# generated by /homes/nber/adrepec/bin/nbrred running on mysql0
Template-Type: ReDIF-Paper 1.0
Title: Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Note: EFG
Number: 1054
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1054
File-URL: http://www.nber.org/papers/w1054.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben S. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression." The American Economic Review, Vol. 73, No. 3, (June 1983) pp. 257-276.
Abstract: This paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period. Our approach is complementary to that of Friedman and Schwartz, who emphasized the monetary impact of the bank failures; we focus on non-monetary (primarily credit-related) aspects of the financial sector--output link and consider the problems of debtors as well as those of the banking system. We argue that the financial disruptions of 1930-33 reduced the efficiency of the credit allocation process; and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand. Evidence suggests that effects of this type can help explain the unusual length and depth of the Great Depression.
Handle: RePEc:nbr:nberwo:1054
Template-Type: ReDIF-Paper 1.0
Title: Youth Employment in the Seventies: The Changing Circumstances of Young Adults
Author-Name: David T. Ellwood
Author-Name: David A. Wise
Author-Person: pwi45
Note: LS
Number: 1055
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1055
File-URL: http://www.nber.org/papers/w1055.pdf
File-Format: application/pdf
Publication-Status: published as Nelson, R. and F. Skidmore (eds.) American Families and the Economy: The High Costs of Living. Washington D.C.: National Academy Press, 1983.
Abstract: This paper examines the changing employment patterns for young men and women aged 16 to 24 over the 1970s and pays particular attention to the widening racial differences. Between 1970 and 1980 employment rates for both black men and women in this age range fell roughly 14 points relative to those of whites. Macroeconomic conditions, the reduction in the size of the military, changing schooling patterns,family structure, fertility patterns, and several public policies, are all examined in an attempt to understand the patterns of the seventies.The conclusion reached is that perhaps one-half of the diverging racial employment patterns can be "explained" by the variables we examine. For young men the most important forces appear to be the changing structure of the military, worsening macroeconomic conditions,and increased school enrollment among blacks. For women, the military is less important, of course, but shifts in family structure and fertility are rather important.
Handle: RePEc:nbr:nberwo:1055
Template-Type: ReDIF-Paper 1.0
Title: Petrodollars and the Differential Growth Performance of Industrial and Middle-Income Countries in the 1970s
Author-Name: Michael Bruno
Note: ITI IFM
Number: 1056
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1056
File-URL: http://www.nber.org/papers/w1056.pdf
File-Format: application/pdf
Abstract: The paper attempts to account for the differential growth performance of the industrial countries and the middle income developing countries in the 1970s in terms of economic theory and some international cross-section comparisons. The theory of adjustment to supply price shocks in an individual country is coupled with the world equilibrium determination of capital flows and interest rates. The supply shocks suffered by the industrial countries during the first oil shock were compounded by relative real wage rigidity and contractionary macroeconomic response.The middle-income countries, at least initially, showed greater real wage flexibility and also followed a much more expansionary policy by borrowing the equivalent of the large OPEC surplus at very low or negative real interest rates. Their faster growth in output and productivity was attained at higher current account deficits and more accelerated inflation.At the time of the second oil shock this differential strategy could no longer be pursued by many of the middle income countries as the real costof foreign borrowing as well as that of domestic labour increased substantially.
Handle: RePEc:nbr:nberwo:1056
Template-Type: ReDIF-Paper 1.0
Title: On the Relevance or Irrelevance of Public Financial Policy
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 1057
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1057
File-URL: http://www.nber.org/papers/w1057.pdf
File-Format: application/pdf
Publication-Status: published as Arrow, Kenneth J. and Michael J. Boskin (eds.) The economics of public debt: Proceedings of a conference held by the International Economic Association at Stanford, California. New York: St. Martin's Press, 1988.
Abstract: This paper establishes conditions under which public financial policyhas neither real nor inflationary effects; under which it has inflationary effects, but not real effects; and under which it has real effects. An increase in government debt (keeping real expenditures fixed), accompanied by a decrease in lump sum taxes has neither inflationary nor real effects (even in astochastic environment) provided there are no redistribution effects: the increase in supply of government bonds gives rise to an exactly offsetting increase in demand. An increase in the interest rate paid on government debt will be associated with an increase in the rate of inflation, but there will be no real effects. A change in financial policy which preserves the mean rate of return on bonds has no real effects if individuals are risk neutral and changes in the level of debt are offset by changes in lump sum taxes/subsidies for the owners of bonds. Except in these special cases, changes in public financial policy will always have real effects.The second part of the paper establishes that the optimal intertemporal risk redistribution scheme can be implemented through financial policies which entail constant price levels. This result is established in the context of a life cycle model with homogeneous individuals. It is shown, furthermore,that only a single financial instrument is required to implement the optimal policy; additional financial instruments are redundant. This redundancy result does not obtain, however, with heterogeneous populations if there are restrictions on the ability of the government to impose differential lump sum taxes on different groups.
Handle: RePEc:nbr:nberwo:1057
Template-Type: ReDIF-Paper 1.0
Title: The Taxation of Income from Capital: A Comparative Study of the U.S., U.K., Sweden, and West Germany--The Theoretical Framework--
Author-Name: Mervyn A. King
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 1058
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1058
File-URL: http://www.nber.org/papers/w1058.pdf
File-Format: application/pdf
Publication-Status: published as King, M. A. and D. Fullerton. "The Taxation of Income From Capital: A Comparative Stdy of the U.S., U.K., Sweden, and W. Germany--Theoretical Framework." The Taxation of Income From Capital: A Compartivie Stdy of the U.S., U. K., Sweden and W. Grmny, ed. by M> King & D. Fullerton. Chicago: UCP (1984
Abstract: This working paper presents Chapter 2 of a book that has been submitted to the University of Chicago Press for publication consideration. The point of the book is to compare taxes on income from capital infour countries,accounting for corporate, personal, and property taxes, and including national, regional, and local level taxes. We describe statutory tax ratesand other tax rules in each country, and calculate overall effective marginal tax rates for different combinations of asset, industry, source of finance,and ownership categories.This chapter defines the methodological problems of estimating effective tax rates on income from capital, and it defines the limits of this analysisby pointing out areas that are excluded by this study. It sets out the parameters that need to be estimated for each country, and describes other data requirements involving the amount of each capital asset located in each industry, financed by each source, and owned by each ownership category.
Handle: RePEc:nbr:nberwo:1058
Template-Type: ReDIF-Paper 1.0
Title: Rational Asset Price Bubbles
Author-Name: Behzad T. Diba
Author-Person: pdi273
Author-Name: Herschel I. Grossman
Note: EFG
Number: 1059
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1059
File-URL: http://www.nber.org/papers/w1059.pdf
File-Format: application/pdf
Publication-Status: published as Diba, Behzad T. and Herschel I. Grossman. "The Theory Of Rational Bubbles In Stock Prices," Economic Journal, 1988, v98(392), 746-754.
Abstract: The solution to a linear model in which supply and/or demand depends on rational expectations of future prices can involve three parts, which we denote as the fundamental component, the deterministic bubble component, and the stochastic bubble component. This paper explores the properties of these solution components, emphasizing the distinction between deterministic bubbles and stochastic bubbles, for a model of inflation and for a model of the evolution of price and quantity in the market fora storable commodity, such as gold. The analysis focuses on stochastic bubbles as a possibility peculiarly associated with models that involve rational expectations. In both the inflation model and the gold model, although the analysis points to no compelling reason to rule out rational stochastic bubbles apriori, conventional behavioral assumptions imply that anyrational bubbles that arise, whether deterministic or stochastic,are explosive. The paper discusses problems of implementing econometric tests for the existence of rational bubbles, and, as an alternative to these tests, suggests "diagnostic checking" of the stationarity properties of time series. Although these diagnostic checks do not constitute definitive hypothesis testing, we conjecture they would provide strong evidence against rational bubbles outside the context of hyperinflation.
Handle: RePEc:nbr:nberwo:1059
Template-Type: ReDIF-Paper 1.0
Title: Measuring the Average Marginal Tax Rate from the Individual Income Tax
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: Chaipat Sahasakul
Note: EFG
Number: 1060
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1060
File-URL: http://www.nber.org/papers/w1060.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J. and Chaipat Sahasakul. "Measuring the Average Marginal Tax Rate from the Individual Income Tax." Journal of Business, Vol. 56, No. 4, October 1983, pp. 419-452.
Abstract: The economic effects of taxation depend on the configuration of marginal tax rates. We consider here the appropriate measure of a marginal tax rate for the federal individual income tax, which has a graduated-rate structure and allows for numerous legal and illegal deductions from total income.Our conclusion is that the explicit marginal rate from the tax schedule is the right concept for many purposes.Hence, we construct approximately weighted averages of these marginal tax rates for 1916-80. When weighted by adjusted gross income, the arithmetic average of marginal tax rates is 5% in 1920, 2%in 1930, 6% in 1940, 20% in 1950, 23% in 1960, 24% in 1970, and 30% in 1980.We also discuss the dispersion of marginal tax rates, as well as the behavior of average tax rates and deductions from taxable income. One noteworthy result concerns the fraction of adjusted gross income that accrues to families that face a marginal tax rate of at least 35%. This fraction quadruples from 1964 to 1980.
Handle: RePEc:nbr:nberwo:1060
Template-Type: ReDIF-Paper 1.0
Title: Technical Problems in Social Experimentation: Cost versus Ease of Analysis
Author-Name: Jerry A. Hausman
Author-Person: pha893
Author-Name: David A. Wise
Author-Person: pwi45
Number: 1061
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1061
File-URL: http://www.nber.org/papers/w1061.pdf
File-Format: application/pdf
Publication-Status: published as Hausman, Jerry A. and David A. Wise. "Technical Problems in Social Experimentation: Cost Versus Ease of Analysis." Social Experimentation, edited by Jerry a. Hausman and David A. Wise. Chicago: University of Chicago Press, (1985), pp. 218-219.
Publication-Status: published as Technical Problems in Social Experimentation: Cost versus Ease of Analysis, Jerry A. Hausman, David A. Wise. in Social Experimentation, Hausman and Wise. 1985
Abstract: The goal of the paper is to set forth general guidelines that we believe would enhance the usefulness of future social experiments and to suggest ways of correcting for inherent limitations of them. Although the major motivation for an experiment is to overcome the inherent limitations of structural econometric models, in many instances the experimental designs have subverted this motivation. The primary advantages of randomized controlled experiments were often lost. The major complication for the analysis of the experiments was induced by an endogenous sample selection and treatment assignment procedure that selected the experimental participants and assigned them to controlversus treatment groups partly on the basis of the variable whose response the experiments were intended to measure. We propose that to overcome these difficulties, the goal of an experimental design should be as nearly as possible to allow analysis based on a simple analysis of variance model. Although complexities attendant to endogenous stratification can be avoided, there are inherent limitations of the experiments that cannot. Two major ones are self-determination of participation and self-selection out, through attrition.But these problems, we believe, can be corrected for with relative ease if endogenous stratification is eliminated. Finally, we propose that as a guiding principle, the experiments should have as a first priority the precise estimation of a single or a small number of treatment effects.
Handle: RePEc:nbr:nberwo:1061
Template-Type: ReDIF-Paper 1.0
Title: Supplemental Social Insurance and the Health of the Poor
Author-Name: Paul J. Taubman
Author-Name: Robin C. Sickles
Author-Person: psi296
Note: EH
Number: 1062
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1062
File-URL: http://www.nber.org/papers/w1062.pdf
File-Format: application/pdf
Abstract: In 1974 the federal government instituted Supplemental Social Insurance(SSI). The eligible group was the elderly on welfare and disabled individuals.The program distributed extra income and made people eligible for Medicaid in all states except Arizona which did not have Medicaid. We used subjective and objective health information in the Retirement History Survey (RHS) to examine the impact of the program. The RHS is a sample that began in 1969 and included heads of households who were 58 to 63 years old. The respondents or widows were resurveyed every second year through 1977. Before 1974 those who subsequently received SSI were in much worse health than those who did not.After1974 the differences in health were small and not statistically significant.
Handle: RePEc:nbr:nberwo:1062
Template-Type: ReDIF-Paper 1.0
Title: The Demand for International Reserves and Exchange Rate Adjustments: TheCase of LDCs, 1964-1972
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 1063
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1063
File-URL: http://www.nber.org/papers/w1063.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian. "The Demand for International Reserves and Exchange Rates Adjustments: The Case of LDC's 1964-1972." Economica, Vol. 50, (August 1983), pp. 269-280.
Abstract: In this paper the relationship between the demand for international reserves and exchange rate adjustments is empirically investigated for agroup of LDC's. It is shown that countries that have maintained a fixed exchange rate for a long period of time have a different demand function than countries that have occasionally used exchange rate adjustments for correcting payments imbalances. The dynamics of the adjustment for both groupsof countries are also analyzed. The results show that while both groups tend to eliminate reserve disequilibria fast, those countries that have maintained a fixed rate tend to do it more slowly than countries that have occasionally devalued their currency. It Is also shown that the year prior to a devaluation, international reserves have been, on average, 30% below their short-run desired level. These results are important since they indicate that not all LDC's should be aggregated for prediction purposes. The results also have implications for the analysis of the adequacy of international reserves in less developed countries.
Handle: RePEc:nbr:nberwo:1063
Template-Type: ReDIF-Paper 1.0
Title: Floating Exchange Rates, Expectations and New Information
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 1064
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1064
File-URL: http://www.nber.org/papers/w1064.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian Edwards. "Floating Exchange Rates, Expectations and New Information." Journal of Monetary Economics, Vol. 11, No. 3. (May 1983), pp . 321-336.
Abstract: This paper analyzes the relationship between forward exchange rates,future spot rates and new information. A stochastic model of exchangerate determination is used to formally show how unanticipated changes in the exchange rate determinants (or "news") affect the spot rate. The empirical analysis indicates that "new information" plays an important role in explaining the market forecasting error, or difference between the spot rate and the forward rate, determined in the previous period.
Handle: RePEc:nbr:nberwo:1064
Template-Type: ReDIF-Paper 1.0
Title: The Short-Run Relation Between Inflation and Growth in Latin America
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 1065
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1065
File-URL: http://www.nber.org/papers/w1065.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian,. "The Short-Run Relation Between Inflation and Growth in Latin America: Comment." The American Economic Review, Vo. 73, No. 3,(June 1983), pp. 477-482. The American Economic Assoc.
Abstract: This paper investigates the relationship between monetary policy and growth in five Latin American countries (Brazil, Chile, Colombia, Mexico and Peru).The analysis focuses on the effects of expected and unexpected monetary growth on output, and explicitly incorporates the relationship between fiscal deficits and money creation in these countries. Open economy considerations are explicitly introduced into the analysis.Contrary to previous findings (Hanson, 1980), the results obtained in this paper indicate that these countries exhibit very different behavior with respect to the relationship between unexpected money and growth: While for Chile and Brazil no evidence was found of a positive relation between monetary policy (expected or unexpected) and growth, for Colombia, Mexico and Peru a positive relationship was found between unexpected monetary policy and growth.
Handle: RePEc:nbr:nberwo:1065
Template-Type: ReDIF-Paper 1.0
Title: Modeling Deviations from Purchasing Power Parity (PPP)
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 1066
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1066
File-URL: http://www.nber.org/papers/w1066.pdf
File-Format: application/pdf
Publication-Status: published as Aizenman, Joshua. "Modeling Deviations from Purchasing Power Parity (PPP)." International Economic Review, Vol. 25, No. 1, (February 1984), pp. 175- 191.
Abstract: The volatility of the exchange rate under floating rates can be interpreted in terms of approaches that allow for short term price rigidity as well as in terms of models that consider the magnification effect of new information. This paper combines the two approaches into a unified framework,where the degree to which prices are rigid is determined endogenously. It is shown that the variance of percentage deviations from ppp has an upper bound,and that the relationship between the variance of deviations from ppp and the aggregate variability is not monotonic. Allowing for a short-run Phillips curve with optimal indexation, it is also demonstrated that a higher price flexibility will reduce deviations from ppp and output volatility.
Handle: RePEc:nbr:nberwo:1066
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy: Domestic Targets and International Constraints
Author-Name: Jacob A. Frenkel
Note: ITI EFG IFM
Number: 1067
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1067
File-URL: http://www.nber.org/papers/w1067.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. "Monetary Policy: Domestic Targets and International Constraints." American Economic Review, Vol. 73, No. 2 (May 1983), pp. 48-53.
Abstract: This paper argues that macroeconomic policies for open economies differ, in fundamentally important ways, from the corresponding policies for closed economies.The openness of the economy imposes constraints on the effectiveness and proper conduct of macroeconomic policies and it also provides policy makers with infor-mation which may be usefully exploited in the design of policy. The discussion in this paper focuses on the dependence of monetary policy on the constraints and the information that are provided by the external sector. Section I summarizes briefly the characteristics of the international constraints on monetary policy.Section II deals with intervention in the foreign-exchange market and its relation to monetary policy. In this context the distinction between sterilized and non-sterilized interventions is drawn and the implications of the various forms of intarventions for the effectiveness of monetary policy are examined. Finally,Section III addresses the question of the role that exchange rates should play in the design of monetary policy. It is argued that data from the market for foreign exchange in combination with data on interest rates can provide the monetary authorities with useful information on money market conditions and thereby can contribute to the improved conduct of monetary policy.
