDIF-Paper 1.0
Title: The Proper Measurement of Government Budget Deficits: Comprehensive Wealth Accounting or Permanent Income Accounting for the Public Sector
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ME ITI IFM
Number: 1013
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1013
File-URL: http://www.nber.org/papers/w1013.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. "Measurement of the Public Sector Deficict and Its Implications for Policy Evaluation and Design." International Monetary Fund Staff Papers, Vol. 30, No. 2, (June 1983), pp. 306-349.
Abstract: The paper studies budgetary, financial and monetary policy evaluationand design using a comprehensive wealth or permanent income accounting framework. A set of stylized balance sheets and permanent income accountsis constructed for the public, private and overseas sectors.These are then contrasted with the conventionally measured balance sheet and flow of funds accounts. This permits a new look at the issues of "crowding out"and the "eventual monetization of fiscal deficits."The conventionally measured public sector financial surplus, evenwhen evaluated at constant prices or as a proportion of GNP, presents apotentially very misleading picture of the change in the real net worth of the public sector. One reason is that capital gains and losses on outstanding stocks of marketable financial assets and liabilities are not included in the flow of funds. This includes changes in the real valueof nominally denominated public sector debt due to inflation.A second reason is the omission of revaluations in non-marketable (and often merely implicit) assets and liabilities such as the future stream of tax receipts and the future stream of benefit payments.The paper then proposes some general rules for the design of stabilization policy-policies to facilitate expenditure smoothing by avoiding or minimizing the incidence of capital market imperfections.Both national governments and international agencies should designfiscal, financial and budgetary policies so as to induce an evolution of the conventionally measured balance sheet and flow of funds accounts that permits private agents and national economies, respectively, to approximate the behavior that would be adopted if comprehensive wealth or permanent income were the only binding constraint on economic behavior. This can beachieved by keeping disposable income in line with permanent income and by ensuring an adequate share of disposable financial wealth in total wealth.
Handle: RePEc:nbr:nberwo:1013
Template-Type: ReDIF-Paper 1.0
Title: Optimal Financial Aid Policies for a Selective University
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Daniel R. Sherman
Note: LS
Number: 1014
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1014
File-URL: http://www.nber.org/papers/w1014.pdf
File-Format: application/pdf
Publication-Status: published as Ehrenberg, Ronald G. and Daniel R. Sherman. "Optimal Financial Aid Policies for a Selective University." Journal of Human Resources, Vol. 19, No. 2,(1984), pp. 202-230.
Abstract: Recent federal cut-backs of financial support for undergraduates have worsened the financial position of colleges and universities and required them to debate how they will allocate their scarce financial aid resources.Our paper contributes to the debate by providing a model of optimal financial aid policies for a selective university-one that has a sufficient number of qualified applicants that it can select which ones to accept and the type of financial aid package to offer each admitted applicant.The university is assumed to derive utility from "quality-units" of different categories (race, sex, ethnic status, income class, alumni relatives, etc.) of enrolled students. Average quality in a category declines with the number of applicants admitted and the fraction of admitted applicants who enroll increases with the financial aid package offered the category.The university maximizes utility subject to the constraint that its total subsidy of students (net tuition revenue less costs including financial aid)is just offset by a predetermined income flow from nonstudent sources (e.g.,endowment). The model implies that the financial aid package to be offered to each category of admitted applicants depends on the elasticity of the fraction who accept offers of admission with respect to the financial aid package offered them, the propensity of the category to enroll, the elasticity of the categorys average quality with respect to the number admitted, and the relative weight the university assigns in the utility function to applicants in the category.While the latter must be subjectively determined by university administrators, the former parameters are subject to empirical estimation.The paper concludes with a case study of one selective institution's dataand illustrates how they may be estimated. Based upon data from the university's admissions and financial aid files, as well as questionnaire data which ascertained what alternative college most admitted freshman applicants were considering and the financial aid packages at the alternative, probit probability of enrollment equations are estimated as are equations that determine how average quality varies with the number admitted for each category. These estimates are then applied to illustrate what the"optimal" financial aid policy would be for the university.
Handle: RePEc:nbr:nberwo:1014
Template-Type: ReDIF-Paper 1.0
Title: Dynamic Factor Demands Under Rational Expectations
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Note: EFG
Number: 1015
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1015
File-URL: http://www.nber.org/papers/w1015.pdf
File-Format: application/pdf
Publication-Status: published as Pindyck, Robert S. and Julio J. Rotemberg. "Dynamic Factor Demands Under Rational Expectations." The Scandinavian Journal of Economics, July 1983.
Abstract: This paper presents a dynamic model of the industrial demands for structures, equipment, and blue- and white-collar labor. Our approach is consistent with producers holding rational expectations and optimizing dynamically in the presence of adjustment costs, yet it permits generality of functional form regarding the technology. We represent the technology by atranslog input requirement function that specifies the amount of blue-collar labor (a flexible factor) the firm must hire to produce a level of output given its quantities of three quasi-fixed factors that are subject to adjustment costs: non-production (white-collar) workers, equipment, and structures.A complete description of the production structure is obtained by simultaneously estimating the input requirement function and three stochastic Euler equations.We apply an instrumental variable technique to estimate these equations using aggregate data for U.S. manufacturing. We find that as a fraction of total expenditures, adjustment costs are small in total hut large on the margin,and that they differ considerably across quasi-fixed factors. We also present short- and long-run elasticities of factor demands.
Handle: RePEc:nbr:nberwo:1015
Template-Type: ReDIF-Paper 1.0
Title: Research and Development, Utilization and Labor Requirements: A Dynamic Analysis
Author-Name: Jeffrey I. Bernstein
Author-Person: pbe327
Author-Name: M. Ishaq Nadiri
Note: PR
Number: 1016
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1016
File-URL: http://www.nber.org/papers/w1016.pdf
File-Format: application/pdf
Publication-Status: published as Bernstein, J. I. and M. I. Nadiri. "Research And Development And Intra-Spillovers: An Empirical Application Of Dynamic Duality," Review of Economic Studies, 1989, v56(186), 249-268.
Abstract: In this study we have developed a dynamic analysis of a firm under taking plant and equipment and research and development investment,along with labor requirement and P&E utilization decisions. It is shown that in the short run increases in R&D cause the utilization rate of plant and equipment to rise and to decrease demand for labor per unit of R&D. We distinguish between the effects of the stock of R&D and the investment flow. The short run effect of changes in the stock of R&Don labor demand are quite distinct from the behavior observed along the intertemporal path. Along the path increases in the R&D investment rate must be accompanied by an increase in the labor requirement per unitof R&D. Contrary to a view point held by many, the R&D investment flow does not displace labor. Finally, our model provides a framework to justify the empirically observed positive relationship between the utilization and the P&E investment rates.