Handle: RePEc:nbr:nberwo:1067
Template-Type: ReDIF-Paper 1.0
Title: Productivity and R&D at the Firm Level in French Manufacturing
Author-Name: Philippe Cuneo
Author-Name: Jacques Mairesse
Author-Person: pma712
Note: PR
Number: 1068
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1068
File-URL: http://www.nber.org/papers/w1068.pdf
File-Format: application/pdf
Publication-Status: published as Cueno, Philippe and Jacques Mairesse. "Productivity and R&D at the Firm Level in French Manufacturing." R&D, Patents and Productivity, edited by Zvi Griliches. Chicago: UCP, (1984).
Publication-Status: published as Productivity and R&D at the Firm Level in French Manufacturing, Philippe Cuneo, Jacques Mairesse. in R&D, Patents, and Productivity, Griliches. 1984
Abstract: In a companion study to that of Griliches and Mairesse for the United States, we have investigated the relationship between output, labor, and physical and R&D capital during the 1972-1977 period for a sample of 182 R&D performing firms in the French nnufacturing industries. Our results are quite comparable to those obtained for the U.S. The relationship between firm productivity and R&D appears both strong and robust in the cross-sectional dimension of the data; it is less so in the time dimension. However, the within-firm estimates are still significant and of a likely order of magnitude.In this respect, they are more satisfactory than the U.S. ones. We show that this is largely due to a better measurement of the variables: (1) the fact that we can use a value-added measure of output instead of sales (or equivalently that we include materials among the factors of the production function); (2) the fact that we can correct the measures of labor, physical capital and output for the double counting or expensing out of the labor, capital and materials components of R&D expenditures.
Handle: RePEc:nbr:nberwo:1068
Template-Type: ReDIF-Paper 1.0
Title: Retirement Flows
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 1069
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1069
File-URL: http://www.nber.org/papers/w1069.pdf
File-Format: application/pdf
Publication-Status: published as Gustman, Alan L. and Thomas L. Steinmeier. "Modeling the Retirement Process for Policy Evaluation and Research." (title different from WP) Monthly Labor Review, Vol. 107, No. 7, July 1984, pp. 26-33.
Abstract: This paper considers labor market flows of older workers among the states of nonretirement, partial retirement and full retirement.Statistics are presented which describe entry, exit and continuation rates for each state by age, duration dependence, and "reverse flows."One important finding which has implications for the structure of utility functions embedded in life cycle retirement models is the relatively high incidence but short duration of partial retirement.These implications are discussed.
Handle: RePEc:nbr:nberwo:1069
Template-Type: ReDIF-Paper 1.0
Title: Rational Expectations and Macroeconomic Forecasts
Author-Name: Victor Zarnowitz
Note: EFG
Number: 1070
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1070
File-URL: http://www.nber.org/papers/w1070.pdf
File-Format: application/pdf
Publication-Status: published as Zarnowitz, Victor. "Rational Expectations and Macroeconomic Forecasts," Journal of Business & Economic Statistics, Vol. 3, No. 4, October 1985
Publication-Status: published as Rational Expectations and Macroeconomic Forecasts, Victor Zarnowitz. in Business Cycles: Theory, History, Indicators, and Forecasting, Zarnowitz. 1992
Abstract: This paper presents extensive results from testing for bias and serially correlated errors in a large collection of quarterly multiperiod predictions from surveys conducted since 1968 by the National Bureau of Economic Research and the American Statistical Association. The tests of the joint null hypothesis that the regressions of actual on predicted values have zero intercepts and unitary slope coefficients are very unfavorable to the expectations of inflation, but they show the forecasts of several other variables in a generally much better light. There have been strong tendencies for the forecasters in this period to underestimate inflation and overestimate real growth.Considerable attention is given to the effects of the sample size--the issue of the power of the tests--and also to the extent and role of autocorrelations among the residual errors from these regressions.Rationality in the sense of efficient use of relevant information implies the absence of systematic elements in series of errors from the forecaster's own predictions, measured strictly in the form in which such errors could have been known at the time of the forecast. The frequencies of significant auto-correlations among errors so measured vary greatly across the forecasts for different variables, being very high for inflation, high for inventory investment and the unemployment rate, and much lower for most of the predictions ofthe other variables covered (rates of change in nominal and real GNP and expenditures on consumer durables). The corresponding tests for the group meanforecasts show much less evidence of serially correlated ex ante errors, except for inflation.
Handle: RePEc:nbr:nberwo:1070
Template-Type: ReDIF-Paper 1.0
Title: Is Optimism Good in a Keynesian Economy?
Author-Name: Torsten Persson
Author-Person: ppe28
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 1071
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1071
File-URL: http://www.nber.org/papers/w1071.pdf
File-Format: application/pdf
Publication-Status: published as Persson, Torsten and Lars E.O. Svensson. "Is Optimism Good in a Keynesian Economy?" Economica, Vol. 50, No. 199, (August 1983), pp. 291-300.
Abstract: Assume that an economy is in a state of Keynesian unemployment. Since production is demand-determined there are bootstraps (multiple) equilibria. Then, the more optimist agents are about the future the higher will be theur demand today and hence current production. In that limited sense optimism turns out to be unwarranted , which forces a download adjustment. Is this unwarranted optimism still good? We analyze this question by help of a general equilibrium model of a small open economy where the sequence of adjustment and readjustment is modeled as two successive temporary equilibria. The question wheter optimism is good is posed in terms of an explicit ( ex post) welfare evaluation. We fine that if the future is Walrasian, the future multiplier is unity, whereas the present multiplier is larger than unity. Then optimism increases ex post welfare. If the future has Keynesian unemployment, optimism still increases ex post welfare, as long as the present multiplier is larger than the future one. A necessary and sufficient condition for this is presented.
Handle: RePEc:nbr:nberwo:1071
Template-Type: ReDIF-Paper 1.0
Title: The Relationship Between Diet, Parent"s Fatness, and Obesity in Children and Adolescents
Author-Name: Douglas Coate
Note: EH
Number: 1072
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/w1072
File-URL: http://www.nber.org/papers/w1072.pdf
File-Format: application/pdf
Abstract: In this paper empirical evidence is presented on the determinants of obesity in youth in the U.S., with particular emphasis on isolating the effects of diet and parent's fatness on the obesity outcome. The results show that parents fatness has statistically important impacts on skinfold growth among children and adolescents. Diets between obese and non-obese youth, however, do not differ substantially. Evidence that youth with "fatter parents" are able to produce more skin-fold or adipose tissue from given calorie intakes includes the significant and relatively large parent's fatness (skinfold) effects in the youth skin-fold equations, the larger calorie coefficients in the skin-fold equation for 10-16 year old youths with "fat" mothers as compared to 10-16 year olds with around average mothers, and the significant and relatively large parent's fatness effects in the youth obesity probability equations. The probability models show that if either of the parents of a 10-16 year old is obese, the probability of the 10-16 year old being obese is .2, holding constant age, race, sex and calorie consuiption. If both parents are obese the probability of the 10-16 year old being obese is .4.The data set is the Ten State Nutrition Survey,1968-1970.
Handle: RePEc:nbr:nberwo:1072
Template-Type: ReDIF-Paper 1.0
Title: The Taxation of Income from Capital: A Comparative Study of the U.S., U.K., Sweden and West Germany--Comparisons of Effective Tax Rates--
Author-Name: Mervyn A. King
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 1073
Creation-Date: 1983-02
Order-URL: http://www.nber.org/papers/w1073
File-URL: http://www.nber.org/papers/w1073.pdf
File-Format: application/pdf
Publication-Status: published as King. M. A. and D. Fullerton. "The Taxation of Income From Capital: A Comparative Stdy of the U.S., U.K., Sweden & W. Germany--Comparisions of Effective Tax Rates." The Taxation of Income From Capital: A Comparative Stdy of the U.S., U.K., Sweden & W. Grmny, ed. by M. King & D. Fullerton. UCP (1984)
Abstract: This working paper presents Chapter 7 of a book to be published for the National Bureau of Economic Research by the University of Chicago Press. The point of the book is to compare taxes on income from capital in four countries,accounting for corporate, personal, and property taxes, and including national,regional, and local level taxes. We describe statutory tax rates and other tax rules in each country and calculate overall effective marginal tax ratesfor different combinations of asset, industry, source of finance, and ownership categories.This chapter compares effective tax rates in the four countries for different assets, industries, sources of finance, and ownership categories.Differences in overall effective tax rates among countries are attributed to differences in rates of inflation, actual depreciation,tax parameters, or differences in the amount of capital in each combination.For each country,we plot the effect of inflation on overall tax rates, and we plot the distribution of different effective tax rates at a given rate of inflation. We further investigate the sensitivity of results to assumptions about inflation and interest rates.
Handle: RePEc:nbr:nberwo:1073
Template-Type: ReDIF-Paper 1.0
Title: World Equilibrium with Oil Price Increases: An Intertemporal Analysis
Author-Name: Nancy Peregrim Marion
Author-Person: pma1464
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 1074
Creation-Date: 1983-02
Order-URL: http://www.nber.org/papers/w1074
File-URL: http://www.nber.org/papers/w1074.pdf
File-Format: application/pdf
Publication-Status: published as Marion, Nancy Peregrim and Lars E. O. Svensson. "World Equilibrium with Oil Price Increases: An Intertemporal Analysis." Oxford Economic Papers, Vol. 36, (March 1984), pp 86-102.
Abstract: This paper examines the effect of OPEC price increases on the welfare of a group of oil-importing industrial countries. It also studies how taxes or subsidies on oil imports or capital flows could alter the group's welfare. The analysis is conducted using a general-equilibrium model that describes the behavior of two actors, OPEC and the oil-importing bloc called Industria. The analysis is explicitly intertemporal and takes into account endogenous changes in saving, investment and employment.We show that Industria's welfare is affected not only by direct oil terms of trade effect, but also by changes in the world rate of interest(intertemporal terms of trade effects) and, for rigid wages, changes in employment. Thus Industria gains from the intertemporal terms of trade effect if it is a net borrower and the world rate of interest falls. Precise conditions for whether the world rate of interest falls or rises are given.We also show that Industria may gain from subsidizing oil imports rather than taxing them, in particular if wages are rigid, and that it may gain from restricting international capital mobility.
Handle: RePEc:nbr:nberwo:1074
Template-Type: ReDIF-Paper 1.0
Title: International Capital Movements Under Uncertainty
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Assaf Razin
Author-Person: pra388
Note: ITI IFM
Number: 1075
Creation-Date: 1983-02
Order-URL: http://www.nber.org/papers/w1075
File-URL: http://www.nber.org/papers/w1075.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Gene M. and Assaf Razin. "International Capital Movements Under Uncertainty." Journal of Political Economy, Vol. 92, No. 2, (April 1984), pp . 286-306.
Abstract: In this paper, we analyze the determinants of international movements of physical capital in a model with uncertainty and international trade in goods and securities.In our model, the world allocation of capital is governed, to some extent, by the asset preferences of risk averse consumer-investors. In a one-good variant in the spirit of the MacDougall model, we find that relative factor abundance, relative labor force size and relative production riskiness have separate but interrelated influences on the direction of equilibrium capital movements.These same factors remain important in a two-good version with Heckscher-Ohlin production structure. In this case, the direction of physical capital flow is determinate (unlike in a world of certaint and may hinge on the identity of the factor which is used intensively in the industry with random technology.
Handle: RePEc:nbr:nberwo:1075
Template-Type: ReDIF-Paper 1.0
Title: Planning the Consumption Goods Market: Preliminary Disequilibrium Estimates for Poland, 1955-1980
Author-Name: Richard Portes
Author-Person: ppo132
Author-Name: Richard E. Quandt
Author-Name: David Winter
Author-Name: Stephen Yeo
Note: ITI IFM
Number: 1076
Creation-Date: 1983-02
Order-URL: http://www.nber.org/papers/w1076
File-URL: http://www.nber.org/papers/w1076.pdf
File-Format: application/pdf
Publication-Status: published as in "Contemporary Macroeconomic Modeling," edited by P. Malgrange and P.A. Muet, pp. 254-271. Oxford: Blackwell Publishers, (1984).
Abstract: This paper specifies and estimates a four-equation disequilibrium model of the consumption goods market in a centrally planned economy (CPE).The data are from Poland for the period 1955-1980, but the analysis is more general and will be applied to other CPEs as soon as the appropriate data sets are complete.The work reported here is based on previous papers of Portes and Winter and Charernza and Quandt.Portes-Winter applied to eachof four CPEs a discrete-switching disequilibrium model with a household demand equation for consumption goods, a planners'supply equation, and a "min" condition stating that the observed quantity transacted is the lesser of the quantities demanded and supplied.Charemza-Quandt considered how an equation for the adjustment of planned quantitites could be integrated into a CPE model with fixed prices and without the usual price adjustment equation.They made plan formation endogenous and permitted the resulting plan variables to enter the equations determining demand and supply.This paper implements the Charemza-Quandt proposal in the Portes-Winter context.It uses a unique new data set of time series for plans for the major macroeconomic variables in Poland and other CPEs.The overall framework is applicable to any large organisation which plans economic variables.
Handle: RePEc:nbr:nberwo:1076
Template-Type: ReDIF-Paper 1.0
Title: Money, Real Interest Rates, and Output: A Reinterpretation of Postwar U.S. Data
Author-Name: Robert B. Litterman
Author-Person: pli374
Author-Name: Laurence Weiss
Note: EFG
Number: 1077
Creation-Date: 1983-02
Order-URL: http://www.nber.org/papers/w1077
File-URL: http://www.nber.org/papers/w1077.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 53, no. 1 (1985): 129-156.
Abstract: This paper reexamines both monthly and quarterly U.S. postwar data to investigate if the observed comovements between money, real interestrates, prices and output are compatible with the money-real interest-output link suggested by existing monetary theories of output, which include both Keynesian and equilibrium models.The major empirical findings are these;1) In both monthly and quarterly data, we cannot reject the hypothesis that the ex ante real rate is exogenous, or Granger-causally prior in the context of a four-variable system which contains money, prices, nominal interest rates and industrial production.2) In quarterly data, there is significantly more information con-tained in either the levels of expected inflation or the innovationof this variable for predicting future output, given current and lagged output, than in any other variable examined (money, actualinflation, nominal interest rates, or ex ante real rates). The effect of an inflation innovation on future output is unambiguously negative. The first result casts strong doubt on the empirical importance of existing monetary theories of output, which imply that money should have a causal role on the ex ante real rates. The second result would appear incompatible with most demand driven models of output.In light of these results, we propose an alternative structural model which can account for the major dynamic interactions among the variables.This model has two central features: i) output is unaffected by money supply;and ii) the money supply process is motivated by short-run price stability.
Handle: RePEc:nbr:nberwo:1077
Template-Type: ReDIF-Paper 1.0
Title: Deficits, Crowding Out and Inflation: The Simple Analytics
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ME
Number: 1078
Creation-Date: 1983-02
Order-URL: http://www.nber.org/papers/w1078
File-URL: http://www.nber.org/papers/w1078.pdf
File-Format: application/pdf
Abstract: The paper studies the relationship between public sector financial deficits, crowding-out of public sector capital formation and inflation in a number of small, classical macroeconomic models. This amounts to reworking some of the government budget constraint literature by including capacity constraints, flexible prices and rational expectations. After considering some simple "money only' and "money-capital" models, most ofthe paper is devoted to the analysis of a continuous time representation of the "money-bonds-capital" model of Sargent and Wallace. It is noted that the conventionally measured deficit is likely to be a poor indicator both of the "eventual monetization" implied by the fiscal stance and of the long-run financial crowding-out pressure it represents. A better measure would be the inflation-and-real-growth-corrected, cyclically adjusted ("permanent")government currect account deficit as a proportion of national income.It is also suggested that the Sargent-Wallace "paradox" - in the variable velocity model ,lower monetary growth now may mean higher inflation now and in the future -has its counterpart in the possibility that lower money growth now may give lower inflation now and in the future. In the constant velocity model the Sargent-Wallace findings are confirmed when the real interest rate is made endogenous.
Handle: RePEc:nbr:nberwo:1078
Template-Type: ReDIF-Paper 1.0
Title: Rules, Discretion and Reputation in a Model of Monetary Policy
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: David B. Gordon
Author-Person: pgo64
Note: EFG
Number: 1079
Creation-Date: 1983-02
Order-URL: http://www.nber.org/papers/w1079
File-URL: http://www.nber.org/papers/w1079.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J. and David B. Gordon. "Rules, Discretion and Reputation ina Model of Monetary Policy." Journal of Monetary Economics, Vol. 12, No. 1,(July 1983), pp. 101-121.
Abstract: In a discretionary regime the monetary authority can print more money and create more inflation than people expect. But, although these inflation surprises can have some benefits, they cannot arise systematically in equilibrium when people understand the policymaker's incentives and form their expectations accordingly. Because the policymaker has the power to create inflation shocks ex post, the equilibrium growth rates of money and prices turn out to be higher than otherwise. Therefore, enforced commitments (rules) for monetary behavior can improve matters. Given the repeated interaction between the policymaker and the private agents, it is possible that reputational forces can substitute for formal rules.Here, we develop an example of a reputational equilibrium where the out-comes turn out to be weighted averages of those from discretion and those from the ideal rule. In particular, the rates of inflation and monetary growth look more like those under discretion when the discount rate is high.
Handle: RePEc:nbr:nberwo:1079
Template-Type: ReDIF-Paper 1.0
Title: A General Equilibrium Simulation Study of Subsidies to Municipal Expenditures
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 1080
Creation-Date: 1983-02
Order-URL: http://www.nber.org/papers/w1080
File-URL: http://www.nber.org/papers/w1080.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Roger H. and Joel Slemrod. "A General Equilibrium Simulation Studyof Subsidies to Municipal Exoenditures." The Journal of Finance, Vol. 38, No. 2, (May 1983), pp. 585-594.
Abstract: In the United States, local government expenditures are heavily subsidized through a variety of sources. This paper explores theoretically and then simulates empirically the effects of eliminating either of two federal subsidies encouraging local government expenditures: (1) income tax deductibility of local tax payments, and (2) the tax exempt status of interest on municipal bonds.We find that eliminating the deductibility of local taxes raises the utility of all income groups, and of home owners as well as of renters.Making interest on municipal bonds taxable, however, substantially hurts the very rich, who lose a tax shelter, and may hurt the very poor, who pay more for municipal services. While most people gain, the net gain is very small.
Handle: RePEc:nbr:nberwo:1080
Template-Type: ReDIF-Paper 1.0
Title: Demand Variability, Supply Shocks and the Output-Inflation Tradeoff
Author-Name: Richard T. Froyen
Author-Name: Roger N. Waud
Note: ME
Number: 1081
Creation-Date: 1983-02
Order-URL: http://www.nber.org/papers/w1081
File-URL: http://www.nber.org/papers/w1081.pdf
File-Format: application/pdf
Publication-Status: published as Froyen, Richard T. and Roger N. Waud. "Demand Variability, Supply Shocks and the Output-Inflation Tradeoff." Review of Economics and Statistics, Vol . 67, No. 1, (February 1985), pp. 9-15.
Abstract: This paper examines the shift in the relation between the inflation rate and the rate of growth of real output which has occurred in the United States over the past three decades, and attempts to assess the relative importance of three possible lines of explanation: a) the new classical view of the output-inflation tradeoff, initially specified by Lucas;b) the effect of supply-side shocks, such as energy prices; c) the effect of inflation variability on the natural rate of real output, as hypothesized by Milton Friedman. The paper concludes that b) and c) seem to have played a significant role in the observed shift from a positive to a negative correlation between the rate of inflation and the rate of real output growth,but that a) did not.
Handle: RePEc:nbr:nberwo:1081
Template-Type: ReDIF-Paper 1.0
Title: Asset Substitutability and the Impact of Federal Deficits
Author-Name: V. Vance Roley
Note: ME
Number: 1082
Creation-Date: 1983-02
Order-URL: http://www.nber.org/papers/w1082
File-URL: http://www.nber.org/papers/w1082.pdf
File-Format: application/pdf
Publication-Status: published as Roley, V. Vance. "Asset Substitutability and the Impact of Federal Deficits ." The Economic Consequences of Government Deficits, edited by L. Meyer, Kluwer-Nijhoff Publishing Company, 1983.
Abstract: In this paper, the role of asset substitutability in determining the impact of debt-financed federal deficits is examined. The issues are first discussed in the context of a simple analytical model in which financial assets are disaggregated into money, federal debt,and corporate bonds. In this model, it is shown that depending on the degree of substitutability among financial assets, a range of possible outcomes associated with a change in the federal deficit is possible.Next, the issue of asset substitutability is examine dempirically in a disaggregated structural model of the Treasury security,corporate bond, and equity markets. Using this model, the implications of larger debt-financed federal deficits are then examined in a series of simulation experiments.
Handle: RePEc:nbr:nberwo:1082
Template-Type: ReDIF-Paper 1.0
Title: Deficits and Intergenerational Welfare in Open Economies
Author-Name: Torsten Persson
Author-Person: ppe28
Note: ITI IFM
Number: 1083
Creation-Date: 1983-02
Order-URL: http://www.nber.org/papers/w1083
File-URL: http://www.nber.org/papers/w1083.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 19, No. 1/2, pp. 67-84, August 1985.
Abstract: This paper deals with public debt in open economies, extending Diamond's overlapping generations model to deal with a small openeconor as well as an international eciuilibrium of two large economies. It focuses on the intergenerational welfare redistributions caused by an increase in the public debt triggered by a period of government budget deficit, and shows that these effects are markedly different in open and closed economies. The interplay between the deficits in the government budget and the current account is also analyzed. Here, it is shown how a single period with a deficit in the government budget can be followed by a seciuence of periods with a deficit in the current account.
Handle: RePEc:nbr:nberwo:1083
Template-Type: ReDIF-Paper 1.0
Title: Money, Credit Constraints, and Economic Activity
Author-Name: Alan S. Blinder
Author-Person: pbl41
Author-Name: Joseph E. Stiglitz
Note: EFG
Number: 1084
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1084
File-URL: http://www.nber.org/papers/w1084.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. and Joseph E. Stiglitz. "Money, Credit Constraints, and Economic Activity." American Economic Review, Vol. 73, No. 2 (May 1983), pp. 297-302.
Abstract: When government expenditures exceed current tax revenues, the resulting deficit must be financed either by issuing bonds, which imply obligations to levy future taxes, or by creating high-powered money. The choice between money and bonds is often thought to be of great moment for both real and nominal variables; that is, monetary policy matters.There is by now a wide empirical consensus that monetary policy has effects on real variables like output and employment. But there is far less agreement about why this is so. The purpose of this paper is to take issue with some currently fashionable views of why money has real effects,and to suggest a new theory, or rather resurrect an old one--the loanable funds theory--and give it new, improved microfoundations.
Handle: RePEc:nbr:nberwo:1084
Template-Type: ReDIF-Paper 1.0
Title: Length of Service and the Operation of Internal Labor Markets
Author-Name: Katharine G. Abraham
Author-Person: pab32
Author-Name: James L. Medoff
Note: LS
Number: 1085
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1085
File-URL: http://www.nber.org/papers/w1085.pdf
File-Format: application/pdf
Publication-Status: published as Proceedings of the 35th Annual Meeting, December 28-30, 1982, Industrial Relations Research Association, pp. 208-218.
Abstract: This paper presents a summary of the evidence which has recently been collected concerning the role of length of service in the operation of internal labor markets. It argues that these data are inconsistent with the human capital model of the experience-earnings and experience-layoff relationships. The paper concludes by asserting that if we are ever to fully understand the role of service, newdata are needed.
Handle: RePEc:nbr:nberwo:1085
Template-Type: ReDIF-Paper 1.0
Title: Length of Service, Terminations and the Nature of the Employment Relationship
Author-Name: Katharine G. Abraham
Author-Person: pab32
Author-Name: James L. Medoff
Note: LS
Number: 1086
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1086
File-URL: http://www.nber.org/papers/w1086.pdf
File-Format: application/pdf
Publication-Status: published as Abraham, Katharine G. and James L. Medoff. "Length of Service and Layoffsin Union and Nonunion Work Groups." Industrial and Labor Relations Review, Vol. 38, No. 1, (October 1984), pp. 3-19.
Abstract: This paper presents new survey evidence that relative protection against job loss grows with length of service, independent of their net value to the firm. This protection makes good sense given that at most companies employees appear to earn less than their value marginal product in the early part of their tenure and more than their value marginal product in the latter part; without job protection policies for senior employees, the firm would have an incentive to terminate them when their "spot" earnings went above their "spot" value marginal product. In particular, we find that a very large percentage (over 95 percent) of hourly union members outside of agriculture and construction are covered by protective policies for senior workers and, that a somewhat smaller, but still substantial, percentage (about 85 percent) of comparable nonunion hourlies also have some protection against jobloss in their senior years. The potential reasons for these findings are briefly discussed.
Handle: RePEc:nbr:nberwo:1086
Template-Type: ReDIF-Paper 1.0
Title: Currency Inconvertibility, Portfolio Balance and Relative Prices
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Note: ITI IFM
Number: 1087
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1087
File-URL: http://www.nber.org/papers/w1087.pdf
File-Format: application/pdf
Publication-Status: published as Braga de Macedo, Jorge. "Currency Inconvertibility, Portfolio Balance and Relative PRices." Dynamic Modelling and Control of National Economies, IFA C Proceedings Series, Vol. 7, eed. by Tamar Basar & Louis Pau, pp. 401-408. London: Pergamon Press, 1984.
Publication-Status: published as de Macedo, Jorge Braga, 1987. "Currency inconvertibility, trade taxes and smuggling," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 109-125, October.
Abstract: This paper analyzes regimes of currency inconvertibility in the frame-work of a simple general equilibrium model where an officially-traded good,a smuggled good and a non-traded good are produced and consumed by residents,who hold domestic and foreign currency in their portfolios. It is shown that stability requires the effect of relative prices on demand for traded and non-traded goods to dominate their effect on asset demands and that a once-and-for-all devaluation does not change the currency substitution ratio.To the extent that the monetary authorities wish to change the currency composition of private financial wealth, a crawling peg is therefore the appropriate instrument. The direction of change depends on the nature of expectations about relative asset returns. Under perfect foresight, an increase in the rate of crawl increases the currency substitution ratio whereas, if expectations are static, it reduces it.
Handle: RePEc:nbr:nberwo:1087
Template-Type: ReDIF-Paper 1.0
Title: Tax Analysis in an Oligopoly Model
Author-Name: Michael L. Katz
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 1088
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1088
File-URL: http://www.nber.org/papers/w1088.pdf
File-Format: application/pdf
Publication-Status: published as Katz, Michael L. and Harvey S. Rosen. "Tax Analysis in an Oligopoly Model." Public Finance Quarterly, Vol. 13, No. 1, (January 1985), pp. 3-19.
Abstract: In this paper we analyze taxation using the conjectural variations model of oligopoly. We demonstrate the way in which the incidence of a tax depends upon the pattern of firm interaction. The results obtained have important implications for the controversy surrounding the question of whether a tax oncorporate income can be over-shifted. We also study normative aspects of taxation. The focus here is on the errors that can arise in excess burden calculations when incorrect assumptions on market structure are made.
Handle: RePEc:nbr:nberwo:1088
Template-Type: ReDIF-Paper 1.0
Title: Optimal Price and Inventory Adjustment in an Open-Economy Model of the Business Cycle
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Robert J. Hodrick
Author-Person: pho115
Note: ITI IFM
Number: 1089
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1089
File-URL: http://www.nber.org/papers/w1089.pdf
File-Format: application/pdf
Publication-Status: published as Flood, Robert P. and Robert J. Hodrick. "Optimal Price and Inventory Adjustment in an Open-Economy Model of the Business Cycle," Quarterly Journal of Economics, Vol. 100, Supplement 1985, pp. 887-914.
Abstract: This paper develops an open-economy macroeconomic model which can be used to interpret the observed fluctuations in output, inventories,prices,and exchange rates in the medium-sized economies of the world. The model is consistent with the major empirical regularities that have been discovered in studies of business cycles as closed-economy phenomena and in empirical studies of prices and exchange rates. The empirical regularities are (i) changes in the nominal money supply cause real output fluctuations, (ii) deviations of output from a "natural rate" show persistence, (iii)exchangerates are more volatile than nominal prices of goods, and (iv) depreciations of the currency coincide with deteriorations of the terms of trade. A controversial aspect of the model is that only unperceived money has real effects. The channel through which these effects arise involves a misperception by rational maximizing firms of the true demand that they will face after having set prices. The firms learn about their environment from equilibrium asset prices, and the dynamics of the model reflect the optimal response of inventory-holding firms rather than ad hoc price dynamics.
Handle: RePEc:nbr:nberwo:1089
Template-Type: ReDIF-Paper 1.0
Title: The Structure of Expectations of the Weekly Money Supply Announcement
Author-Name: Thomas Urich
Author-Name: Paul Wachtel
Author-Person: pwa884
Note: ME
Number: 1090
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1090
File-URL: http://www.nber.org/papers/w1090.pdf
File-Format: application/pdf
Publication-Status: published as Urich, Thomas and Paul Wachtel. "The Structure of Expectations of the Weekly Money Supply Announcements." Journal of Monetary Economics, Vol. 13, No . 2, (April 1984), pp. 183-194.
Abstract: This paper examines the structure of expectations of the weekly money supply announcement in the late 1970s. The data used are from a weekly telephone survey of money market participants. The rationality and structure of expectations are explored with the data organized in three ways:the mean response to each weekly survey, the pooled sample of individual responses, and time series of responses by each individual in the survey.The effect of data aggregation on rationality tests is investigated. The structure of the expectations data are also examined and it is found that both strong regressive influences and adaptive learning characterize the data.
Handle: RePEc:nbr:nberwo:1090
Template-Type: ReDIF-Paper 1.0
Title: Inflation and the Role of Bonds in Investor Portfolios
Author-Name: Zvi Bodie
Author-Person: pbo569
Author-Name: Alex Kane
Author-Person: pka501
Author-Name: Robert L. McDonald
Note: ME
Number: 1091
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1091
File-URL: http://www.nber.org/papers/w1091.pdf
File-Format: application/pdf
Publication-Status: published as Bodie, Zvi, Alex Kane, Robert McDonald. "Inflation and the Role of Bonds in Investor Portfolios." Corporate Capital Structures in the United States, edited by Benjamin M. Friedman. Chicago UCP. (1985), pp. 167-194.
Publication-Status: published as Inflation and the Role of Bonds in Investor Portfolios, Zvi Bodie, Alex Kane, Robert McDonald. in Corporate Capital Structures in the United States, Friedman. 1985
Abstract: This paper explores both theoretically and enirically the role of nominalbonds of various maturities in investor portfolios in the U.S. One of its principal goals is to determine whether an investor who is constrained to limithis investment in bonds to a single portfolio of money-fixed debt instruments will suffer a serious welfare loss. Our interest in this question stemsi n part from the observation that many employer-sponsored savings plans limit a participant's investment choices to two types, a common stock fund and a money-fixed bond fund of a particular maturity. A second goal is to study the desirability and feasibility of introducing a market for index bonds (i.e. an asset offering a riskless real rate of return) in the U.S. capital markets.The theoretical framework is Merton's (1971) continuous time model of consumption and portfolio choice. Our measure of the welfare gain or loss from a given change in the investor's opportunity set is the increment to current wealth needed to completely offset the effect of the change. A novel feature of our empirical approach is the method of deriving equilibrium risk premia on the various asset classes. We employ the variance-covariance matrix of real rates of return estimated from historical data in combination with "reasonable" assumptions about net asset supplies and the economy-wide average degree of risk aversion to derive numerical values for these risk premia. This procedure allows us to circumvent the formidable estimation problems associated with using historical means, which are negative during some subperiods.Our main results are: (i) There can be a substantial loss in welfare for participants in savings plans offering a choice of only two funds, a diversified stock fund and an intermediate-term bond fund. Most of this loss can be eliminated by introducing as a third option a money market fund.(2) The potential welfare gain from the introduction of private index bonds in the U.S.capital market is probably not large enough to justify the costs of innovation.The major reason for the small gain is that one month bills with their small variance of real returns are an effective substitute for index bonds.
Handle: RePEc:nbr:nberwo:1091
Template-Type: ReDIF-Paper 1.0
Title: A Skeptical Note on the New Econometrics
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 1092
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1092
File-URL: http://www.nber.org/papers/w1092.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. "A Skeptical Note on the New Econometrics," Prices, Competition and Equilibrium, eds. M.H. Peston and R.E. Quandt, London: Philip Allan, 1986, pp. 73-83.
Abstract: One suggestion for coping with the Lucas critique of applied econometric research is to estimate the taste and technology parametersthat presumably underlie supply and demand curves. Proponents of this approach generally interpret economy-wide data on prices and quantities as the results of optimization problems solved by representative consumers and firms. Theoretical first-order conditions (normally linear)for interior solutions are then used to convert observed data intoestimates of the taste and technology parameters of representative agents.This brief paper points to a hazard in this type of research.Specifically, the new style of econometrics can lead to serious error if the economy-wide data are not in fact generated by interior optima of representative agents, but rather come from aggregating over agents that behave quite differently.In an example where the market-wide demand curve is smooth eventhough each individual's demand function is a step function, the procedures of the new econometrics are shown to lead to grievous errors even though all consumers optimize and the econometrician is assumed to know the precise form of the utility function. It is argued that this example is of quite general applicability, and that the simpler procedures of "old fashioned" econometrics may be less hazardous.
Handle: RePEc:nbr:nberwo:1092
Template-Type: ReDIF-Paper 1.0
Title: Causality and Innovations Between Fertility and Infant Mortality
Author-Name: Tadashi Yamada
Note: EH
Number: 1093
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1093
File-URL: http://www.nber.org/papers/w1093.pdf
File-Format: application/pdf
Publication-Status: published as Yamada, Tadashi. "Causality and Innovations Between Fertility and Infant Mortality," Population Review, Vol. 30, No. 1-2, pp. 31-52, January-December 1986.
Abstract: The main issue of this paper is to study the sign and direction of causality between two demographic variables --the fertility rate and the infant mortality rate - by using time series methodology. It is shown that a fall in fertility will decrease infant mortality below its normal level. It is also shown that fertility and infant mortality are not mutually independent but jointly determined. Therefore, when one constructs a model of the relationship between fertility and infant mortality,it is suggested that one should estimate a fertility equation in which infant mortality rate is an endogenous variable in a simultaneous equations system and vice versa.
Handle: RePEc:nbr:nberwo:1093
Template-Type: ReDIF-Paper 1.0
Title: Some Aspects of the Taxation of Capital Gains
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 1094
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1094
File-URL: http://www.nber.org/papers/w1094.pdf
File-Format: application/pdf
Publication-Status: published as Stiglitz, Joseph E. "Some Aspects of the Taxation of Capital Gains." Journal of Public Economics, Vol. 21, (1983), pp. 257-294.