Handle: RePEc:nbr:nberwo:1016
Template-Type: ReDIF-Paper 1.0
Title: Financing and Investment in Plant and Equipment and Research and Development
Author-Name: Jeffrey I. Bernstein
Author-Person: pbe327
Author-Name: M. Ishaq Nadiri
Note: PR
Number: 1017
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1017
File-URL: http://www.nber.org/papers/w1017.pdf
File-Format: application/pdf
Publication-Status: published as Bernstein, Jeffrey I. and M. Ishaq Nadiri. "Financing and Investment in Plant and Equipment and Research and Development," Prices, Competition and Equilibrium, eds. M.H. Peston and R.E. Quandt, Oxford: Philip Allan; Totowa, N.J.: Barnes and Noble. 1986.
Abstract: In this stuy a dynamic model of firm behavior is developed which integrates real and financial decisions. The model combines the effects of capital structure and input adjustirent costs on the process of capital accumulation. The existence, uniqueness and stability conditions of the long-run eguilibrium and the dynamic properties of the factor demand are explored. The equations derived from the theoretical model are estimated using firm cross-section time series data. The results indicate that for both Plant and Equipment (P&E) and Research and Development (R&D),the debt-eguity ratio significantly affects the investment demands and the elasticities are highly inelastic. The effect is stronger for P&E than for R&D capital in the long run, while the effects on P&E and R&D investment are quite similar in the short run.
Handle: RePEc:nbr:nberwo:1017
Template-Type: ReDIF-Paper 1.0
Title: The U.S. Productivity Slowdown: A Case of Statistical Myopia
Author-Name: Michael R. Darby
Note: ITI IFM
Number: 1018
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1018
File-URL: http://www.nber.org/papers/w1018.pdf
File-Format: application/pdf
Publication-Status: published as Darby, Michael R. "The U.S. Productivity Slowdown: A Case of Statistical Myopia." The American Economic Review, Vol. 74, No. 3, (June 1984), pp. 30 1-322.
Abstract: This paper identifies three major periods: 1900-1929, 1929-1965, and 1965-1978. In contrast to the middle period, the extreme periods are characterized by rapid growth in private employment and hours worked; because growth in private productivity increases by less, measured labor productivity growth falls compared to the middle period. However this fall reflects a substantial substitution of quantity for quality in labor force growth: after private employment and hours are adjusted for age, sex, immigration, and education, no difference is observed among the average quality-adjusted labor productivity growth rates. Substantial variation in these growth rates remains within the 1929-1965 and 1965-1978 periods. Slow quality-adjusted labor productivity growth during 1929-1948 is just offset by unusually rapid growth during 1948-1965; these variations are attributed to the near cessation of investment during the Depression and World War II and subsequent recovery of the capital-labor ratio. Thus no substantial variations in total factor productivity growth or technical progress is found. Variations inproductivity growth within 1965-1978 are explained by price-control induced biases in reported deflated output. Correction of these biases results inequal quality-adjusted labor productivity growth in 1965-1973 and 1973-1978.A substantial program of future research is proposed. A data appendix is included.
Handle: RePEc:nbr:nberwo:1018
Template-Type: ReDIF-Paper 1.0
Title: The Value of Waiting to Invest
Author-Name: Robert L. McDonald
Author-Name: Daniel Siegel
Note: ME
Number: 1019
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1019
File-URL: http://www.nber.org/papers/w1019.pdf
File-Format: application/pdf
Publication-Status: published as McDonald, Robert L. and Daniel Siegel. "The Value of Waiting to Invest," Quarterly Journal of Eocnomics, Vol. 101, No. 4, (November 1986), pp. 707-727 .
Abstract: This paper studies the optimal timing of investment in an irreversible project where the benefits from the project and the investment cost follow continuous-time stochastic processes. The optimal time to invest and an explicit formula for the value of the option to invest are derived. The rule "invest if benefits exceed costs" does not properly account for the option value of waiting.Simulations show that this option value can be significant, and that for surprisingly reasonable parameter values it may be optimal to wait until benefits are twice the investment cost. Finally, we perform comparative static analysis on the valuation formula and on the rule for when to invest.
Handle: RePEc:nbr:nberwo:1019
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Public Health Policy: The Case of Community Health Centers
Author-Name: Fred Goldman
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 1020
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1020
File-URL: http://www.nber.org/papers/w1020.pdf
File-Format: application/pdf
Publication-Status: published as Goldman, Fred and Michael Grossman. "The Impact of Public Health Policy: The Case of Community Health Centers," Eastern Economic Journal, Vol. XIV, No. 1, pp. 63-72, (January-March 1988).
Abstract: The aim of this paper is to assess the impact of the Community Health Center (CHC) on health levels in the U.S. Using infant mortality as the underlying health indicator, a time series of large counties as the data set, and multivariate regression techniques, we investigate the extent to which the presence of a program in a county affects future mortality. We find that CHCs have negative and statistically significant impacts on white and black infant mortality rates.The centers have larger effects on black infant mortality than on white infant mortality. The reduction in the black infant mortality rate between 1970 and 1978 due to the CHC system amounts to one death per thousand live births or approximately 12 percent of the observed decline.This result is particularly striking in light of the well-known higher infant mortality rate of blacks. A reduction in the excess mortality rate of black babies has been dentfied as a goal of public health policy for a number of years. Our results suggest that community health centers have the potential to make a substantial contribution to the achievement of this goal.
Handle: RePEc:nbr:nberwo:1020
Template-Type: ReDIF-Paper 1.0
Title: Empirical Studies of Macroeconomic Interdependence
Author-Name: John F. Helliwell
Author-Person: phe368
Author-Name: Tim Padmore
Note: ITI IFM
Number: 1021
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1021
File-URL: http://www.nber.org/papers/w1021.pdf
File-Format: application/pdf
Publication-Status: published as in "Handbook of International Economics," vol. 2, no. 2, edited by R.W. Jones and P.B. Kenen, Vol. 2, (1984). Amsterdam: Elsevier Science Publishers B.V. , 1985.
Abstract: In this paper we examine the structure and empirical results from several groups of linked econometric models. The main focus of the paper is on the international transmission of fiscal policies, monetary policies, and oil price shocks, under both fixed and flexible exchange rates. The linkage models are divided into four groups: projects based on available national models; projects using structural models designed with monetary and exchange rate linkages in mind; projects focussed mainly on trade linkages; and projects using very small national models with common structure. Each group comprises from two to four projects. Comparable results on the transmission of fiscal policy under fixed exchange rates are available for eight projects, while four projects provide evidence on the domestic and international effects of monetary policy and oil price shocks.
Handle: RePEc:nbr:nberwo:1021
Template-Type: ReDIF-Paper 1.0
Title: Swedish Firms Acquired by Foreigners: A Comparison of Before and After Takeover
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Linda O'Connor
Note: ITI IFM
Number: 1022
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1022
File-URL: http://www.nber.org/papers/w1022.pdf
File-Format: application/pdf
Abstract: Swedish firms acquired by foreigners were considerably larger than the average firms in their industries. They were relatively low in value added per employee at the time of takeover and before, a characteristic we take to indicate relatively low profitability, capital intensity, or efficiency,or some combination of these. However, they had been growing at least as fast as their industries over the longest periods we can measure.The takeovers tended to take place in years when the acquired firms did poorly relative to their industries and also relative to their own past performance with respect to the growth of employment, value of production,and value added. Thus the acquired firms seem to have been weak relative to others in their industries and had particularly suffered during the year in which the takeovers occurred.There were short-term recoveries after takeover from the misfortunes of the takeover year and a return to higher growth rates of employment and output, particularly the former. Over the longer run the acquired firms did not show the same relative employment gains as in the first year or two after takeover but seem to have increased their profitability or efficiency relative to their industries. The industries in which takeovers took place grew more rapidly after the takeovers than total manufacturing although they had grown less rapidly in the years before takeover.
Handle: RePEc:nbr:nberwo:1022
Template-Type: ReDIF-Paper 1.0
Title: Observations on the Indexation of Old Age Pensions
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 1023
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1023
File-URL: http://www.nber.org/papers/w1023.pdf
File-Format: application/pdf
Publication-Status: published as Summers, Lawrence H. "Observations on the Indexation of Old Age Pensions." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1983), pp. 231-251 and 257-258.
Publication-Status: published as Observations on the Indexation of Old Age Pensions, Lawrence H. Summers. in Financial Aspects of the United States Pension System, Bodie and Shoven. 1983
Abstract: This paper examines some positive and normative aspects of the inflation indexation of public and private pensions. The analysis showsthat alternative indexing arrangements may have far less impact on actual patterns of risk bearing than is usually thought to be the case. In so far as inflation indexing has real effects, there is no presumption that they are beneficial. In particular, the pre-commitment aspects of publicindexing may not be efficient. There are sound reasons to believe that voluntarily agreed on, non-indexed private pensions may well be efficient.Non-indexed pensions may result in an efficient allocation of risks given the other assets and liabilities of pension issuers and beneficiaries. In this case, indexation would impede the efficient allocation of risks. In this paper is also developed an ICOLI (interteinporal cost of living index) which is superior to conventional price indices as a way of evaluating the changes in real well being,associated with changes in wealth. The use of this measure has significant implications for the indexation of pensions, and for the question of what assets should be held in pension portfolios.
Handle: RePEc:nbr:nberwo:1023
Template-Type: ReDIF-Paper 1.0
Title: Issues in the Measurement and Determinants of Business Saving
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 1024
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1024
File-URL: http://www.nber.org/papers/w1024.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "Issues in the Measurement and Encouragement of Business Saving." Savings and Government Policy, Conference Series No. 25, pp. 79-10 0. Boston: Federal Reserve Bank of Boston, 1982.
Abstract: This paper begins with a discussion of the measurement of business saving,with the conclusion that even "corrected" measures of business saving are quite inaccurate in the presence of inflation, leading to an overstatement of the recent decline in business saving. The remainder of the paper focuses on the more fundamental issue of why it should matter who saves. Beginning from their relevance proposition associated with the Modigliani-Miller theorem, we consider the channels through which taxation causes the identity of the saver to have real effects. Finally, we consider the relative efficiency of business versus personal savings incentives, in light of our results.
Handle: RePEc:nbr:nberwo:1024
Template-Type: ReDIF-Paper 1.0
Title: The Theory of Excess Burden and Optimal Taxation
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 1025
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1025
File-URL: http://www.nber.org/papers/w1025.pdf
File-Format: application/pdf
Publication-Status: published as in "Handbook of Public Economics," vol 1, A. Auerbach and M. Feldstein, eds. Amsterdam: Elsevier Science Publishers B.V., 1985.
Abstract: The purpose of this paper is to present the chronological development ofthe concept of excess burden and the related study of optimal tax theory. A main objective of this exercise is to uncover the interrelationships among various apparently distinct results, so as to bring out the basic structure of the entire problem.The paper includes a discussion of various measures of excess burden,focusing on issues of approximation, informational requirements, aggregation over individuals, and the effects of technology. Included in the presentation of optimal tax theory is a section on tax reform, as well as an application of the theory to the case where uncertainty is present.
Handle: RePEc:nbr:nberwo:1025
Template-Type: ReDIF-Paper 1.0
Title: Taxation, Corporate Financial Policy and the Cost of Capital
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 1026
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1026
File-URL: http://www.nber.org/papers/w1026.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "Taxation, Corporate Financial Policy and the Cost of Capital." The Journal of Economic Literature, Vol. 21, No. 3, (September 1983) , pp. 905-940.
Abstract: The cost of capital plays an important role in the allocation of resources among competing uses in a decentralized market system. The purpose of this paper is to organize and present what is known and what is hypothesized about the effects of taxation on the incentive to invest, via the cost of capital,taking full account of important issues that arise independently from the question of taxation. Included in the analysis is a discussion of empirical findings about the interaction of inflation and taxation in influencing the incentive to invest, and a treatment of taxation and uncertainty.
Handle: RePEc:nbr:nberwo:1026
Template-Type: ReDIF-Paper 1.0
Title: Investment versus Savings Incentives: The Size of the Bang for the Buck and the Potential for Self-Financing Business Tax Cuts
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 1027
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1027
File-URL: http://www.nber.org/papers/w1027.pdf
File-Format: application/pdf
Publication-Status: published as Kotlikoff, Laurence J. A short summary "National Savings and Economic Policy: The Efficacy of Investment vs. Savings Incentives." American Economic Review, Vol. 73, No. 2, (May 1983), pp. 82-87.
Publication-Status: published as Meyer, L. H. (ed.) The Economic Consequences of Government Deficits. Springer, 1983.
Abstract: This paper examines the closed economy effects of government policies that vary with respect to whether they treat newly produced capital differently from old capital. Policies that do make this distinction are denoted investment policies, while those that do not are labelled savings policies. While both types of policies alter marginal incentives to accumulate new capital, investment incentives can generate significant inframarginal redistribution from current holders of wealth to those with small or zero claims on the existing capital stock. Among the principal findings, based on simulations of a general equilibrium, perfect foresight, overlapping generations life-cycle model, are:1)Investment incentives, even if financed by short run increases in the stock of debt, significantly increase capital formation.2)Deficit-financed savings incentives, in contrast, typically reduce the economy's long run capital stock.3)Deficit-financed investment incentives can actually be self-financing,in that they may lead to a long run surplus without any increase in other tax rates.
Handle: RePEc:nbr:nberwo:1027
Template-Type: ReDIF-Paper 1.0
Title: On Choosing a Flat-Rate Income Tax Schedule
Author-Name: Joel Slemrod
Author-Person: psl10
Author-Name: Shlomo Yitzhaki
Author-Person: pyi12
Note: PE
Number: 1028
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1028
File-URL: http://www.nber.org/papers/w1028.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, Joel and Shlomo Yitzhaki. "On Choosing a Flat-Rate Income Tax System." National Tax Journal, Vol. 36, No. 1, (March 1983), pp. 31-44.