Abstract: The analysis of the effects ofcapital gains taxation requires a careful modelling both of the details of the tax code and the imperfections in the capital market. Under the standard assumptions concerning perfect capital marketsand under the standard idealizations of the tax code, there are several strategies by which rational investors can avoid not only all taxes on their capital income;these strategies leave individuals consumption and bequests in each state of nature and at each date unchanged from what they would have been in the absence of taxes.Although certain detailed provisions of the tax code may limit the extent to which rational investors can avail themselves of these tax avoidance activities, there are ways, in a perfect capital market, by which the effects of these restrictions can be ameliorated. Accordingly,any analysis of the effects of capital taxation must focus on imperfect capital market.If individuals face limitations on the amounts which they can borrow and/or if there are limitations on short sales, then under some circumstances there is a locked - in effect (individuals do not sell securities which they would have sold inthe absence of taxation); but under other circumstances individuals are induced to sell securities that they otherwise would have held, in order to takea dvantage of the a symmetric treatment of short term losses and long term gains. A policy of realizing gains as soon as they become eligible for long term treatment dominates the policy of postponing the realization of capital gains,provided the gains are not too large.A simple general equilibrium model is constructed within which it is shown that the taxation of capital gains may increase the volatility of asset prices,and lead individuals not to trade when they otherwise would.While the analysis casts doubt on the significance of the welfare losses resulting from these exchange inefficiencies,there are circumstances in which the tax leads to production inefficiencies, e.g. terminating projects at other than the socially optimal date.Finally, we argue that the focus of some recent policy debates on the short run revenue impact of a decrease in the tax rate on capital gains is misplaced: even when the short run revenue impact is positive, consumption may increase (thus exacerbating inflationary pressures) and private savings may decrease (thus leading to a lower level of investment in the private sector). Moreover, there issome presumption that the long run revenue impact is negative.Our analysis has some important implications for empirical research.In particular, it suggests that the impact of the tax is not adequately summarized by a single number, such as the "effective tax rate" representing the average ratio of tax payments to capital gains. Moreover, the impact of the tax cannot be assessed by looking only at reported capital gains and losses.
Handle: RePEc:nbr:nberwo:1094
Template-Type: ReDIF-Paper 1.0
Title: Unemployment and Insurance
Author-Name: Sherwin Rosen
Note: LS
Number: 1095
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1095
File-URL: http://www.nber.org/papers/w1095.pdf
File-Format: application/pdf
Publication-Status: published as Rosen, Sherwin. "Unemployment and Insurance." Carnegie-Rochester Conference Series on Public Policy, Vol. 19, no. 1, (1983) pp. 5-49.
Abstract: This paper elaborates equilibrium properties of contract labor markets when cost barriers limit labor mobility in response to demand and productivity shifts. Unemployment is sustained because the marginal value of labor is not equated across all firms; however the equilibrium contract optimally allocates a worker's time between market and nonmarket uses, given transactions cost-mobility constraints. Contracts provide full unemployment insurance for risks that are diversifiable by pooling among firms. Nondiversifiable (macro) risks are only partially shifted,largely through self-insurance (contingency saving). Increasing diversifiable risk has social value, similar to the value of an option. Increasing nondiversifiable risk has negative value because it reduces lifetime consumption. The main empirical implication of contract theory is shown to be closely related to the permanent income hypothesis and establishes linkages between labor activities and consumption behavior. It is atheory of consumption rigidity rather than wage rigidity. Another empirical implication is that unemployment incidence is proportional to comparative advantage in normarket production. Layoffs are ordered by workers' relative productivity in nonmarket compared with market sectors. The theory is used to analyze some features of the U.S. employment system. Its empirical support is briefly reviewed.
Handle: RePEc:nbr:nberwo:1095
Template-Type: ReDIF-Paper 1.0
Title: Economic Incentives to Retire: A Qualitative Choice Approach
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Author-Name: Gary S. Fields
Note: LS
Number: 1096
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1096
File-URL: http://www.nber.org/papers/w1096.pdf
File-Format: application/pdf
Abstract: This paper addresses two questions:(1) Are older persons' retirement ages significantly affected by the opportunities for income from earnings,private pensions, and Social Security and for leisure at alternative retirement ages?; and (2) How large are the estimated responses? Our approach to modeling the retirement problem is a forward-looking one, in which the explanatory variables include present discounted values of expected lifetime income from earnings, private pensions, and Social Security at all future retirement ages. Such data have been constructed using a unique archive on 390 workers covered by a large union pension plan. A previous paper (Fieldsand Mitchell, 1982) used these data to show that retirement ages are significantly associated with the present discounted value of income at age 60, and with the gain in income from deferring retirement. The current paper develops two different qualitative choice models of the retirement decision. We find: retirement ages do indeed respond significantly to future income and leisure opportunities; an ordered logit model is more suited to the data than is a multinomial logit model; and the estimated responses to changes in future income opportunities differ across model specifications, where the preferred ordered logit model exhibits larger estimated responses.
Handle: RePEc:nbr:nberwo:1096
Template-Type: ReDIF-Paper 1.0
Title: Real and Financial Decisions of a Firm with Bankruptcy and Default: An Integration
Author-Name: Fumio Hayashi
Author-Person: pha83
Note: EFG
Number: 1097
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1097
File-URL: http://www.nber.org/papers/w1097.pdf
File-Format: application/pdf
Publication-Status: published as Hayashi, Fumio. "Corporate Finance Side of the Q Theory of Investment," Journal of Public Economics, Vol. 27, No. 3, August 1985, pp. 261-280.
Abstract: This paper attempts to provide a framework for analyzing the interaction between real decisions (concerning investment and factor inputs)and financial decisions (concerning debt and new share issues) of a corporation. The model carries a rich menu of tax rates and explicitly incorporates bankruptcy and default. The firm's multi-period optimization problem is set up where real and financial decisions are simultaneously determined to maximize the value of the firm which is the market price of uncertain future dividends. The main results of the paper are as follows:if the firm's after-tax profits are small relative to investment, the firm finances new investment by retentions and debt; if they are large relative to investment, financing additional investment is done through new shares and debt; in the intermediate case, additional investment is financed entirely by debt.
Handle: RePEc:nbr:nberwo:1097
Template-Type: ReDIF-Paper 1.0
Title: U.S. Antidumping Policies: The Case of Steel
Author-Name: Barry J. Eichengreen
Author-Person: pei2
Author-Name: Hans Van der Ven
Note: ITI IFM
Number: 1098
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1098
File-URL: http://www.nber.org/papers/w1098.pdf
File-Format: application/pdf
Publication-Status: published as Eichengreen, Barry J. and Hans Van der Ven. "U.S. Anti-Dumping Policies: The Case of Steel." The Structure and Evolution of Recent U.S. Trade Policy,edited by Robert E. Baldwin and Anne O. Krueger. Chicago: UCP, 1984, pp. 67-103.
Publication-Status: published as U.S. Antidumping Policies: The Case of Steel, Barry Eichengreen, Hans van der Ven. in The Structure and Evolution of Recent US Trade Policy, Baldwin and Krueger. 1984
Abstract: This paper examines the controversy surrounding recent allegations that foreign producers are dumping steel products onto U.S. markets. The paper is in four sections, which take four quite distinct views of dumping and recent U.S. antidumping policies, emphasizing the changing definition of dumping and the development of administrative procedures. Section II focuses on the application of these procedures to the international steel trade, taking as a case study the most noteworthy of recent innovations : the Trigger Price Mechanism for steel. Section III considers models that can be used to analyze dumping. The models of most relevance to the practices currently at issue in the steel industry seem to us models of oligopolistic rivalry in imperfectly competitive, segmented markets. We develop a model designed to identify crucial factors upon which the incidence of dumping will depend: the number of firms producing for each national market,their costs, their market shares, and the extent to which they recognizeand exploit their mutual dependence. Finally, in Section IV we calibrate these models to illustrate how the extent of dumping and the effects of the TPM depend on the model's parameters.
Handle: RePEc:nbr:nberwo:1098
Template-Type: ReDIF-Paper 1.0
Title: The New Nexus among Trade, Industrial and Exchange-Rate Policies
Author-Name: J. David Richardson
Note: ITI IFM
Number: 1099
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1099
File-URL: http://www.nber.org/papers/w1099.pdf
File-Format: application/pdf
Publication-Status: published as From The Future of the International Monetary System, edited by Tamir Agmon , Robert G. Hawkins, and Richard M. Levich, pp. 253-279. Lexington, MA: Lexington Books, D.C. Heath and Company, (1984).
Abstract: This paper explores the new interconnections between real and financial policies that affect international transactions. Among other conclusions are the following. (1) In a world of spatially mobile capital and reasonably accurate expectations, trends in international competitiveness and financial asset yields are tightly linked. Volatility in one causes volatility in the other. Policies that affect one affect the other.Financial policy influences real exchange rates and alters the pressures for trade and industrial policy. Trade and industrial policy causes overshooting of financial variables, and alters the pressures for financial policy.(2) Any failureto make real and financial policy stable, credible,systematic, and predictable generates volatile and costly signals to reallocate resources. The problems with this are unpredictability more than inefficiency and resource disorder more than resource mis-order.(3) Stable, credible, systematic, and transparent exchange-rate policy can allay resource disorder by limiting deviations around economic trends.Economic trends can be enhanced in the presence of well-defined market imperfections by stable, credible, systematic, and transparent trade and industrial policies. (4) To reduce the likelihood of global resource disorder, real and financial policy options may involve retreating from multilateralism and from unrealistically binding rules. Sensible and timely alternatives seem to be aggressive bilateral peacemaking, non-inclusive coalition formation, and the formulation of credible "conventions" to govern government policy, both real and financial.
Handle: RePEc:nbr:nberwo:1099
Template-Type: ReDIF-Paper 1.0
Title: Intertemporal Price Speculation and the Optimal Current-Account Deficit
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 1100
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1100
File-URL: http://www.nber.org/papers/w1100.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "Intertemporal Price Speculation and the Optimal Current-Account Deficit." Journal of International Money and Finance, Vol. 2, No. 2 (August 1983).
Abstract: The paper studies the effects of terms-of-trade fluctuations in an infinite-horizon optimizing model of a small open economy. While the current-account response to a transitory terms-of-trade shock is in part explicable by intertemporal smoothing, an important additional factor is the effect of anticipated future terms-of-trade shifts on the real value of the external debt in terms of the home consumption basket. When foreign borrowing is indexed to the import good, a temporary worsening of the terms of trade creates the expectation of a decline in the real value of external debt. This fall in the relevant real interest rate leads households to increase consumption while export prices are low and to decrease consumption sharply once the terms of trade recover. If an adverse price shock is of sufficiently brief duration, instantaneous utility will rise initially.
Handle: RePEc:nbr:nberwo:1100
Template-Type: ReDIF-Paper 1.0
Title: Trade in Goods and Factors with International Differences in Technology
Author-Name: James R. Markusen
Author-Person: pma528
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 1101
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1101
File-URL: http://www.nber.org/papers/w1101.pdf
File-Format: application/pdf
Publication-Status: published as Markusen, James R. and Lars E.O. Svensson. "Trade in Goods and Factors with International Differences in Technology," International Economic Review, Vol. 26, 1985, pp. 175-192.
Abstract: A general model of trade caused by international differences in production technology is developed using techniques of duality theory. For the caseof product-augmenting differences in technology, it is shown that there is a positive correlation between net export and technological superiority, such that a country will "on average" export goods for which the country has superior technolor. If some factors are permitted to be internationally traded, it is demonstrated via this correlation that the volume of trade must increase. Thus unlike trade caused by factor endowment differences, goods trade caused by product-augmenting differences in production technolody is always in this sense complementary with factor trade. For factor-augmenting technology differences, in the absence of factor trade the goods trade pattern is as if it was caused by factor endowment differences. With factor trade, goods trade and factor trade can then be either complements or substitutes.
Handle: RePEc:nbr:nberwo:1101
Template-Type: ReDIF-Paper 1.0
Title: Taxes and Labor Supply
Author-Name: Jerry A. Hausman
Author-Person: pha893
Note: LS PE
Number: 1102
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/w1102
File-URL: http://www.nber.org/papers/w1102.pdf
File-Format: application/pdf
Publication-Status: published as Hausman, Jerry and Paul Ruud. "Family Labor Supply With Taxes," American Economic Review, 1984, v74(2), 242-248.
Publication-Status: published as Hausman, Jerry A. "Taxes and Labor Supply," Handbook of Public Economics, Vol. 1, ed. by A. Auerbach and M. Feldstein. North-Holland Publishers, 1985.
Abstract: Over 75% of Federal tax revenue is raised through the income tax and FICA taxes. The potential effects on labor supply and economic welfare are important because of the large and increasing reliance on direct taxation. Over the past few years significant legislative changes have occurred with respect to taxation of labor: the 25% tax cuts,indexation,the tax credit for working spouses, and likely increases in FICA taxation.I reviewr ecent econometric work which measures the effect of taxes on labor supply and which analyzes the likely effects of tax law changes on labor supply and economic welfare.Sections 1 and 2 develop the theory and econometric techniques for models of labor supply with taxes. Section 3 discusses the various tax systemsin the U.S. In Section 4, I present empirical estimates for husbands'and wives' labor supply functions. The economic cost of the tax system is also estimated. In Section 5 the individual questionnaire data for high income individuals is reviewed. Lastly, in Section 6 evidence from the negative income tax experiments and for social security beneficiaries is considered. These latter groups face extremely high marginal tax rates so that evidence beyond that contained in other surveys of labor supplyis provided.
Handle: RePEc:nbr:nberwo:1102
Template-Type: ReDIF-Paper 1.0
Title: Balance-of-Payments Crises and Devaluation
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 1103
Creation-Date: 1983-04
Order-URL: http://www.nber.org/papers/w1103
File-URL: http://www.nber.org/papers/w1103.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "Balance-of-Payments Crises and Devaluation." Journal of Money, Credit and Banking, Vol. 16, No. 2, (May 1984), pp. 208-217.
Abstract: The collapse of a fixed exchange rate is typically marked by a sudden balance-of-payments crisis in which"speculators" fleeing from the domestic currency acquire a large portion of the central bank's foreign exchange holdings.Faced with such an attack, the central bank often withdraws temporarily from the foreign exchange market, allowing the exchange rate to float freely before devaluing and returning to a fixed-rate regime. This paper links the timing of the initial speculative attack to the magnitude of the expected devaluation and to the length of the transitional period off loating. An implication of the analysis is that there exist devaluations so sharp and transition periods so short that acrisis must occur the moment the market first learns that the current exchange parity will eventually be altered. For sufficiently long transition periods, the floating exchange rate"overshoots" its new peg before appreciating back toward it;for shorter periods, the rate depreciates monotonically to its new fixed level. Accordingly, the central bank's return tothe foreign exchange market can occasion a capital outflow or a capital inflow.
Handle: RePEc:nbr:nberwo:1103
Template-Type: ReDIF-Paper 1.0
Title: Characteristics of U.S. Manufacturing Companies Investing Abroad and their Choice of Production Locations
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Irving B. Kravis
Author-Name: Linda O'Connor
Note: ITI IFM
Number: 1104
Creation-Date: 1983-04
Order-URL: http://www.nber.org/papers/w1104
File-URL: http://www.nber.org/papers/w1104.pdf
File-Format: application/pdf
Abstract: The purpose of this paper is to examine the relations among characteristics of U.S. firms, their tendency to invest abroad, and their choice of production locations. The larger the firm, and the higher its profitability, capital intensity, technological Intensity, and the skill level ofits labor force, the higher the probability that it was a foreign investor.Some of these factors were largely associated with the industry the firm was in but size, R&D, and profitability were characteristics of investing firms within individual industries.Despite its importance in determining the probability that a firm would invest abroad, size of firm appeared to have no relation to the importance of foreign investment; among firms that invested at all, large firms did not produce a higher proportion of their output abroad than small firms. The concentration of manufacturing abroad in a small number of corn-panies is largely a reflection of the concentration within the United States. The influence of size, we conclude, reflects economies of scale not in production but in investing.We found no evidence that, in general, low-wage U.S. firms tended to invest in low-wage countries or that R&D - intensive firms tended to operate more in countries with highly sophisticated or educated labor. In fact,investors in developing countries, and particularly those in some Southeast Asian countries, tended to be more R&D intensive than investors in developed countries. There was some indication that in industries other than machinery R&D - intensive firms were more inclined than others to license technology, while in the machinery industries, R&D - intensive firms tended to license less:to exploit their technological capital in foreign markets by producing there rather than by licensing.
Handle: RePEc:nbr:nberwo:1104
Template-Type: ReDIF-Paper 1.0
Title: A Relationship Between Regression Tests and Volatility Tests of Market ncy
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: James H. Stock
Author-Person: pst148
Note: ITI IFM
Number: 1105
Creation-Date: 1983-04
Order-URL: http://www.nber.org/papers/w1105
File-URL: http://www.nber.org/papers/w1105.pdf
File-Format: application/pdf
Publication-Status: published as Frankel, Jeffrey A. and James H. Stock. "Regression Tests vs. Volatility Tests Efficiency of Foreign Exchange Markets," Journal of International Money and Finance, Vol. 6, 1987, pp. 49-56.
Abstract: Volatility tests are an alternative to regression tests for evaluating the joint null hypothesis of market efficiency and risk neutrality. Acomparison of the power of the two kinds of tests depends on what the alternative hypothesis is taken to be. By considering tests based on conditional volatility bounds, we show that if the alternative is that one could"beat the market" using a linear combination of known variables, then the regression tests are at least as powerful as the conditional volatility tests.If the application is to spot and forward markets, then the most powerful conditional volatility test turns out to be equivalent to the analogous regression test in terms of asymptotic power. In other applications,the volatility test will be less powerful than regression tests against our chosen alternative. However, these results are not inconsistent with the observation that volatility tests may be more powerful against other alternative hypoth-eses, such as that risk-averse investors are rationally maximizing the present discounted utility of future consumption,with a time-varying discount rate.
Handle: RePEc:nbr:nberwo:1105
Template-Type: ReDIF-Paper 1.0
Title: On the Relevance or Irrelevance of Public Financial Policy: Indexation,Price Rigidities and Optimal Monetary Policy
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 1106
Creation-Date: 1983-04
Order-URL: http://www.nber.org/papers/w1106
File-URL: http://www.nber.org/papers/w1106.pdf
File-Format: application/pdf
Publication-Status: published as Stiglitz, Joseph E. "On the Relevance or Irrelevance of Public Financial Policy: Indexation, Price Rigidities, and Optimal Monetary Policies." Inflation, Debt, and Indexation, edited by Rudiger Dornbusch and Mario Henrique Simonsen, pp. 183-222. Cambridge: M.I.T. Press, (1983).
Abstract: This paper is concerned with delineating conditions under which public financial policies have no real and/or price effects. In the absence of intergenerational distribution effects, public financial policy is irrelevant:an increase in government debt (whether indexed or not), an exchange of anindexed bond for a non-indexed bond, or an exchange of a short term bond fora long term bond has neither real nor financial effects. We also describe changes in financial policy in which the supply of bonds are increased and the nominal interest rate increases, which have an effect on the rate of inflation, but no real effects. We examine the implications of price and wage rigidities and the existence of a non-interest bearing financial asset used for transactions purposes for the validity of these irrelevance theorems.In general, public financial policies have effects on intergenerational distribution; alternative financial policies have implications for the pattern of capital accumulation (an effect which was the center of the literature on money and growth) and on the sharing of risks among members of different generations. We examine the consequences of three alternative financial policies,a fixed supply of financial assets, a fixed price level, and a fixed real supply of government indebtedness; under some plausible conditions, the latter policy may provide for the least intergenerational variability inconsumption.
Handle: RePEc:nbr:nberwo:1106
Template-Type: ReDIF-Paper 1.0
Title: Adjustment to Monetary Policy and Devaluation Under Two-Tier and Fixed Exchange Rate Regimes
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 1107
Creation-Date: 1983-04
Order-URL: http://www.nber.org/papers/w1107
File-URL: http://www.nber.org/papers/w1107.pdf
File-Format: application/pdf
Publication-Status: published as Aizenman, Joshua. "Adjustment to Monetary Policy and Devaluation Under Two-Tier and Fixed Exchange Rate Regimes." Journal of Development Economics, Vol. 18, (1985), pp. 153-169.
Abstract: The purpose of this paper is to determine whether a two-tier exchange rate regime is more effective than a fixed rate regime in increasing acountry's ability to pursue an independent monetary policy in the short run.The analysis compares adjustment to a monetary policy and to a devaluation in the two exchange rate regimes in a portfolio model under imperfect asset substitutability. It is shown that the two policies have in the short run larger effects on interest rates under a two-tier regime. The duration of this effect, however, is longer under a fixed rate regime. The analysis is conducted for the case of static and rational expectations, demonstrating that the above results do not depend on the expectation mechanism.
Handle: RePEc:nbr:nberwo:1107
Template-Type: ReDIF-Paper 1.0
Title: Wage Flexibility and Openness
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 1108
Creation-Date: 1983-04
Order-URL: http://www.nber.org/papers/w1108
File-URL: http://www.nber.org/papers/w1108.pdf
File-Format: application/pdf
Publication-Status: published as Aizenman, Joshua. "Wage Flexibility and Opnness." Quarterly Journal of Economics, Vol. 100, (1985), pp. 539-550.
Abstract: This paper analyzes the degree of short-run, real wage flexibility in a two-sector economy under floating rates. This is done by deriving optimal wage indexation in a contracting framework. We find that the more closed the economy, the lower the degree of wage indexation. As a result, output will fluctuate less around its desired level in a more closed economy. These findings further imply that a given unexpected monetary shock will cause as maller output shock in a more open economy, whereas a given real shock will induce a smaller output shock in a more closed economy.
Handle: RePEc:nbr:nberwo:1108
Template-Type: ReDIF-Paper 1.0
Title: Survey Response Variation in the Current Population Survey
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: LS
Number: 1109
Creation-Date: 1983-04
Order-URL: http://www.nber.org/papers/w1109
File-URL: http://www.nber.org/papers/w1109.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James M. and Lawrence H. Summers. "Response variation in the CPS:caveats for the unemployment analyst." Monthly Labor Review, Vol. 107, No . 3, (March 1984), pp. 37-43.
Abstract: This paper investigates the problem of responseand coding errors in the Current Population Survey. It draws upon a potentially rich source o finformation for verifying survey answers, a three month matched sample of CPS respondents, to analyze whether individuals' questionnaire responses inadjacent months are mutually consistent.We focus primarily on reported durations of unemployment spells.For individuals who were coded as unemployed in two consecutive months and who experienced no intervening labor market withdrawal or employment,their reported duration in the second interview should exceed the first interview duration by about four weeks. However, this is not what survey responses show. In more than three quarters of all cases, reported durations in successive months are logically inconsistent. The reporting problemis not confined to spell durations. In 25 percent of all cases,the professed reason for unemployment changes as the unemployment spell progresses.Furthermore, analysis of labor force entrants shows that reported changes in labor force status between unemployment and not-in-the labor force are not reliable guides to actual behavior.We conclude that reported durations of unemployment, and to a lesser extent, reasons for unemployment, may be very misleading indicators of future behavior. Econometric analyses which focus on changes in individual behavior over time are likely to be badly flawed by spurious changes due to reporting errors. These problems with the Current Population Survey, one of the best sample surveys available, may suggest far greater difficulties in interpreting other sources of panel data.
Handle: RePEc:nbr:nberwo:1109
Template-Type: ReDIF-Paper 1.0
Title: The Desirability of a Dollar Appreciation, Given a Contractionary U.S. Monetary Policy
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 1110
Creation-Date: 1983-04
Order-URL: http://www.nber.org/papers/w1110
File-URL: http://www.nber.org/papers/w1110.pdf
File-Format: application/pdf
Publication-Status: published as "Desirability of a Currency Appreciation, Given a Contractionary Moneyart Policy and Concave Supply Relationships." From Journal of International Economic Integration, Vol. 3, pp. 32-52, (Spring 1988).
Abstract: Undesirable real effects have been attributed to floating exchange rates in general, and the 1980-83 appreciation of the dollar in particular.In the appreciating country, the U.S., export industries lose competitiveness and so output falls. In the other country, say Europe, the exchange rate change worsens inflation.This paper starts from the premise that these undesirable side effects are attributable, not to the exchange rate, but rather to the decisionin the U.S. to switch to a more contractionary monetary policy in order to fight inflation. Given the U.S. contraction, it might be desirable for the dollar to appreciate in the sense that it allows each country to attain the best possible tradeoff between aggregate output and inflation.This conclusion follows from the assumption that in each of two sectors,nontraded goods or exportables, the relationship between output and inflationis concave. A U.S. contraction will then give the maximum reduction ininflation per lost output only if it is shared equally by both sectors.This means allowing the currency to appreciate; under a fixed exchange rate the burden of contraction would be borne disproportionately by the nontraded goods sector. The exchange rate change is also good for Europe. Given the U.S. contraction, the European export sectors would suffer a disproportionate loss in output if European currencies were not allowed to depreciate against the dollar.
Handle: RePEc:nbr:nberwo:1110
Template-Type: ReDIF-Paper 1.0
Title: Uncertain Parameter Values and the Choice Among Policy Options
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Andrew B. Lyon
Author-Person: ply2
Note: PE
Number: 1111
Creation-Date: 1983-04
Order-URL: http://www.nber.org/papers/w1111
File-URL: http://www.nber.org/papers/w1111.pdf
File-Format: application/pdf
Publication-Status: published as Fullerton, Don and Andrew B. Lyon. "Uncertain Parameter Values and the Choice Among Policy Options," Journal of Public Economics, Vol. 30, No. 1. (June 1986), pp. 109-116.
Abstract: In this paper, we use tax policy choices to illustrate and investigate the more general problem of using uncertain parameter values in models to evaluate policy choices. We show, for this tax example, how debate on an elasticity parameter translates into a debate about policy choices, andvice versa. To construct this example, we suppose that the choice among four particular tax reform options is based on a single measure of efficiency gain. We show how this gain from each reform depends upon the elasticity of saving with respect to the net rate of return. Within quite narrow and reasonable bounds for the elasticity parameter, we find regions in which each of three different tax reforms turns out to dominate the others.
Handle: RePEc:nbr:nberwo:1111
Template-Type: ReDIF-Paper 1.0
Title: Empirical Studies of Exchange Rates: Price Behavior, Rate Determinationand Market Efficiency
Author-Name: Richard M. Levich
Note: ITI IFM
Number: 1112
Creation-Date: 1983-04
Order-URL: http://www.nber.org/papers/w1112
File-URL: http://www.nber.org/papers/w1112.pdf
File-Format: application/pdf
Publication-Status: published as Levich, Richard M. "Empirical Studies of Exchange Rates: Price Behavior, Rate Determination and Market Efficiency." Handbook of International Economics, edited by Ronald W. Jones and Peter B. Kenen, pp. 979-1040. Amsterdam: Elsevier Science Publishers, B.V., 1985.
Abstract: Theoretical and empirical research completed over the last decade has dramatically increased our understanding of exchange rate behavior. The major insight to come from this decade of research is that foreign exchange is a financial asset. In an asset pricing framework, current exchange rates reflect the expected values of future exogenous variables. The purpose of this paper is to survay the empirical evidence on exchange rate behavior, market efficiency and related topics. Section 2 presents a stylized history of exchange rate behavior during 1970's. Alternative measures of volatility and transaction costs are reviewed. Tests of specific exchange rate determination models are presented in Section 3. Empirical studies have been fairly successful in constructing models to explain cross-sectional exchange rate differences and to explain time series exchange rate developments over the medium-run and long-run. Following the asset market framework , recent studies have demonstrated that unanticipated exchange rate changes are significantly correlated with "news" concerning fundamental macroeconomic variables. Evidence on foreign exchange market efficiency is summurized in Section 4. Efficiency studies remain difficult to formulate (because of small samples and unobserved variables) and difficult to interpret ( because of the joint hypothesis problem). Several recent studies claim that speculative profit opportunities are present, but it is unclear whether these are related to risk premiums or actual market inefficiencies.
Handle: RePEc:nbr:nberwo:1112
Template-Type: ReDIF-Paper 1.0
Title: Are Asset Demand Functions Determined by CAPM?
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: William T. Dickens
Note: ME
Number: 1113
Creation-Date: 1983-04
Order-URL: http://www.nber.org/papers/w1113
File-URL: http://www.nber.org/papers/w1113.pdf
File-Format: application/pdf
Publication-Status: published as Frankel, Jeffrey A. "Portfolio Shares as 'Beta-Breakers'" Journal of Portfolio Management, vol. 11, No. 4, (Summer 1985), pp. 18-23.
Abstract: The Capital Asset Pricing Model (CAPH) says that the responsiveness of asset-demands to expected returns depends (inversely) on the variance-covariance matrix of returns, rather than being an arbitrary set of parameters.Previous tests of CAPM have usually computed covariances of returns around sample means, and then checked whether the riskier assets are those with the higher mean returns. We offer a new technique for testing CAPM. The technique requires the use of time series data on actual asset-holdings, and non-linear maximum likelihood estimation. We claim superiority to earlier tests on three grounds. (1) We allow expected returns to vary freely overtime.(2) The alternative hypothesis is well-specified: asset-demands are linear functions of expected returns that do not depend on the variance-covariance matrix.(3) The test-statistic has a known distribution; it is simply a likelihood ratio test. We try the technique on yearly data, 1954-1980, for household holdings of a portfolio of six assets: short-term bills and deposits, tangible assets, federal debt, state and local debt, corporate debt, and equities. Our test rejects the CAPM hypothesis.
Handle: RePEc:nbr:nberwo:1113
Template-Type: ReDIF-Paper 1.0
Title: Monetary Instruments and Policy Rules in a Rational Expectations Environment
Author-Name: Michael Dotsey
Author-Name: Robert G. King
Author-Person: pki21
Note: EFG
Number: 1114
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1114
File-URL: http://www.nber.org/papers/w1114.pdf
File-Format: application/pdf
Publication-Status: published as Dotsey, Michael and Robert G. King. "Monetary Instruments and Policy Rulesin a Rational Expectations Environment." Journal of Monetary Economics, Vol. 12, No. 3, (September 1983), pp. 357-382.
Abstract: This paper explores the implications of rational expectations and the aggregate supply theory advanced by Lucas (1973) for analysis of optimal monetary policy under uncertainty along the lines of Poole (1970), returning to a topic initially treated by Sargent and Wallace (1975). Not surprisingly, these two "classical"concepts alter both the menu of feasible policy choice and the desirability of certain policy actions. In our setup, unlike that of Sargent and Wallace (1975),the systematic component of monetary policy is a relevant determinant of the magnitudeof "business fluctuations" that arise from shocks to the system. Central bank behavior--both the selection of monetary instruments and the framing of overall policyrespJnse to economic conditions--can work to diminish or increase the magnitude of business fluctuations. However, the "activist" policies stressed by the present discussion bear little (if any) relationship to the policy options rationalized by the conventional analysis of monetary policy under uncertainty. In particular,in contrast to Poole's analysis, money supply responses to the nominal interestrate are not important determinants of real economic activity. Rather, the central bank should focus on policies that make movements in the general price level readily identifiable by economic agents.
Handle: RePEc:nbr:nberwo:1114
Template-Type: ReDIF-Paper 1.0
Title: The Theorems of International Trade with Factor Mobility
Author-Name: Wilfred J. Ethier
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 1115
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1115
File-URL: http://www.nber.org/papers/w1115.pdf
File-Format: application/pdf
Publication-Status: published as Ethier, Wilfred J. and Lars E.O. Svensson. "The Theorems of International Trade with Factor Mobility," Journal of International Economics, vol. 20, 1986, pp. 21-42.
Abstract: This paper addresses the relation between goods trade and international factor mobility in general terms. Conditions for factor price equalization are derived for situations with tradein both goods and factors,as well as Rybczynski and Stolper-Sarnuel Sofl theorems. A weak price versionof the Heckscher-Ohlifl theorem is presented, as well as stronger quantity versions.The basic theorems of international trade, suitably interpreted,are shown to hold in their strong versions ifthe number of international markets is at least as large as the number of factors.The crucial dimensionality issue is hence not the relative number of goods and factors per se, but the number of international markets relative to the number of factors. Only the price version of the Heckscher-Ohlifl theorem fails to be essentially preserved by this condition.
Handle: RePEc:nbr:nberwo:1115
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Right-to-Work Laws on Union Organizing
Author-Name: David T. Ellwood
Author-Name: Glenn A. Fine
Note: LS
Number: 1116
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1116
File-URL: http://www.nber.org/papers/w1116.pdf
File-Format: application/pdf
Publication-Status: published as Ellwood, David T. and Glenn A. Fine. "The Impact of Right-to-Work Laws on Union Organizing." Journal of Political Economy, April 1987.
Abstract: In contrast to previous studies which have examined the impact of Right-to-Work (RTW) laws on the level or stock of union membership, this paper examines their impact on the most updated flow into membership and the organizing of workers through certified elections. Since detailed annual data are available by state, we are able to estimate an accelerator model of the flow into unionism, and adjust for possible omitted variable and simultaneity bias. The results show dramatic falls in organizing immediately after the passage of a RTW law, with more moderate declines in later years, just as an accelerator model could predict. Overall, the results are consistent with a 5-10 percent reduction in unionism as a result of the passage of RTW laws.
Handle: RePEc:nbr:nberwo:1116
Template-Type: ReDIF-Paper 1.0
Title: Stabilization Policies in Open Economies
Author-Name: Richard C. Marston
Note: ITI IFM
Number: 1117
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1117
File-URL: http://www.nber.org/papers/w1117.pdf
File-Format: application/pdf
Publication-Status: published as Marston, Richard C. "Stabilizaiton Policies in Open Economies." Handbookof International Economics, Vol. II, edited by R.W. Jones and P.B. Kenen, pp. 859-916. Amsterdam: Elsevier Science PublishersB.V., 1985.
Abstract: This study analyzes the theory of stabilization policy as it has developed from the trade oriented models of the 1950's to the recent models employing rational expectations. Throughout the study one model is presented with appropriate modifications to take into account international capital mobility, wage flexibility, and rational expectations. The Mundell-Fleming model is presented but with an asset sector based on modern portfolio theory. This same model is analyzed under conditions of full wage and price flexibility, and the propositions associated with the monetary approach to the balance of payments and the exchange rate are discussed. A simplified version of the model is then used to examine the policy ineffectiveness propositions of the new classical economics (as applied to open economies). The study concludes with a brief review of the literature on the choice between exchange rate regimes.
Handle: RePEc:nbr:nberwo:1117
Template-Type: ReDIF-Paper 1.0
Title: International Liquidity and Monetary Control
Author-Name: Jacob A. Frenkel
Note: ITI EFG IFM
Number: 1118
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1118
File-URL: http://www.nber.org/papers/w1118.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. "International Liquidity and Monetary Control." International Money and Credit: The Policy Roles, edited by George M. von Furstenberg, pp. 65-109. Washington: International Monetary Fund, (1983).