Abstract: This paper applies a numerical optimization technique using microunit tax data to the problem of choosing the parameters of a flat-rate tax system, should one be desired. Our approach is to first formulate explicit objectives that a flat-rate tax might reasonably be designed to meet, such as minimizing the extent of changes in households' tax burdens and minimizing the efficiency cost of the tax system. The next step uses an optimization algorithm to calculate the flat-rate schedule which comes closest to meeting the objectives,subject to the constraint that it raise the same revenue as the current incometax system. The calculations are carried out using a sample of 947 tax returns randomly drawn from the Treasury Tax File for 1977 which are updated to repro-duce the pattern of tax returns that would be filed in 1982.The analysis shows that the flat-rate system which minimizes the sum of the absolute deviations in tax liabilities features a marginal tax rate between 0.204 and 0.254, though a different definition of tax burden changes which puts more emphasis on reproducing the tax burdens of high-income households has an optimal marginal tax rate of 0.382. We also derive the optimal flat-rate schedules when another objective is to minimize the efficiency cost of the tax system.
Handle: RePEc:nbr:nberwo:1028
Template-Type: ReDIF-Paper 1.0
Title: Labor Force Entry and Exit of Older Men: A Longitudinal Study
Author-Name: Frederic P. Slade
Note: EH
Number: 1029
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1029
File-URL: http://www.nber.org/papers/w1029.pdf
File-Format: application/pdf
Publication-Status: Published as "Retirement Status and State Dependence: A Longitudinal Studyof Older Men", JLE, Vol. 5, no. 1 (1987): 90-105.
Abstract: The labor force participation rate of older men under age 65 has shown a significant recent decline. Cross-sectional studies linking early retirement to increased Social Security income have also made explicit or implicit temporal projections of changes in participation in response to changes in benefits. However, use of cross-sectional estimates for projection purposes may run into several problems, including temporal dependence of the participation decision. This paper uses 2-year longitudinal data for men aged 58-62 in 1969 in order to trace changes in labor force behavior near retirement age. Results indicate significant effects of poor health, initial assets, and initial pension eligibility on the probabilities of exit and entry from the labor force. Social Security benefits are found to have insignificant or unexpected effects. The results also indicate evidence of temporal dependence of participation, suggesting caution in interpreting projections of cross-section estimates.
Handle: RePEc:nbr:nberwo:1029
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Government Regulation on Teenage Motor Vehicle Mortality
Author-Name: Dennis C. McCornac
Note: EH
Number: 1030
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1030
File-URL: http://www.nber.org/papers/w1030.pdf
File-Format: application/pdf
Abstract: This article investigates the impact of a number of policy manipulable variables on the motor vehicle mortality rate of white males between the ages of 15 to 24. Particular emphasis is placed on the role of alcohol. Utilizing data for the tune period 1970 to 1975, multivariate equations are estimated for three timemperiods inmorder to examine and compare the before, immtediate,and longer run (one-year) impact of the changes in these relevant variables on mortality rates.The results reveal that changes in the minimum legal purchasing age of alcohol has contributed significantly to a higher mortality rate not only in the state instituting the change but in the border states as well.
Handle: RePEc:nbr:nberwo:1030
Template-Type: ReDIF-Paper 1.0
Title: Crime and the Labor Market
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 1031
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1031
File-URL: http://www.nber.org/papers/w1031.pdf
File-Format: application/pdf
Abstract: Much work on crime has focused on the effect of criminal sanctions on crime, ignoring (except as a control variable) the effect of labor market conditions on crime. This study reviews studies of time series, cross area, and individual evidence pertaining to the effect of unemployment and other labor market variables on crime and compares the "strength" of the labor market-crime and the sanctions-crime relations. It concludes that there is a labor market-crime link but that this link is not well estimated by existing studies and is weaker than the sanctions-crime link. The rise in crime in recent years does not appear to be greatly due to the performance of the labor market.
Handle: RePEc:nbr:nberwo:1031
Template-Type: ReDIF-Paper 1.0
Title: On the Adequacy or Inadequacy of Keynesian Balance-of-Payments Theory: A Rejoinder
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Jonathan Eaton
Author-Person: pea5
Note: ITI IFM
Number: 1032
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1032
File-URL: http://www.nber.org/papers/w1032.pdf
File-Format: application/pdf
Abstract: This note again refutes Kuska's proposition that equality between the demand for and supply of money ("money market equilibrium") implies equilibriumin the balance of payments.Indeed, under a regime of fixed exchange rates it is precisely the balance of payments deficit or surplus that equilibrates the money market.The refutation of Kuska's proposition does not require anyspecial assumptions about sterilisation policies,it is also established,again contrary to Kuska, that in a two country world with a fixed exchange rate,internationally mobile capital and endogenous interest rates, only one country can independently achieve a money supply target.Failure to distinguish between the change in the money stock and domestic credit expansion appears to be the source of Kuska's erroneous indictment of "Keynesian" balance-of-payments theory.We also establish the conditions under which alternative (ex-ante) balance of payments definitions can be substituted for an asset market equilibrium condition.
Handle: RePEc:nbr:nberwo:1032
Template-Type: ReDIF-Paper 1.0
Title: Money, Credit and Nonfinancial Economic Activity: An Empirical Study of Five Countries
Author-Name: Benjamin M. Friedman
Note: ME
Number: 1033
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1033
File-URL: http://www.nber.org/papers/w1033.pdf
File-Format: application/pdf
Abstract: Data for five major industrialized economies show that the relationship between credit and nonfinancial economic activity exhibits stability comparable to that of the relationship between money and economic activity. Specific orderings among a narrow monetary aggregate, a broad monetary aggregate and a credit aggregate differ depending upon the stability criterion being applied and the country under study. On balance, credit exhibits the most stable contemporaneous relationship among the three aggregates, while the narrow money stock exhibits the most stable dynamic relationship with credit in second place and the broad money stock third. Further tests for the same five economies also show that, within the total of nonfinancial debt comprising the aggregate, the respective publicand private debt components exhibit movements over time that offset one another, and hence act to maintain the stability of total credit in relation to economic activity. Finally, additional tests for these five economies do not support the notion that the comparability of the respective relationships of credit and money to nonfinancial economic activity is due to any straightforward process whereby "money causes income and income causes credit." The interrelationships among money, credit, real income and prices in each economy are too complex to admit of any such simple interpretation.
Handle: RePEc:nbr:nberwo:1033
Template-Type: ReDIF-Paper 1.0
Title: Towards an Explanation of National Price Levels
Author-Name: Irving B. Kravis
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 1034
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1034
File-URL: http://www.nber.org/papers/w1034.pdf
File-Format: application/pdf
Publication-Status: published as Kravis, Irving B. and Robert E. Lipsey. "Toward an Explanation of National Price Levels." Princeton Studies in International Finance, No. 52, (November 1983).
Publication-Status: published as Kravis, Irving B. and Robert E. Lipsey. "National Price Levels And The Prices Of Tradables And Nontradables," American Economic Review, 1988, v78(2), 474-478.