Abstract: This paper deals with the relations among international liquidity,the exchange-rate regime and the effectiveness of monetary policy. The first part of the paper contains an empirical study of the demand for international reserves. It is shown that (i) reserve holdings are a stable function of a limited number of economic variables, and(ii) the move togreater flexibility of exchange-rates has not changed drastically the patterns of reserves holdings. The empirical work deals with developed and developing countries and it allows for country-specific and time-specific factors as well as for dynamic adjustments. The second part of the paper deals with the more general issue of the constraints that the openness of the economy imposes on the effectiveness and proper conduct of monetary policy, as well as the dependence of these constraints on the exchange-rate regime. In this context the roles of various exchange-market inter-ventions are discussed. The analysis then explores alternative guidelines for monetary policy where it is argued that the conduct of policy can be improved by paying attention to the relation between exchange rates and interest rates. This relation is then used to interpret the recent evolutionof interest rates. The paper concludes with a brief discussion of the role of the International Monetary Fund in the provision of liquidity.
Handle: RePEc:nbr:nberwo:1118
Template-Type: ReDIF-Paper 1.0
Title: Supply Shocks, Wage Stickiness, and Accommodation
Author-Name: Stanley Fischer
Note: EFG
Number: 1119
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1119
File-URL: http://www.nber.org/papers/w1119.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley. "Supply Shocks, Wage Stickiness, and Accommodation." Journal of Money, Credit and Banking, Vol. 17, No. 1, January 1985, pp. 1-15.
Abstract: The main issue discussed in the supply shock literature that followed the oil and food price shocks of the seventies was whether to accommodate. The supply shock reduces the equilibrium level of output, and monetary policy can not affect that. But in the seventies supply shocks were also followed by recessions. The question is whether monetary policy can and should be used to prevent such recessions. The paper analyzes the conditions underwhich a suppiy shock will result in recession, and the potential for monetary policy to offset the fall in output. The basic result is that a pure supply shock need not resultin a recession if the money stock is held constant.Aggregate demand effects associated with the supply shock--including the effectsof monetary policy attempts to fight the inflation caused by the supply shock--may cause a recession, as also may real wage resistance by workers. The choice of policy response to the supply shock then turns on the same basic issues as counter-cyclical policy in general, particularly the relative costs of inflation and unemployment.
Handle: RePEc:nbr:nberwo:1119
Template-Type: ReDIF-Paper 1.0
Title: International Balance of Payments Financing and Adjustment
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Jonathan Eaton
Author-Person: pea5
Note: ITI IFM
Number: 1120
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1120
File-URL: http://www.nber.org/papers/w1120.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. and Jonathan Eaton. "International Balance of Payments Financing and Adjustment." International Money, Credit: The Policy Roles, edited by George M. Von Furstenberg, pp. 129-148. Washington: International Monetary Fund, (1983).
Abstract: This paper explores some implications of the use of national currencies as international reserves. First, a closed economy overlapping-generations model is developed to derive time-consistent tax and inflation policies for a government that is financing a given stream of expenditures. Second, the effects of allowing a government to hold a foreign currency as a reserve asset and to have its currency held as a reserve asset abroad are considered. The use of national currencies as currencies of denomination for international lending creates an incentive for the governments whose currencies are used to alter their inflation rates to extract resources from the rest of the world. When reserves are constrained to be nonnegative the use of national currencies as international reserves raises the inflation rate in reserve issuing countries but does not effect theiInflation rate in reserve holders. The opposite result arises when loans are denominated in the borrowers' currencies.
Handle: RePEc:nbr:nberwo:1120
Template-Type: ReDIF-Paper 1.0
Title: Commodity Prices, Overshooting, Money Surprises, and Fed Credibility
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Gikas A. Hardouvelis
Note: ME
Number: 1121
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1121
File-URL: http://www.nber.org/papers/w1121.pdf
File-Format: application/pdf
Publication-Status: published as Frankel, Jeffrey A. and Gikas A. Hardouvelis. "Commodity Prices, Money Surprises and Fed Credibility," Journal of Money, Credit and Banking, Vol. XVI I, No. 4, Part 2, Nov. 1985, pp. 425-438.
Publication-Status: published as J. Frankel. Financial Markets and Monetary Policy. MIT Press, 1995.W
Abstract: The general price level does not provide a sensitive indicator of whether monetary policy is tight or loose, because mostprices are sticky. Interest rates are free to move, but they are an ambiguous indicator of monetary policy: one does not know whether changes in the interest rate are due to changes in the expected inflation rate or the real interest rate.Commodity prices provide the ideal sensitive indicator.This paper has two distinct aims. First, a theoretical model of "over-shooting" in commodity markets is presented. A known change in the money supply is shown to cause an instantaneous change in commodity prices that is greater than the proportionate change that describes long-run equilibrium.Second, we take the occasion of the Fed's Friday money supply announcements to test the theory. We find that an unexpectedly large money announcement causes significant negative reactions in prices of six commodities. This supports at once the sticky-price or overshooting view, and the notion that the market has confidence in the Fed's commitment to correct any deviations from its money growth targets.
Handle: RePEc:nbr:nberwo:1121
Template-Type: ReDIF-Paper 1.0
Title: The Present Value of Profits and Cyclical Movements in Investment
Author-Name: Andrew B. Abel
Author-Person: pab10
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Note: EFG
Number: 1122
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1122
File-URL: http://www.nber.org/papers/w1122.pdf
File-Format: application/pdf
Publication-Status: published as Abel, Andrew B. and Olivier J. Blanchard. "The Expected Present Discounted Value of Profits and the Cyclical Variability of Investment," Econometrica, Vol. 54, No. 2, pp. 249-272, March 1986.
Abstract: Most of the empirical work on investment is based on the existence of a relation between investment and the expected present val of marginal profits.Thus, in this paper we compute such a present value series, under various assumptions about demand and technology and examine its relation to investment.We find that variations in this present value series are, surprisingly,due more to variations in the cost of capital than to variations in marginal profit. We also find that the present value series, although significantly related to investment, still leaves unexplained a large, serially correlated fraction of investment.
Handle: RePEc:nbr:nberwo:1122
Template-Type: ReDIF-Paper 1.0
Title: Which Effective Tax Rate?
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 1123
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1123
File-URL: http://www.nber.org/papers/w1123.pdf
File-Format: application/pdf
Publication-Status: published as Fullerton, Don. "Which Effective Tax Rate?" National Tax Journal, Vol. 37 , No. 1 (March 1984), pp. 23-41.
Abstract: In estimating the effects of capital income taxation, different studies measure different effective tax rates. This paper categorizes effective tax rate estimates into six basic types, and discusses the usefulness of each. For marginal effective tax rates, some studies estimate the additional taxes associated with a marginal increase in the inflation and interest rates, while others estimate the additional taxes associated with a marginal increase in investment. Because there are six basic types of rates, because of the different procedures that can be used to estimate each type, and because of different assumptions about the margin, care should be taken in the application and use of effective tax rate estimates.
Handle: RePEc:nbr:nberwo:1123
Template-Type: ReDIF-Paper 1.0
Title: Services in the Domestic Economy and in World Transactions
Author-Name: Irving B. Kravis
Note: ITI IFM
Number: 1124
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1124
File-URL: http://www.nber.org/papers/w1124.pdf
File-Format: application/pdf
Publication-Status: published as Kravis, Irving B. "Services in World Transactions." Managing the Service Economy: Prospects and Problems, edited by Robert P. Inman, ( Dec. 1984) ,Cambridge University Press.
Abstract: A new interest in the role of services in world transactions has been generated by the current efforts of the U. S. Government to reduce barriers to international trade in services.The paper distinguishes four different classifications of economic activities between services and corrmodities. Service industries -- those producing non-storable outputs -- have been growing in nost domestic economies relative to commodity-producing industries, though about half the growth in their share in GDP is attributable to relative price increases.The U.S. policy effort focuses on a somewhat different set of services which are referred to as "private nonfactor services". Exports of such services have not expanded relative to comrrodity exports. However, their sales by U.S. affiliates abroad are much larger than exports from the U.S.and have been growing more rapidly than affiliates' commodity sales. It will not be easy to obtain the consent of foreign countries toa general easingof restrictions on direct foreign investment in service sectors.Also, it may beasked why,if growth is to be the criterion of special negotiating effort, the commodity-service dichotomy is relevant. Why not search for fast qrowing sectors amonq cammodities as well? However, a successful effort to reduce some foreign barriers and the compensatory reductions in U.S. barriers that this would entail might provide a modest counterweight on the side of liberalization in a world in which restrictions are growing.
Handle: RePEc:nbr:nberwo:1124
Template-Type: ReDIF-Paper 1.0
Title: Defining a Unitary Business: An Economist's View
Author-Name: Charles E. McLure, Jr.
Author-Person: pmc33
Note: PE
Number: 1125
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1125
File-URL: http://www.nber.org/papers/w1125.pdf
File-Format: application/pdf
Publication-Status: published as McLure, Charles E. Jr. "Defining a Unitary Business: An Economist's View." The State Corporation Income Tax: Issues in Worldwide Unitary Combination,edited by Charles E. McLure, Jr., pp. 89-124. StaStanford: Hoover Institution Press, (1984).
Abstract: The definition of a unitary business has figured prominently in several recent decisions of the U.S. Supreme Court on the constitutionality of state corporate income taxes. This paper employs economic analysis to frame a three part test of whether a unitary business exists. Underlying the tests is the notion that a unitary business exists when separate accounting can not satisfactorily isolate the profits of individual firms. The first test is common control. The second is whether transfer prices on transactions within the group could be manipulated or are diificult to verify or substantial vertical integration, shared costs,economies of scale or scope, or other forms of economic interdependence make isolation of profits of affiliated firms impossible.The third test is one of substantiality.
Handle: RePEc:nbr:nberwo:1125
Template-Type: ReDIF-Paper 1.0
Title: Incentive Effects of Pensions
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: PE LS
Number: 1126
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1126
File-URL: http://www.nber.org/papers/w1126.pdf
File-Format: application/pdf
Publication-Status: published as Lazear, Edward P. "Incentive Effects of Pensions." Pension, Labor, and Individual Choice, edited by David A. Wise. Chicago: University of Chicago Press, (1985), pp. 253-282.
Publication-Status: published as Incentive Effects of Pensions, Edward P. Lazear. in Pensions, Labor, and Individual Choice, Wise. 1985
Abstract: Many different types of pension plans exist in American firms. The stipulations of plans vary dramatically, even among large firms, with respect to vesting, relationship of the pension to final salary, maximum and minimum years of service constraints, and maximum and minimum benefit levels. These provisions are examined to determine their effects on worker behavior.Specifically, the paper analyes which plans encourage or discourage appropriate worker responses in hours worked, turnover, human capital investment and effort. An attempt is made to explain the provisions in light of the findings.
Handle: RePEc:nbr:nberwo:1126
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy in the Large Open Economy
Author-Name: Michael R. Darby
Note: ITI IFM
Number: 1127
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1127
File-URL: http://www.nber.org/papers/w1127.pdf
File-Format: application/pdf
Publication-Status: published as Darby, Michael R. "Monetary Policy in the Large Open Economy." Monetary Policy in Our Times, edited by Albert Ando and Hidekazu Eguchi. Cambridge, MA: M.I.T. Press, (1985), pp. 143-167.
Abstract: This paper discusses recent evidence on the imperfect international substitutability of goods and assets and the implications for conduct of monetary policy in a major industrial country. A simple model is developed for analysis of the simultaneous determination of money growth and the balance of payments under pegged exchange rates. Parallels are drawn to the importance of expected depreciation in determination of floating exchange rates. An assessment is made of the extent to which a central bank can simultaneously pursue both exchange rate and money supply goals through sterilized intervention. The paper concludes with the role of saving rate differences in determining nonzero equilibrium trade balances.
Handle: RePEc:nbr:nberwo:1127
Template-Type: ReDIF-Paper 1.0
Title: The Economics of Retirement Behavior
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Author-Name: Gary S. Fields
Note: LS PE
Number: 1128
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1128
File-URL: http://www.nber.org/papers/w1128.pdf
File-Format: application/pdf
Publication-Status: published as Mitchell, Olivia S. and Gary S. Fields. "The Economics of Retirement Behavior." Journal of Labor Economics, Vol. 2, (January 1984), pp. 84-105.
Abstract: This paper examines the role of economic factors in determining retirement behavior using a unique new data archive on more than 8,700 workers covered by ten different pension plans. We build on our earlier work by estimating several different retirement models including linear as well as discrete choice formulations. This framework provides new insights into how andwhy retirement ages differ across firms. We conclude that older workers' income opportunities differ depending on their pension rules, which in turn have a powerful influence on their retirement patterns. In addition the models indicate that older workers' tastes for income are not uniform,either across individuals or across firms.Finally, we show that retirement age differences are in part due to differences in worker preferences and in part due to differences in income opportunities. There appears to be some evidence of worker sorting across pension plans.
Handle: RePEc:nbr:nberwo:1128
Template-Type: ReDIF-Paper 1.0
Title: Current Account Dynamics and the Terms of Trade: Harberger-Laursen-Metzler Two Generations Later
Author-Name: Torsten Persson
Author-Person: ppe28
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 1129
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1129
File-URL: http://www.nber.org/papers/w1129.pdf
File-Format: application/pdf
Publication-Status: published as Persson, Torsten and Lars E.O. Svensson. "Current Account Dynamics and the Terms of Trade: Harberger-Laursen-Metzler Two Generations Later," Journal of Political Economy, Vol. 93, 1985, pp. 43-65.
Abstract: The current account dynamics is examined for a small open economy which is subject to exogenous changes in its static terms of trade and in world interest rates. The model used is one with overlapping finite-lived generations, which we argue gives rise to a more reasonable saving behaviour than previously used models with infinite lived consumers.In particular no restrictions on the rate of time preference is required.Anticipated and unanticipated, as well as temporary and permanent,terms of trade changes have very different effects. There is, however,a general tendency towards cycles in both savings and investment,which gives rise to cycles in the current account.The classic Harberger-Laursen-Metzler effect on saving of a terms of trade deterioration can have any sign for plausible parameter values,both for temporary and permanent disturbances.
Handle: RePEc:nbr:nberwo:1129
Template-Type: ReDIF-Paper 1.0
Title: The Substitutability of Debt and Equity Securities
Author-Name: Benjamin M. Friedman
Note: ME
Number: 1130
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1130
File-URL: http://www.nber.org/papers/w1130.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. (ed.) Corporate Capital Structures in the United States, National Bureau of Economic Research Project Report series. Chicago and London: University of Chicago Press, 1985.
Publication-Status: published as The Substitutability of Debt and Equity Securities, Benjamin M. Friedman. in Corporate Capital Structures in the United States, Friedman. 1985
Abstract: This paper investigates empirically the degree of substitutability between debt and equity securities in the United States during 1960-1980. The analysis first applies fundamental relationships connecting portfolio choices with expected asset returns to infer key asset substitutabilities directly from the observed U.S. asset return experience. It then compares these implied substitutabilities with the observed portfolio behavior of U.S. households. The resulting evidence provides little ground for any conclusion about even the sign, much less the magnitude, of the substitutability of short-term debt and equity. Although the implied optimal behavior indicates that these two assets are substitutes, the observed behavior indicates that households have treated them as complements. By contrast, the evidence consistently indicates that long-term debt and equity are substitutes. Moreover, with a few exceptions the empirical estimates of the associated substitution elasticity are quite closely clustered around the value -.035. The conclusion that long-term debt and equity are substitutes with elasticity -.035 bears mixed implications for broader economic and financial questions. At one level, the finding that the two assets are indeed substitutes validates the standard assumption underlying a variety of familiar models in monetary economics and finance. At the same time, if the elasticity is only -.035, then many of these models' more important substantive conclusions do not follow.
Handle: RePEc:nbr:nberwo:1130
Template-Type: ReDIF-Paper 1.0
Title: Interpreting Ex-Dividend Evidence: The Citizens Utilities Case Reconsidered
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 1131
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1131
File-URL: http://www.nber.org/papers/w1131.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James M. "The Market Valuation of Cash Dividends: The Citizens Utilities CAse Reconsidered." Journal of Financial Economics, Vol. 15, No. 3 , (March 1986), pp. 395-405.
Abstract: Numerous empirical studies have attempted to measure the effect of changes in dividend policy on corporate equity values. One of the most popular study methodologies has been an examination of share price changes around ex-dividend days. Comparing the movement in a stock's price with its nominal dividend payment leads to estimates of the stock market's relative valuation of dividends and capital gains. Ex-day price studies are often interpreted as showing that investors recognize their tax liabilities and therefore discount their dividend income. These studies predict that firms which reduce their payout ratio shouldrise in value, and buttress the view that an increase in dividend taxes would reduce the value of the stock market.This study disputes these conclusions by presenting a "counterexample" which suggests that ex-dividend day studies provide limited insight into the effects of dividend taxes, or dividend policy, on corporate valuation. I analyze a firm with two different classes of common stock: one class pays taxable cash dividends, while the other pays untaxed stock dividends. On ex-dividend days,the taxable-dividend shares experience a price decline equal to about seventy five percent of their dividend payment, while the untaxed stock distribution shares fall by the full value of their dividends. However, the prices of the two classes of equity do not reflect this apparent market preference for non-taxable distributions. The average price of taxable-dividend shares is approximately equal to that of the untaxed dividend shares, indicating that the market considers the two shares as equivalent. These findings are important for several reasons. First, they cast doubt on earlier conclusions, based on ex-dividend day studies, about how a change individend taxes or payout policy would affect the market value of equity capital. Second, the results may provide new insights which help to explain why firms pay dividends.They deny the view that investors hold dividend paying stocks only because they are necessary for diversification, and may suggest that there is some attribute of cash dividends which investors genuinely value.
Handle: RePEc:nbr:nberwo:1131
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Risk on the Firm's Optimal Capital Stock: A Note
Author-Name: Kevin J. Maloney
Author-Name: William J. Marshall
Author-Name: Jess B. Yawitz
Note: ME
Number: 1132
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1132
File-URL: http://www.nber.org/papers/w1132.pdf
File-Format: application/pdf
Publication-Status: published as Maloney, Kevin J., William J. Marshall and Jess B. Yawitz. "The Effect of Risk on the Firm's Optimal Capital Stock: A Note." Journal of Finance, Vol. 38, No. 4, (September 1983).
Abstract: In this paper we extend the recent work on the choice of input mix under uncertainty. In particular, we demonstrate that the qualitative nature of the disturbance term, along with the decision sequence, is a crucial determinant of the overall effect of uncertainty on the optimal input mix of a firm. Using general demand and production functions in conjunction with a mean-variance framework for financial valuation, we demonstrate the differential effects of systematic and non-systematic risk on the firm's choice of an optimal input mix. Consistent with earlier work in economics, this analysis demonstrates that uncertainty, regardless of the source, has important implications for the firm's choice of technology.
Handle: RePEc:nbr:nberwo:1132
Template-Type: ReDIF-Paper 1.0
Title: Seasonal Adjustment with Measurement Error Present
Author-Name: Jerry A. Hausman
Author-Person: pha893
Author-Name: Mark W. Watson
Author-Person: pwa582
Note: LS
Number: 1133
Creation-Date: 1983-05
Order-URL: http://www.nber.org/papers/w1133
File-URL: http://www.nber.org/papers/w1133.pdf
File-Format: application/pdf
Publication-Status: published as Hausman, Jerry A. and Mark W. Watson. "Errors in Variables and Seasonal Adjustment Procedures," Journal of the American Statistical Association, Vol. 85, No. 391, pp. 531-540. Sept. 1985.
Abstract: Seasonal adjustment procedures attempt to estimate the sample realizations of an unobservable economic time series in the presence of both seasonal factors and irregular factors. In this paper we consider a factor which has not been considered explicitly in previous treatments of seasonal adjustment: measurement error. Because of the sample design used in the CPS, measurement error will not be a white noise process, but instead it will be characterized by serial correlation of a known form. We first consider what effect the serially correlated measurement error has on estimation of the non-seasonal component in seasonal adjustment models. We also consider the effect of measurement error on the widely used seasonal adjustment process X11. X11 which is the seasonal adjust procedure used by the BLS will implicitly reduce the effect of measurement error because of the averaging process used. However, this treatment will not be optimal in general. We therefore specify a seasonal adjustment model which takes explicit account of the measurement error. For examples on the unemployment rate, we find that X11 does almost as well as the optimal filter on some series but its efficiency is less than 10% for the teenage unemployment series. We also find that optimal treatment of the measurement error which accounts for the serial correlation can reduce the overall mean square error of the seasonally adjusted series below the variance of the measurement error which is often used as the benchmark for the sampling procedure.
Handle: RePEc:nbr:nberwo:1133
Template-Type: ReDIF-Paper 1.0
Title: The Changing Relationship Between Aggregate Price and Output: The British Experience
Author-Name: Richard T. Froyen
Author-Name: Roger N. Waud
Note: ME
Number: 1134
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1134
File-URL: http://www.nber.org/papers/w1134.pdf
File-Format: application/pdf
Publication-Status: published as Froyen, Richard T. and Roger N. Waud. "The Changing Relationship between Aggregate Price and Output: The British Experience." Economica, Vol. 51, ( February 1984), pp. 53-67.
Abstract: Over the past two and a half decades Great Britain has exhibited the most noticeable increase in inflation variability among the ten major noncommunist industrialized countries. In addition, there has been an apparent worsening in the output-inflation tradeoff. This paper attempts to identify and empirically assess possible causes of the deterioration in the British output-inflation tradeoff in the context of a new classical-type model. Supply-side shocks can cause an increase in the inflation rate and a decrease in real output, and it is estimatedthat such shocks interacted with inflation variability to reduce real output roughly 3.3 percent between the period 1957-1968 and the period 1969-1980. Also contributing to the deterioration in the output-inflation tradeoff, it is estimated that the decline in the natural rate of real output due to inflation variability (as hypothesized by Milton Friedman) amounted to about 2.3 to 2.5 percent between these two subperiods.
Handle: RePEc:nbr:nberwo:1134
Template-Type: ReDIF-Paper 1.0
Title: A Model of Exchange-Rate Determination with Policy Reaction: Evidence from Monthly Data
Author-Name: William H. Branson
Note: ITI IFM
Number: 1135
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1135
File-URL: http://www.nber.org/papers/w1135.pdf
File-Format: application/pdf
Abstract: During the 1970s an extensive theoretical literature has developed analyzing market determination of freely floating exchange rates. At the same time, there has been extensive and continuous intervention in the market by central banks. Exchange rates have not been floating freely;they have been managed, or manipulated, by central banks. However, most of the description of exchange rate policy, as actually practiced, has been informal, or "literary," not integrated with the formal theoretical literature. Recent examples are the surveys in Branson (l98la) and Mussa (1981). In this paper I integrate exchange-rate policy into a model of exchange-rate behavior, and examine the monthly data from the 1970s econometrically,to infer hypotheses about policy behavior. I focus on four major currencies, the U.S. dollar, the Deutschemark, Sterling, and the Japanese yen,and analyze movements in their effective (weighted) exchange rates as calculated by the IMF. In section II a model of market determination of a floating exchange-rateis laid out. It is a rational-expectations version of the model in Branson(1977), and it draws on the model of Kouri (1978). It is the same as the model in Branson (1983). 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" tothe new long run equilibrium. Here the role of "news" in moving the exchangerate, as recently emphasized by Dornbusch (1980) and Frenkel (1981), is clear.The model emphasizes imperfect substitutability between domestic and foreign bonds, in order to prepare for the analysis of intervention policy in section III.Exchange-rate policy is introduced in section III. We analyze the options available to the central bank that wants to reduce the jump in the exchangerate following a real or monetary disturbance-"news" about the current account, relative prices, or money. This is the policy characterized as"leaning against the wind" in Branson (1976). The distinction ismade between monetary policy and sterilized intervention.In section IV we turn to the monthly data. The quarterly data were analyzed in Branson (1983). Systems of vector autoregressions (VARs) are estimated for each of the countries, 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 inthe U.S. and Japan drives exchange rates, and policy in Germany and the U.K. reacts by moving interest rates, and by sterilized intervention. This is essentially the same result that appeared on the quarterly data in Branson (1983). Thus the analyses tend to reinforce each other; both datasets tell basically the same story.
Handle: RePEc:nbr:nberwo:1135
Template-Type: ReDIF-Paper 1.0
Title: Right-to-Work Laws and the Extent of Unionization
Author-Name: Henry S. Farber
Note: LS
Number: 1136
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1136
File-URL: http://www.nber.org/papers/w1136.pdf
File-Format: application/pdf
Publication-Status: published as Farber, Henry S. "Right-to-Work Laws and the Extent of Unionization." Journal of Labor Economics, Vol. 2, No. 3, (July 1984), pp. 319-352.
Abstract: It is a well known fact that the extent of unionization is lower in states with Right-to-Work (RTW) laws. A framework is developed for determining whether RTW laws actually cause a decrease in the extent of unionization or whether they simply mirror preexisting tastes of workers against unions. A set of empirical tests is proposed that can distinguish between these explanations based on differences between RTW and non-RTW states in the demand for union representation, the supply of union jobs relative to that demand, and the observed union-nonunion wage differential. Data from the Quality of Employment Survey and from the Current Population Survey are utilized to implement the tests.The results indicate that the demand for union representation is significantly lower in states with RTW laws.At the same time no significant difference is found on the basis of RTW laws in the supply of union jobs relative to demand. It is also found that the observed union-nonunion wage differential is slightly larger in RTW states.This pattern is consistent with the hypothesis that RTW laws simply mirror preexisting preferences against union representation. In its entirety it is not consistent with the hypothesis that RTW laws cause a decrease in the extent of unionization.A final interesting result is that it is found that the extent of unionization in the south is lower even after controlling for the presence of RTW laws in many of the states in that region. Further, it is determined that this is due to a supply of union jobs in the south that is more constrained relative to demand than elsewhere. This suggests that there exist a set of institutional or economic factors in the souththat makes union organizing more difficult and expensive independent of the existence of RTW laws.
Handle: RePEc:nbr:nberwo:1136
Template-Type: ReDIF-Paper 1.0
Title: Capital Structure Change and Decreases in Stockholders' Wealth: A Cross-Sectional Study of Convertible Security Calls
Author-Name: Wayne H. Mikkelson
Note: ME
Number: 1137
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1137
File-URL: http://www.nber.org/papers/w1137.pdf
File-Format: application/pdf
Publication-Status: published as Mikkelson, Wayne H. "Capital Structure Change and Decreases in Stockholders' Wealth: A Cross-Sectional Study of Convertible Security Calls." Corporate Capital Structures in the United States, ed. by Benjamin M. Friedman. Chicago UCP. (1985), pp. 265-296.
Abstract: This paper is a cross-sectional analysis of the relationship between common stock price reactions to announcements of convertible security calls and variables that represent possible determinants of changes in common stockholders' wealth. The variables are measures of the following effects of convertible security calls: (1) the change in interest expense tax shields, (2) the potential redistribution of wealth from common stockholders to preferred stockholders and debt holders,(3) the decrease in the value of conversion privileges heldby convertible security holders, (4) the relative increase in shares outstanding and (5) the change in earnings per share. A significant relationshipis found only between the measure of the reduction in interest expense tax shields and the stock price response to call announcements.The apparent corporate tax effect is consistent with some combination of effects due to (1) a reduction in interest expense tax shields and (2) unfavorable information about the calling firm's value of earnings prospects that is conveyed by a call of convertible securities.The evidence is consistent with theories of capital structure that imply optimal financial leverage depends on earnings prospects and with theories that imply reductions in leverage convey unfavorable information about firm value.
Handle: RePEc:nbr:nberwo:1137
Template-Type: ReDIF-Paper 1.0
Title: The Forward Exchange Market, Speculation, and Exchange Market Intervention
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 1138
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1138
File-URL: http://www.nber.org/papers/w1138.pdf
File-Format: application/pdf
Publication-Status: published as Eaton, Jonathan and Stephen J. Turnovsky. "The Forward Exchange Market, Speculation, and Exchange Market Intervention." Quarterly Journal of Economics , Vol. 99, No. 1, (February 1984), pp. 45-69. John Wilely and Sons.
Abstract: This paper develops a stochastic equilibrium model of an open economy incorporating speculation in the forward exchange market. The model is used to examine two issues. The first is the role of speculation in stabilizing the economy against stochastic disturbances. Much risk averse speculation stabilizes domestic income against disturbances in the domestic bond market and forward exchange marketbut exacerbates the effect of foreign disturbances. Speculation may dampen or augment the effect of money market and output supply disturbances depending upon the share of foreign bonds in total wealthand the interest elasticity of bond demand. The second issue that the model addresses is the role of the forward market in stabilization policy. Forward market intervention (or its equivalent in this model,sterilized spot market intervention) does not provide monetary authorities additional leverage in stabilizing income beyond unsterilized spot market intervention. Intervention rules based on reactions to both the forward and the spot exchange rates, however, can outper-form intervention policies responding to the spot rate alone,regardless of the market in which intervention occurs.
Handle: RePEc:nbr:nberwo:1138
Template-Type: ReDIF-Paper 1.0
Title: Unionization and Productivity in Office Building and School Construction
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 1139
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1139
File-URL: http://www.nber.org/papers/w1139.pdf
File-Format: application/pdf
Publication-Status: published as Allen, Steven G. "Unionization and Productivity in Office Building and School Construction." Industrial and Labor Relations Review, Vol. 39, No. 2,(January 1986), pp. 187-201.
Abstract: This paper examines the difference in productivity between union and nonunion contractors in the construction industry over a sample of 83 commercial office buildings and another sample of 68 elementary and secondary schools. The popular belief that the building trades unions reduce productivity in the industry is soundly rejected in both samples. Square footage per man hour is 38 percent higher in office buildings built predominantly by union labor, controlling for differences in capital-labor ratios, observable labor quality, region, and building characteristics. Estimates of the union-nonunion productivity difference in the school sample range from zero (when output is measured in physical units) to 20 percent greater for union contractors (when output is measured as value added deflatedby regional price differences), controlling for the same factors. Possible sources of higher union productivity in the office building sample are explored. A lower ratio of supervision to production worker hours and use of technologies and materials that economize on labor account for as much as 25 percent of the higher productivity observed in the union sample. The remainder is probably attributable to apprenticeship training, unobserved labor quality, economies of recruiting and screening, and improved manangement.
Handle: RePEc:nbr:nberwo:1139
Template-Type: ReDIF-Paper 1.0
Title: What Are the Determinants of Delayed Childbearing and Permanent Childlessness in the United States?
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: James Trussell
Note: LS
Number: 1140
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1140
File-URL: http://www.nber.org/papers/w1140.pdf
File-Format: application/pdf
Publication-Status: published as Bloom, David E. and James Trussell. "What Are the Determinants of Delayed Childbearing and Permanent Childlessness in the United States?" Demography ,November 1984, 21(4) pp. 591-611.
Abstract: This paper presents estimates of delayed childbearing and permanent childlessness in the United States and the determinants of those phenomena.The estimates are derived by fitting the Coale-McNeil marriage model to survey data on age at first birth and by letting the parameters of the model depend on covariates. Substantively, the results provide evidence that the low first birth fertility rates experienced in the 1970's were due to both delayed childbearing and to increasing levels of permanent childlessness. The results also indicate that (a) delayed childbearing is less prevalent among blackwomen than among non-black women, (b) education and labor force participation are important determinants of delayed childbearing, (c) the influence of education and labor force participation on delayed childbearing seems to beincreasing across cohorts, (d) education is positively associated with heterogeneity among women in their age at first birth, (d) the dispersion of age at first birth is increasing across cohorts, (f) race has an insignificant effecton childlessness, and (g) education is positively associated with childlessness, with the effect of education increasing and reaching strikingly highlevels for the most recent cohorts.
Handle: RePEc:nbr:nberwo:1140
Template-Type: ReDIF-Paper 1.0
Title: Why Are Real Interest Rates So High?
Author-Name: Zvi Bodie
Author-Person: pbo569
Author-Name: Alex Kane
Author-Person: pka501
Author-Name: Robert L. McDonald
Note: ME
Number: 1141
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1141
File-URL: http://www.nber.org/papers/w1141.pdf
File-Format: application/pdf
Publication-Status: published as Bodie, Zvi, Alex Kane and Robert L. McDonald. Why Haven't Nominal Rates Declined?" Financial Analysts Journal, Vol. 4 No. 2, (March-April 1984), pp. 16-27.
Abstract: This paper applies the Capital Asset Pricing Model to help explain the anomalous behavior of real interest rates during the last several years. Specifically,we are able to show that the increased volatility of bond prices since the change in Federal Reserve operating procedure in October 1979 has substantially increased the required real risk premium on long term bonds. We also consider and reject the possibility that increased risk alone accounts for the recent increase in the short-term real rate. Finally, we use the model to simulate the financial effects of a Federal debt maturity management operation.
Handle: RePEc:nbr:nberwo:1141
Template-Type: ReDIF-Paper 1.0
Title: Debt and Equity Yields: 1926-80
Author-Name: Patric H. Hendershott
Author-Name: Roger D. Huang
Note: ME
Number: 1142
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1142
File-URL: http://www.nber.org/papers/w1142.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. (ed.) Corporate Capital Structures in the United States. Chicago: University of Chicago Press, 1985.
Abstract: The study is divided into four broad parts, beginning with an exploratory analysis of the data on expost returns on corporate equities and bonds for the 1926-80 period. In Part 2, we estimate the relationships between one-month expost returns on corporate bonds and equities andvariations in Treasury bill rates, economic activity, and other variables.The major other variable is unanticipated changes in new issue coupon rates on long-term Treasury bonds. Parts 3 and 4 contain econometric investigations of the determinants of one-month Treasury bill rates and unanticipated changes in long-term Treasury coupon rates, respectively. These parts extend the analysis of Part 2 by explaining variables that determine expost corporate bond and equity returns and provide evidence on the determination of new-issue yields on short- and long-term default-free debt. The last three parts ofthe study report econometric results based on data from the 1953-83 period.A number of important issues are addressed in the econometric parts of the paper. These include: the validity of the Modigliani-Cohn valuation-error hypothesis, the measurement of Merton's "excess return on the market", the relationship between real new-issue debt rates and real economic activity, and the usefulness of the Livingston survey data in explaining financial returns.
Handle: RePEc:nbr:nberwo:1142
Template-Type: ReDIF-Paper 1.0
Title: Contingent Claims Valuation of Corporate Liabilities: Theory and Empirical Tests
Author-Name: E. Philip Jones
Author-Name: Scott P. Mason
Author-Name: Eric Rosenfeld
Note: ME
Number: 1143
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1143
File-URL: http://www.nber.org/papers/w1143.pdf
File-Format: application/pdf
Publication-Status: published as Jones, Philip E., Scott P. Mason and Eric Rosenfeld. "Contingent Claims Valuation of Corporate Liabilities: Theory and Empirical Tests." Corporate Capital Structures in the United States, edited by Benjamin M. Friedman. Chicago: University of Chicago Press, (1985), pp. 239-261.