Abstract: The purpose of this paper is to call attention to the need for a theory of comparative national price levels and to explore some of the elements that seem to belong to such a theory. Most theoretical discussions have maintained that national price levels tend towards equality and focus on presumably temporary divergences from equality. Yet strong evidence has been accumulating that there are large and long-standing differences inprice levels, the highest of which are more than twice those of countries with the lowest prices. Long-run price level differences are most clearly related to levels of real per capita output, with richer countries having higher price levels.These differences have been explained as resulting from greater advantages in productivity for the wealthier countries in goods production, mostly tradable, than in services production, mostly nontradable. The differences in relative productivity may be in total factor productivity or only in labor productivity, reflecting the greater capital intensity of goods production and possibly a higher elasticity of substitution between capital and labor in goods production.We find in the empirical analysis that a large part of the differences in price levels can be explained by structural factors such as real GDP per capita, the degree of openness of the economy, and the share of nontradable goods in output. The only non-structural factor emerging from a preliminary analysis of several of these was the rate of growth of the quantity of money.
Handle: RePEc:nbr:nberwo:1034
Template-Type: ReDIF-Paper 1.0
Title: Flexible Exchange Rates and Interdependence
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 1035
Creation-Date: 1982-11
Order-URL: http://www.nber.org/papers/w1035
File-URL: http://www.nber.org/papers/w1035.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "Flexible Exchange Rates and Interdependence." International Monetary Fund Staff Papers, Vol. 30, No. 1, (March 1983), pp.3-38. .
Abstract: The paper was prepared for the NBER-IMF conference on Exchange Rate Policy and Interdependence. It reviews the experience with flexible exchange rates and the main policy alternatives that have been suggested. The theoretical part develops a modern open economy macro model with an emphasis on capital mobility, real and nominal wage stickiness and expectations. The impact of disturbances is discussed in terms of the underlying structure, in particular, the relative role of real and nominal inflexibility. Among the main policy alternatives the paper reviews the McKinnon proposal for world monetarism, and the band proposal. Both of these schemes are found unsatisfactory in coping with the chief problem of the current systems namely how to cope with the transition to low inflation. The alternative of capital controls, likewise, would not avoid the adverse consequences of monetary stabilization it would only influence the particular details of the international transmission.
Handle: RePEc:nbr:nberwo:1035
Template-Type: ReDIF-Paper 1.0
Title: Government Policies and the Allocation of Capital Between Residential and Industrial Uses
Author-Name: Patric H. Hendershott
Note: PE
Number: 1036
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1036
File-URL: http://www.nber.org/papers/w1036.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. "Government Policy and the Allocation of Capital Between Residential and Industrial Uses." Financial Analysts Journal, (July/August 1983). pp. 3-8.
Abstract: This paper contains three parts: a discussion of the tax advantages of household capital (owner-occupied housing and consumer durables) relative to business capital (structures and producers durables) ,an analysis of alternative mechanisms for reducing these advantages (including the use of the mechanisms since 1965) ,and a brief enumeration of various attempts to lower the residential mortgage rate relative to other debt yields that have been employed during the past two decades or are currently being advocated.
Handle: RePEc:nbr:nberwo:1036
Template-Type: ReDIF-Paper 1.0
Title: U.S.-Owned Affiliates and Host-Country Exports
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Irving B. Kravis
Note: ITI IFM
Number: 1037
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1037
File-URL: http://www.nber.org/papers/w1037.pdf
File-Format: application/pdf
Abstract: U.S.-owned manufacturing affiliates in foreign countries tended to become more export-oriented between 1966 and 1977. The shift toward exporting characterized affiliates in most industries and most countries.The bulk of U.S.-owned production abroad continues to be for local sale in most industries and areas. Exporting to the U.S. remains a small part of affiliate activities in almost all cases. The most export-oriented were subsidiaries in machinery industries in Southeast Asia which were also the only ones outside Canada that sold a substantial part of their production in the U.S. In most industries and most countries U.S.-owned companies led the rise in exports and increased their shares in the exports of their host countries. This role of U.S. subsidiaries was particularly notable in Southeast Asia,and in those countries was concentrated in the machinery industry. The increasing share of U.S. affiliates in host-country exports was quite a general phenomenon, however, and high rates of affiliate export growth were associated with rapid growth of host country GDP and exports.
Handle: RePEc:nbr:nberwo:1037
Template-Type: ReDIF-Paper 1.0
Title: Adjustment Costs, Durables, and Aggregate Consumption
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Note: EFG
Number: 1038
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1038
File-URL: http://www.nber.org/papers/w1038.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben S. "Adjustment Costs, Durables, and Aggregate Consumption." Journal of Monetary Economics, Vol. 15, No. 1, January 1985, pp. 41-68.
Abstract: Previous tests of the permanent income hypothesis (PIH) have focused on either nondurables or durables expenditures in isolation. This paper studies consumer purchases of nondurables and durables as the outcome of a single optimization problem.It is shown that the presence of adjustment costs of changing durables stocks may substantially affect the time series properties of both components of expenditure under the PIH.However, econometric tests based on this model do not contradict earlier rejections of the PIH in aggregate quarterly data.
Handle: RePEc:nbr:nberwo:1038
Template-Type: ReDIF-Paper 1.0
Title: The Gold Standard and the Bank of England in the Crisis of 1847
Author-Name: Rudiger Dornbusch
Author-Name: Jacob A. Frenkel
Note: ITI EFG IFM
Number: 1039
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1039
File-URL: http://www.nber.org/papers/w1039.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger and Jacob A. Frenkel. "The Gold Standard Crisis of 1847 ." Journal of International Economics, Vol. 16, No. 1/2, (February 1984),pp. 233-271.
Publication-Status: published as Dornbush, Rudiger and Jacob A. Frenkel. "The Gold Standard and the Bank of England in the Crisis of 1847." A Retrospective on the Classical Gold Standard, edited by Michael D. Bordo and Anna J. Schwartz. Chicago: University of Chicago Press, (1984).
Publication-Status: published as The Gold Standard and the Bank of England in the Crisis of 1847, Rudiger Dornbusch, Jacob A. Frenkel. in A Retrospective on the Classical Gold Standard, 1821-1931, Bordo and Schwartz. 1984
Abstract: This paper examines the operation of the gold standard and the performance of the Bank of England during the crisis of 1847. The key feature of that crisis has been its origin: it originated from a massive real shock rather than from monetary disorder. A harvest failure gave rise to commercial distress and financial panic.Following a brief outline of the main events during the 1847 crisis, we present asimple model of the financial sector that captures the central characteristics of the crisis. The model, which highlights the role of confidence in both external and internal convertibility, is then used for interpreting the detailed characteristics of the financial crisis.Faced with a confidence crisis leading to international and external monetary drains,the Bank of England suspended Peel's act and thereby was allowed to issue fiat money without being constrained to have full gold backing. Our analysis shows that suspension of Peel's act was the proper policy required for the restoration of confidence. It also sheds light on the role of a lender of last resort in cases of banking panic.As for the evaluation of the gold standard, the 1847 crisis demonstrates that International capital flows have played a key role in the adjustnent mechanism. Further, it demonstrates that in contrast with the traditional representation, the gold standard has not been characterized by automatic, non-discretionary adjustment. On the contrary,banking policies and changes in the reserve-deposits and currency-deposits ratios have affected the money stock independently of gold flows.
Handle: RePEc:nbr:nberwo:1039
Template-Type: ReDIF-Paper 1.0
Title: Life Insurance Savings and the After-Tax Life Insurance Rate of Return
Author-Name: Mark Warshawsky
Note: PE
Number: 1040
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1040
File-URL: http://www.nber.org/papers/w1040.pdf
File-Format: application/pdf
Publication-Status: published as Mark Warshawsky, 1985. "Life Insurance Savings and the After-Tax Life Insurance Rate of Return," The Journal of Risk and Insurance, vol 52(4).
Abstract: This paper presents a calculation of the time series of the after-tax rate of return to whole life insurancy. When compared to the after-tax return on an alternative portfolio of similar risk, more than 60%of the decline in life insurance savings (suitably defined) in the past two decades can be attributed to a widening after-tax rate of return differen-tial.Both the existence and importance of this result depend on the characteristics of life insurance savings. Life insurance saving is intimately connected to life insurance coverage and therefore is long-term and quasi-contractual in nature. Furthermore (and, in part, because of the above characteristics), the interest earned on the fixed income portfolio of life insurance intermediaries has been taxed under a special set of rules. From 1958 to 1981,these rules have taken the rather complicated form of the Menge formula. This formula is very sensitive to changes in nominal interest rate levels and in particular, during inflationary periods it acts so as to dramatically increase the tax burden of life insurancesavings.Life insurance savings is therefore an example of the non-neutrality of monetary policy. This is important for studies of flow of funds and capital accumulation using the historical record.
Handle: RePEc:nbr:nberwo:1040
Template-Type: ReDIF-Paper 1.0
Title: The Employment and Wage Effects of Import Competition in the United States
Author-Name: Gene M. Grossman
Author-Person: pgr21
Note: ITI IFM
Number: 1041
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1041
File-URL: http://www.nber.org/papers/w1041.pdf
File-Format: application/pdf
Publication-Status: published as Gene M. Grossman, 1987. "The Employment and Wage Effects of Import Competition in the United States," Journal of Economic Integration, vol 2(1), pages 1-23.
Abstract: A new methodology is developed to determine the extent to which import competition has been responsible for labor displacements and wage movements inspecific, allegedly trade-impacted sectors. The procedure involves the estimation of reduced-form wage and employment equations by sector. These equations are first derived from a more complete structural model of general equilibrium resource allocation.The proposed methodology is applied to nine manufacturing sectors in the United States. The sensitivity of employment to the domestic price of imports varies significantly across these nine sectors, whereas industry wages are relatively unaffected by movements in the price of the foreign good.Counterfactual simulations are performed under the hypothetical assumption of no intensification or abatement of import competition from 1967-1979. The differences between the paths of unemployment and wages so generated and the actual, historical paths are attributed to the effects of import competition.Imports have been responsible for the loss of a large number of jobs in only one industry, and for a significant loss in wages in two industries, among the nine studied.
Handle: RePEc:nbr:nberwo:1041
Template-Type: ReDIF-Paper 1.0
Title: Elasticities of Demand for Educated Labor and Elasticities of Supply of Educated Labor
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 1042
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1042
File-URL: http://www.nber.org/papers/w1042.pdf
File-Format: application/pdf
Abstract: This paper reviews a variety of estimates of the demand and supply elasticities of educated labor. It finds that elasticities of substitution between more and less educated labor range fran 1.0 to 2.0 and that elasticities of the supply of students to colleges are also on the order of 1.0 to 2.0 while elasticities of supply to specific professions are on the order of 2.0 to 3.0. With elasticities of this magnitude, wages and employment depend on both supply and demand factors, with shifts of either schedule influencing both market outcome variables.
Handle: RePEc:nbr:nberwo:1042
Template-Type: ReDIF-Paper 1.0
Title: The Welfare Cost of Distortions in the United States Tax System: A General Equilibrium Approach
Author-Name: Charles L. Ballard
Author-Person: pba431
Author-Name: John B. Shoven
Author-Name: John Whalley
Author-Person: pwh8
Note: PE
Number: 1043
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1043
File-URL: http://www.nber.org/papers/w1043.pdf
File-Format: application/pdf
Publication-Status: published as Ballard, Charles L., John B. Shoven and John Whalley. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States." American Economic Review, Vol. 75, No. 1, (March1985), pp. 128-138.
Abstract: Using a general equilibrium model of the United States economy,we examine the combined welfare cost of all taxes in the U.S. revenue system.We find that the welfare losses caused by distortionary taxation can be very large, both on average and at the margin.The marginal welfare loss to consumers from raising an additional dollar of revenue is in the range of 34 cents to 48 cents, depending on certain elasticities. This has very important implications for cost-benefit analysis.If a public project must be financed by distortionary taxes which cause dead-weight loss, this excess burden must be taken into account when we decide whether to undertake the project. Our calculations indicate that the marginal deadweight loss is between one-third and one-half of marginal revenues. This large wedge could cause us to approve many fewer projects than we would approve if we were to use the simple condition that the sum of the marginal rates of substitution should equal the marginal rate of transformation.The average deadweight loss per dollar of revenue is smaller than the marginal deadweight loss, but it is still substantial. We estimate that the present value of the gain from replacing the distortionary tax system with certain lump sum taxes would be in the range of $1.8 trillion to $3.1 trillion,or 13 cents to 22 cents per dollar of revenue. The gains would be about 60 percent as great if the existing system were replaced with a proportional income tax. Replacing the existing system with a consumption-type value-added tax would give even greater gains than those from switching to a proportional income tax.
Handle: RePEc:nbr:nberwo:1043
Template-Type: ReDIF-Paper 1.0
Title: The Role of Expectations in the Choice of Monetary Policy
Author-Name: John B. Taylor
Author-Person: pta174
Note: EFG
Number: 1044
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1044
File-URL: http://www.nber.org/papers/w1044.pdf
File-Format: application/pdf
Publication-Status: published as Taylor, John B. "The Role of Expectations in the Choice of Monetary Policy." Monetary Policy Issues in the 1980s, Economic Symposium Conference Proceedings August 9-10, 1982, pp. 47-76. Kansas City: Federal Reserve Bank of Kansas City, (1982).
Abstract: This paper reviews and contrasts different views about the role of expectations in policy research and practice. Recently, two widely different views seem to have dominated the analysis of policy questions.One view, which is referred to as the "new classical macroeconomic"view, is that expectations overwhelm the influence of monetary policy.The other view, which is referred to as the "Keynesian" macroeconomic view, is that expectations are unimportant because people do not adjust to expectations of policy change. The paper argues that both these views are misleading. It advances a new view of the role of expectations that is still emerging from current macroeconomic reearch. The new view recognizes the importance of contractual arrangements which prevent a modern economy from adjusting instantaneously to policy changes, even if they are expected. But it also emphasizes that forward-looking expectations influence how these arrangements are set up and how they evolve over time. Recent criticisms of this new view are reviewed, and examples are given to illustrate how quantitative methods that incorporate this view can be used in practice.
Handle: RePEc:nbr:nberwo:1044
Template-Type: ReDIF-Paper 1.0
Title: Malfeasance in Long Term Employment Contracts: A New General Model with an Application to Unionism
Author-Name: Peter Kuhn
Author-Person: pku26
Note: LS
Number: 1045
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1045
File-URL: http://www.nber.org/papers/w1045.pdf
File-Format: application/pdf
Abstract: This paper argues that the structure of long-term employment contractsis influenced by the possibility that at least four different kinds of opportunistic behavior, or "malfeasance,"may occur in them. While the consequences of some of these problems have been examined in various papers,no single model has yet treated all four and thus brought out their essential symmetry. In particular, a certain kind of malfeasance by firms has apparently been universally overlooked-an oversight we try to remedy by developing a simple model here. Other advantages of the present model are that, unlike other models, it endogenizes the path of both sides of the contract -wages and effort -and has fairly intuitive first-order conditions. It also shows how earlier conclusions, such as the notion that wages are likely to rise faster than marginal products in equilibrium, are the results of less-than-general model specification, and has some interesting implications when applied to unionism: by proposing that unions act as workers'equivalent to certain contract enforcement policies like the disciplinary dismissals used by firms, it provides what is to the author's knowledge the only consistent theoretical explanation of the quite commonly observed U-shaped pattern of the union wage effect by age and shows how unions might play a positive efficiency role in this regard.
Handle: RePEc:nbr:nberwo:1045
Template-Type: ReDIF-Paper 1.0
Title: Real Wages and the Terms of Trade: Alternative Indexation Rules for an Open Economy
Author-Name: Richard C. Marston
Note: ITI IFM
Number: 1046
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1046
File-URL: http://www.nber.org/papers/w1046.pdf
File-Format: application/pdf
Publication-Status: published as Marston, Richard C. "Real Wages and the Terms of Trade: Alternative Indexation Rules for an Open Economy." Journal of Money, Credit and Banking, Vol. 16, No. 3, (August 1984), pp. 285-301.
Abstract: This paper examines the desirability of wage indexation in an open economy subject to economic disturbances which change the terms of trade and raise the prices of imported goods. Two indexation rules are considered, the traditional form of indexation to the consumer price index and indexation to the price of domestic goods alone, the latter proposed as a means of limiting the influence of import prices on the economy. The effects of the rules are shown to depend upon how the terms of trade rather than import prices alone respond to disturbances, since changes in the terms of trade determine what adjustments are required in the two real wages faced by firms and labor.
Handle: RePEc:nbr:nberwo:1046
Template-Type: ReDIF-Paper 1.0
Title: The Real Interest Rate: A Multi-Country Empirical Study
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG
Number: 1047
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1047
File-URL: http://www.nber.org/papers/w1047.pdf
File-Format: application/pdf
Publication-Status: published as Mishkin, Frederic S. "The Real Interest Rate: A Multi-Country Empirical Study." Canadian Journal of Economics, Vol. 17, No. 2, (May 1984), pp.283-3 11.
Abstract: How real interest rates behave over time is critical to our understanding of many macroeconomic issues, and much recent research has pursued this question. Very little of the research, however, has focused on real interest rates outside the United States. This paper is an empirical exploration of real interest rate movements in seven OECD countries from 1967-II to 1979-II. Further research is needed on real rates in other countries for several reasons. Not only are measures of foreign real rates of interest in their ownright, but extending an analysis of real rates to other countries also has the following additional benefits: it can generate more powerful statistical tests of propositions previously tested on U.S. data and yield information on whether results found for the U.S. hold up in other countries.This study pursues several questions that have arisen naturally from this earlier work. Is the hypothesis that the real rate is constant rejected when the analysis is extended to other countries? Does the real rate decline with increased inflation and money growth in other countries besides the United States? How reliable is the Fisher effect, in which nominal interestrates reflect changes in expected inflation? Are movements in nominal interest rates a reliable indicator of movements in real rates? What kind of variationsin real interest rates are there in different countries? Have real rates declined from the '60s to the '70s for other countries besides the U.S.?
Handle: RePEc:nbr:nberwo:1047
Template-Type: ReDIF-Paper 1.0
Title: Are Real Interest Rates Equal Across Countries? An Empirical Investigation of International Parity Conditions
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG
Number: 1048
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1048
File-URL: http://www.nber.org/papers/w1048.pdf
File-Format: application/pdf
Publication-Status: published as Mishkin, Frederic S. "Are Real Interest Rates Equal Across Countries? An Empirical Investigation of International Parity Conditions." Journal of Finance, Vol. 39, No. 5, (December 1984), pp. 1345- 1357.
Abstract: The proposition that real rates are equal across countries is worth studying because it is central to our understanding of open economy macroeconomics and because it is also an important issue to policy makers. If it is true, then domestic monetary authorities have no control over their real rate relative to the world rate, limiting the impact of their stabilization policies. In addition, as Feldstein has pointed out, unless real rates can differ across countries, policies directed at increasing domestic savings cannot increase the rate of capital formation and hence productivity. The equality of real rates is also worth investigating, because it is intimately linked to and provides information on the basic parity conditions featured so prominently in open economy macro models.This paper conducts empirical tests of the equality of real rates and other parity conditions across countries using euro rate data over the1967-II to 1979-II sample period. The empirical evidence strongly rejects the hypothesis of the equality of real euro rates across countries. The joint hypotheses of uncovered interest parity and ex ante relative PPP, or the unbiasedness of forward rate forecasts and ex ante relative PPP, are also strongly rejected. Yet independent tests of uncovered interest parity, the unbiasedness of forward rate forecasts and ex ante relative PPP yield few rejections and high marginal significance levels. The evidence suggests that it is worth studying open economy models which allow: 1) domestic real rates to differ from world rates, 2) time varying risk premiums in the forward market or 3) deviations from ex ante relative purchasing power parity.The evidence also leaves open the possibility for policy makers to exertsome control over their domestic real rate relative to those in the rest of the world. However, the evidence does not rule out that there is a tendency for real rates across countries to equalize over time, and this is an important topic for further research.
Handle: RePEc:nbr:nberwo:1048
Template-Type: ReDIF-Paper 1.0
Title: Why Money Announcements Move Interest Rates: An Answer from the Foreign Exchange Market
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 1049
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1049
File-URL: http://www.nber.org/papers/w1049.pdf
File-Format: application/pdf
Publication-Status: published as Charles Engel & Jeffrey Frankel, 1982. "Why money announcements move interest rates: an answer from the foreign exchange market," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 1-36.
Publication-Status: published as "Why interest rates react to money announcements *1: An explanation from the foreign exchange market." Journal of Monetary Economics, Volume 13, Issue 1, January 1984, Pages 31-39
Publication-Status: published as Reprinted in On Exchange Rates, J. Frankel, MIT Press, 1993
Abstract: On a Friday that the Fed announces a money supply greater than had been anticipated, interest rates move up in response. Why? One explanation is that the market perceives the fluctuation in the moneystock as an unintended deviation from the Fed's target growth rate that will be reversed in subsequent periods. The anticipation of this future tightening drives up interest rates today. A second explanation is that the market perceives the increase in the money supply as signalling a higher target growth rate. The expected future inflation rate rises,which is reflected in a higher nominal Interest rate.This paper offers grounds for choosing between the two possible explanations: evidence from the exchange market. Under the first explanation, anticipated future tightening, one would expect the dollar to appreciate against foreign currencies. Under the second explanation,expected inflation, one would expect it to depreciate. We render these claims more concrete by a formal model, a generalization of the Dornbusch overshooting model. Then we use the mark/dollar rate toanswer the question. We find a statistically significant tendency for the dollar to appreciate following positive money supply surprises.This supports the first explanation.
Handle: RePEc:nbr:nberwo:1049
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomics After a Decade of Rational Expectations: Some Critical Issues
Author-Name: Bennett T. McCallum
Note: EFG
Number: 1050
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1050
File-URL: http://www.nber.org/papers/w1050.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "Macroeconomics After a Decade of Rational Expectations: Some Critical Issues." Published separately as the Henry Thronton Lecture for 1982 by The City University, London, Also published in Federal Reserve Bank of Richmond Economic Review, Vol. 68, No. 6, Nov./Dec. 1982),pp.3-12
Abstract: The main section of this paper discusses competing theories of aggregate supply that are currently being utilized in macroeconomic models with rational expectations. The distinction between flexible-price equilibrium models and models with nominal contracts is emphasized and three models of the latter type are described and contrasted, it is argued that rejection of flexible-price equilibrium theories, as the evidence seems to warrant,does not require abandonment of the equilibrium approach. Also included are remarks on the present status of the rational expectations version of the natural-rate hypothesis. The second section of the paper briefly discusses a few issues concerning the equilibrium approach and aggregate demand, with attention devoted to the overlapping-generations framework. The third section considers a recent attempt, involving the use of "vector autoregression"models, to denigrate the importance of the Lucas critique of traditional policy-evaluation procedures.
Handle: RePEc:nbr:nberwo:1050
Template-Type: ReDIF-Paper 1.0
Title: Do Asset-Demand Functions Optimize over the Mean and Variance of Real Returns? A Six-Currency Test
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Charles Engel
Author-Person: pen14
Note: ITI IFM
Number: 1051
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1051
File-URL: http://www.nber.org/papers/w1051.pdf
File-Format: application/pdf
Publication-Status: published as Frankel, Jeffrey A. and Charles Engel. "Do Asset-Demand Functions Optimizeover the Mean and Variance of Real Returns? A Six-Currency Test." Journal of International Economics, Vol. 17, (December 1984), pp. 309-323.
Abstract: International asset demands are functions of expected returns.Optimal portfolio theory tells us that the coefficients in this relationship depend on the variance-covariance matrix of real returns.But previous estimates of the optimal portfolio (1) assume expected returns constant and (2) are not set up to test the hypothesis of mean-variance optimization. We use maximum likelihood estimation to impose a constraint between the coefficients and the error variance-covariance matrix. For a portfolio of six currencies, we are able statistically to reject the constraint. Evidently investors are either not sophisticated enough to maximize a function of the mean and variance of end-of-period wealth, or else are too sophisticated to do so.
Handle: RePEc:nbr:nberwo:1051
Template-Type: ReDIF-Paper 1.0
Title: On the Monetization of Deficits
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 1052
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1052
File-URL: http://www.nber.org/papers/w1052.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. "One the Monetization of Deficits." The Economic Consequences of Government Deficits, edited by Laurence H. Meyer, pp. 39-73. Boston: Kluwer-Nijhoff, (1983).
Abstract: Whether or not a deficit is monetized is often thought to have important macroeconomic ramifications. This paper is organized around two questions.The first is: Does monetization matter?, or morespecifically, For a given budget deficit, do nominal or real variables behave differently depending on whether deficits are monetized or not? Virtually all macro models givean affirmative answer. After sorting out some theoretical issues that arise in a dynamic context, I present some new time series evidence which suggests that monetization matters mostly for nominal variables.The second question is: What factors determine how much monetization the Federal Reserve will do?After discussing some normative rules, I offer a game-theoretic argument to explain why a central bank may choose not to monetize deficits at all and may even contract bank reserves when the government raises its deficit. The empirical work turns up a surprisingly systematic link between budget deficits and growth in reserves. This relationship suggests that the Federal Reserve monetizes deficits less when inflation is high and when government purchases are growing rapidly.
Handle: RePEc:nbr:nberwo:1052
Template-Type: ReDIF-Paper 1.0
Title: The Accuracy of Individual and Group Forecasts from Business Outlook Surveys
Author-Name: Victor Zarnowitz
Note: EFG
Number: 1053
Creation-Date: 1982-12
Order-URL: http://www.nber.org/papers/w1053
File-URL: http://www.nber.org/papers/w1053.pdf
File-Format: application/pdf
Publication-Status: published as Zarnowitz, Victor. "The Accuracy of Individual and Group Forecasts from Business Outlook Surveys." Journal of Forecasting, Vol. 3, No. 1, (January-March 1984), pp. 11-26.
Publication-Status: published as Victor Zarnowitz, 1992. "The Accuracy of Individual and Group Forecasts," NBER Chapters, in: Business Cycles: Theory, History, Indicators, and Forecasting, pages 444-461 National Bureau of Economic Research, Inc.
Abstract: This paper reports on a comprehensive study of the distributions of summary measures of error for a large collection of quarterly multiperiod predictions of six variables representing inflation, real qrowth, unemployment,and percentage changes in nominal GNP and two of its more volatile components.The data come from surveys conducted since 1968 by the National Bureau of Economic Research and the American Statistical Association and cover more than 70 individuals professionally engaged in forecasting the course of the U. S.economy (mostly economists, analysts, and executives from the world of corporate business and finance). There is considerable differentiation among these forecasts, across the individuals, variables, and predictive horizons covered. Combining corresponding predictions from different sources can result insignificant gains; thus the group mean forecasts are on the average over timemore accurate than most of the corresponding sets of individual forecasts. But there is also a moderate deqree of consistency in the relative performance of a sufficient number of the survey members, as evidenced in positive rank correlations among ratios of the individual to group root mean square errors.
Handle: RePEc:nbr:nberwo:1053