Publication-Status: published as Contingent Claims Valuation of Corporate Liabilities: Theory and Empirical Tests, E. Philip Jones, Scott P. Mason, Eric Rosenfeld. in Corporate Capital Structures in the United States, Friedman. 1985
Abstract: Although the Contingent Claims Analysis model has become the premier theory of how value is allocated among claimants on firms,its empirical validity remains an open question. In addition to being of academic interest, a test of the model would have significant practical implications. If it can be established that the model predicts actual market prices, then the model can be used to price new and untraded claims, to infer firm values from prices of traded claims like equity and to price covenants separately. In this paper evidence is presented on how well a model which makes the usual assumptions in the literature does in predicting market prices for claims in standard capital structures. The results suggest that the usual assumption list requires modification before it can serve as a basis for valuing corporate claims.
Handle: RePEc:nbr:nberwo:1143
Template-Type: ReDIF-Paper 1.0
Title: Shunto, Rational Expectations, and Output Growth in Japan
Author-Name: Herschel I. Grossman
Author-Name: William S. Haraf
Note: EFG ME
Number: 1144
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1144
File-URL: http://www.nber.org/papers/w1144.pdf
File-Format: application/pdf
Publication-Status: published as Empirical Economics, Vol. 14, No. 3, pp. 193-213, (1989).
Abstract: This paper describes a theoretical and empirical study of the Japanese macroeconomy that focuses on the role of predetermined nominal wages in the relation between monetary policy and aggregate output. The main features of the model are that nominal wage rates set at Shunto are equal to rational expectations of the nominal wage rates that would be consistent with target levels of real output and that firms determine employment and output by equating marginal productivities to real wage rates. The essential implication of the model is that the current deviation of aggregate output from its target level depends only on innovations in inflation and productivity since the last Shunto. The equation derived to implement the model empirically relates current aggregate output growth in a precise way to past values of output growth and inflation since the last Shunto and includes an explicit specification of a white noise error term. The results of econometric analysis of this restricted model equation are consistent with the hypothesis that nominal wages predetermined according to Shunto with rational expectations are important tor the determination of real aggregates. The empirical analysis, however, also suggests that the assumptions about monetary policy used to close the model are not adequate, a result that leads to directions for further research.
Handle: RePEc:nbr:nberwo:1144
Template-Type: ReDIF-Paper 1.0
Title: Investment Patterns and Financial Leverage
Author-Name: Michael S. Long
Author-Name: Ileen B. Malitz
Note: ME
Number: 1145
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1145
File-URL: http://www.nber.org/papers/w1145.pdf
File-Format: application/pdf
Publication-Status: published as Long, Michael S. and Ileen B. Malitz. "Investment Patterns and Financial Leverage." Corporate Capital Structures in the United States, edited by Benjamin M. Friedman. Chicago: Univ. of Chicago Press, (1985), pp. 353-37 7.
Publication-Status: published as Investment Patterns and Financial Leverage, Michael S. Long, Ileen B. Malitz. in Corporate Capital Structures in the United States, Friedman. 1985
Abstract: This study Investigates the influence of the type of investment opportunities facing a firm on its choice of capital structure. It is shown that the more discretionary investment opportunities a firm faces,the lower its financial leverage. Inclusion of other possible determinants of capital structure, such as availability of internal funds, tax effects and risk, while significant, do not affect the importance of discretionary investment. The evidence supports (1) the existence of a moral bazzard problem which inversely relates risky debt and discretionary investment choice, and (2) a desire by most firms to use sources of internal funds prior to entering the capital market.
Handle: RePEc:nbr:nberwo:1145
Template-Type: ReDIF-Paper 1.0
Title: Life-Cycles in Income and Wealth
Author-Name: J. R. Kearl
Author-Name: Clayne L. Pope
Note: DAE
Number: 1146
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1146
File-URL: http://www.nber.org/papers/w1146.pdf
File-Format: application/pdf
Publication-Status: published as JLE, Vol. 4, no. 3, part 2 (1986): S48-S79.
Abstract: Using panel data for a sample of households in Utah from 1850 to 1900 we find income and wealth age profiles that are concave and that have a peak within the age distribution of the relevant sample. This finding holds for cross sections at five-year intervals, for pooled cross section time-series data, for cohort data, for households when individual differences are accounted for with a variance-components model and when we account for vintage measured as duration within the economy.We also find a relationship between age-income and age-wealth profiles that is consistent with a life-cycle model of consumption given a concave and peaked age-income profile: households accumulate and then begin to draw down wealth holdings, the age-wealth profile consistently peaks at an age later than the age-income profile for the same households, and the age-wealth profile for young households is considerably steeper than is the age-income profile.We have data, then, that in many respects appear to be capable of having been generated by individual decisions in a contemporary economy.This is particularly interesting since the data were, in fact, generated within a very different economy, one where formal education, on-the-job training and labor-leisure choices were probably considerably less important than in a contemporary economy.
Handle: RePEc:nbr:nberwo:1146
Template-Type: ReDIF-Paper 1.0
Title: Inflexible Relative Prices and Price Level Inertia
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Note: EFG
Number: 1147
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1147
File-URL: http://www.nber.org/papers/w1147.pdf
File-Format: application/pdf
Abstract: A decrease in aggregate demand at given prices and wages decreases output and employment. The decrease in employment exerts downward pressure on real wages. The decrease in production exerts downward pressure on markups. With perfectly synchronized price and wage decisions, nominal wages and prices decrease instantaneously until equilibrium is reestablished at a lower price level and the initial relative prices. If, however, price and wage decisions are a synchronized, this process can not take place instantaneously but rather takes place over time. If real wages and markups are rather insensitive to shifts in demand, the process of adjustmentis slow, the effects of money on output are strong and lasting.The paper formalizes this intuitive argument and characterizes the implications of asynchronization for the joint behavior of relative and nominal prices.
Handle: RePEc:nbr:nberwo:1147
Template-Type: ReDIF-Paper 1.0
Title: Consumer Durables and the Real Interest Rate
Author-Name: N. Gregory Mankiw
Note: EFG
Number: 1148
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1148
File-URL: http://www.nber.org/papers/w1148.pdf
File-Format: application/pdf
Publication-Status: published as Mankiw, N. Gregory. "Consumer Durables and the Real Interest Rate," Review of Economics and Statistics, Vol. 67, No. 3, August 1985, pp. 353-362.
Abstract: One important channel through which real interest rates affect aggregate demand is consumer expenditure on durable goods. This paper examines empirically the link between interest rates and consumer durables. Solving for the decision rule relating income and interest rates to consumer demand is an intractable task. This paper avoids this problem by examining the first-order conditions necessary for maximization by the representative consumer. Structural parameters of there presentative utility function are thus recovered. The estimated model suggests that expenditure on consumer durables is far more sensitive to changes in the interest rate than is expenditure on nondurables and services.
Handle: RePEc:nbr:nberwo:1148
Template-Type: ReDIF-Paper 1.0
Title: Models of Arbitrator Behavior: Theory and Evidence
Author-Name: Orley Ashenfelter
Author-Person: pas9
Author-Name: David E. Bloom
Author-Person: pbl79
Note: LS
Number: 1149
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1149
File-URL: http://www.nber.org/papers/w1149.pdf
File-Format: application/pdf
Publication-Status: published as Ashenfelter, Orley and David E. Bloom. "Models of Arbitrator Behavior: Theory and Evidence." American Economic Reveiw, Vol. 74, No. 1, (March 1984), pp. 111-124.
Abstract: This paper analyzes and compares arbitrator behavior under conventional and final-offer arbitration. Simple models of arbitrator behavior are developed under each of these alternative mechanisms. These models are estimated and tested using data on the outcomes of both forms of arbitrationin New Jersey, a state in which arbitration is mandatory for unresolved pay disputes involving police officer unions and public employers. The major findings are (1) that the high proportion of union victories under final-offer arbitration were generated by a set of impartial arbitrators applying the same standards used in conventional arbitration, and (2) that union bargainers appear to be considerably more risk averse than employer bargainers, with the wage increases under final-offer arbitration having a lower mean and a lower variance than under conventional arbitration.
Handle: RePEc:nbr:nberwo:1149
Template-Type: ReDIF-Paper 1.0
Title: Wage Contracts with Incomplete and Costly Information
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: EFG
Number: 1150
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1150
File-URL: http://www.nber.org/papers/w1150.pdf
File-Format: application/pdf
Abstract: Optimal wage indexation, as derived by Gray, was subject to criticism due to a lack of efficient use of information; failure to clear the market which resulted in non-optimal contracts; and the lack of an explicit use of welfare criteria. The purpose of this paper is to derive a wage contract scheme that is free from the above criticism, but is capable of preserving the insight of Cray's analysis. In so doing the analysis reveals the role of costs of information collection in a world characterized by incomplete information.The analysis focuses also on the interaction between wage indexation and costly information collection as alternative adjustment schemes.It is shown that the first depends only on relative variances, whereas the second also depends on aggregate volatility. The justification for labor contracts hinges on the cost of information collection and last minute wage negotiation.
Handle: RePEc:nbr:nberwo:1150
Template-Type: ReDIF-Paper 1.0
Title: Real Determinants of Corporate Leverage
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: ME
Number: 1151
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1151
File-URL: http://www.nber.org/papers/w1151.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "Real Determinants of Corporate Leverage." Corporate Capital Structure in the U.S., edited by B. M. Friedman. Chicago: Universityof Chicago Press, (1985), pp. 301-322.
Publication-Status: published as Real Determinants of Corporate Leverage, Alan J. Auerbach. in Corporate Capital Structures in the United States, Friedman. 1985
Abstract: The U.S. corporate tax distorts the behavior of both real and financial decisions. With respect to the former, the variation in depreciation allowances and investment tax credit provisions across types of investments leads to widely vazying effective tax rates, especially since 1981. Financial policy is distorted by the differential treatment of debt and equity. The purpose of this paper is to examine, using firm-level panel data, the relationship between real and financial decisions by corporations, in part to determine the extent to which these biases off set or reinforce each other.Our results are tentative and suggest that patterns of real and financial behavior are only partially consistent with predictions of various capital structure models (e.g. bankruptcy/agency cost, limited taxshield)and that there is no obvious offset on the financial side to the tax bias against investment in structures.
Handle: RePEc:nbr:nberwo:1151
Template-Type: ReDIF-Paper 1.0
Title: The Dynamic Effects of Tax Law Asymmetries
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 1152
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1152
File-URL: http://www.nber.org/papers/w1152.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. "The Dynamic Effects of Tax Law Asymmetries." Review of Economic Studies, Vol. 53, (1986), pp. 205-225.
Abstract: Under current U.S. tax law, a distinction is made between gains and losses by businesses. Losses that must be "carried forward" are subject to two penalties: a loss of interest, and expiration after fifteen years. Previous examinations have focused on the higher expected tax payments such a tax system without "full loss offset" imposes on risky projects.This paper presents a dynamic analysis of the impact of taxation on investment when gains and losses are treated asymmetrically. The results provide a basis for analyzing recent tax changes, particularly the controversial"safe-harbor leasing" provisions of the 1981 tax legislation.
Handle: RePEc:nbr:nberwo:1152
Template-Type: ReDIF-Paper 1.0
Title: Inflation and Labor-Market Adjustment
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 1153
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1153
File-URL: http://www.nber.org/papers/w1153.pdf
File-Format: application/pdf
Publication-Status: published as Hamermesh, Daniel S. "Inflation and Labor-Market Adjustment." Economica, Vol. 53, (February 1986), pp. 63-73.
Abstract: The implications of downward nominal and ex ante real wage rigidity,and of wage contracting for the dispersion of relative wage changes in the presence of price inflation are examined. Rigidity implies that unexpected inflation will raise the variability of relative wage changes; contracting implies unexpected inflation reduces variability. Using data on manufacturing industries for 1955-81, and on private nonfarm industries for1965-81,these hypotheses are studied. The dispersion in relative wage cnanges is reduced by greater price inflation. Most of the reduction is a response to unexpected inflation: Expected inflation has little impact on dispersion.These findings hold for subperiods within the sample, and are robust to different choices of measures of price expectations,including those of the Livingston survey, the Survey Research Center household data, and ARMA forecasts. They stand in striking contrast to the commonly accepted result that price inflation is associated with greater dispersion of relative price changes. They suggest that inflation reduces the ability of relative wages to signal disequilibria among labor markets.
Handle: RePEc:nbr:nberwo:1153
Template-Type: ReDIF-Paper 1.0
Title: Moral Hazard and Optimal Commodity Taxation
Author-Name: Richard J. Arnott
Author-Person: par13
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 1154
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1154
File-URL: http://www.nber.org/papers/w1154.pdf
File-Format: application/pdf
Publication-Status: published as Arnott, Richard J. and Joseph E. Stiglitz. "Moral Hazard and Optimal Commodity Taxation." Journal of Public Economics, Vol. 29, (1986), pp. 1-24.
Abstract: The central result of this paper is that when moral hazard ispresent,competitive equilibrium is almost always (constrained) inefficient. Moral hazard causes shadow prices to deviate from market prices. To remedy this market failure, the government could introduce differential commodity taxation. Moral hazard causes people to take too little care to prevent accidents. The corresponding dead-weight loss can be reduced by subsidizing (taxing) those goods the consumption of which encourages (discourages) accident avoidance.At the (constrained) optimum, the sum of the deadweight losses as-sociated with moral hazard, on the one hand, and differential commodity taxation, on the other, is minimized.
Handle: RePEc:nbr:nberwo:1154
Template-Type: ReDIF-Paper 1.0
Title: The Distributional Impact of Social Security
Author-Name: Michael D. Hurd
Author-Person: phu137
Author-Name: John B. Shoven
Note: PE
Number: 1155
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1155
File-URL: http://www.nber.org/papers/w1155.pdf
File-Format: application/pdf
Publication-Status: published as Hurd, Michael D. and John B. Shoven. "The Distributional Impact of Social Security." Pensions, Labor, and Individual Choice, edited by David A. Wise . Chicago: University of Chicago Press, (1985), pp. 193-221.
Publication-Status: published as The Distributional Impact of Social Security, Michael D. Hurd, John B. Shoven. in Pensions, Labor, and Individual Choice, Wise. 1985
Abstract: In the first part of the paper we report estimated transfers in the Social Security system for the Retirement History Survey sample.We define transfers to be the difference between the expected presentvalue of benefits less the present value of taxes paid in, where the latter is adjusted for the probability of living to reach retirement age.Unlike previous researchers we, therefore, account for the taxes paid by people who died before retirement, and it turns out this adjustment is important for some groups. The Retirement History Survey cohort will receive large transfers: roughly benefits will be about four times taxes,and the real internal rate of return will be about eight percent. We study how transfers vary by a comprehensive measure of wealth. People in the highest wealth quartile have the largest absolute transfers, and their internal rate of return is as high as that of any wealth quartile.In the second part of the paper we study transfers forsix synthetic cohorts, the heads of which are age 65 in the ten-year intervals 1970 through 2020. Within each cohort 12 families are defined according to earnings levels.We find that transfers are positive and large for the 1970 cohort, and that they decline steadily until they are negative for most groups in the 2020 cohort. Although high earners initially have the largest transfers in the 1970 cohort, they have the largest negative transfers in the 2020 cohort.
Handle: RePEc:nbr:nberwo:1155
Template-Type: ReDIF-Paper 1.0
Title: The Economics of Price Scissors
Author-Name: Raaj Kumar Sah
Author-Person: psa736
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 1156
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1156
File-URL: http://www.nber.org/papers/w1156.pdf
File-Format: application/pdf
Publication-Status: published as Sah, Raaj Kumar and Joseph E. Stiglitz. "The Economics of Price Scissors." American Economic Review, Vol.74, No. 1, (March 1984), pp. 125-138.
Abstract: We analyze consequences of changing the terms of trade between agriculture and industry on capital accumulation and on welfare of workers in different sectors. The issue was central to Soviet industrialization debate and it remains important in today's developing world. Through a simple general equilibrium model, we show that a price squeeze on peasants increases accumulation (as Preobrazhensky argued), but it makes both urban and rural workers worse-off (contrary to Preobrazhensky's contention). The desirable changes in terms of trade are shown to depend on intertemporal valuations, but, within a range, not on rural-urban welfare trade-off. Our characterization of the optimal terms of trade is remarkably simple, in which the roleof welfare weights and of relevant empirical parameters are easily as certained.We then extend our analysis to economies with labor mobility and unemployment and, using a simple model with rigid industrial wage, show that the optimal terms of trade entail a tax on urban sector,a subsidy to rural sector, and a level of urban employment such that the urban wage exceeds the marginal product of urban worker.
Handle: RePEc:nbr:nberwo:1156
Template-Type: ReDIF-Paper 1.0
Title: Financial Innovation and the Control of Monetary Aggregates: Some Evidence from Canada
Author-Name: Robert E. Lucas, Jr.
Note: ME
Number: 1157
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1157
File-URL: http://www.nber.org/papers/w1157.pdf
File-Format: application/pdf
Publication-Status: published as Lucas, Robert E. "Financial Innovations and the Control of Monetary Aggregates: The Canadian Experience," Western Economic Review, Vol. 4, No. 4, December 1985.
Abstract: This paper presents an empirical test of the proposition that control of a monetary aggregate will generate a rise in its velocity.The test is carried out utilizing the Canadian experience of controlling Ml growth from 1975:3 to 1982:3. Section One of the paper presents evidence of the instability of the Canadian demand from Ml money since 1975:3. Section Two develops a specific form of the proposition which emphasizes the role of asset substitution between classes of chartered bank deposits. A relative asset demand equation is derived from a wealth maximization model subject to a technological transactions constraint and this equation is estimated from 1961 through 1982.The results lend support to the proposition that central bank control of Ml generated a rise in Ml velocity.
Handle: RePEc:nbr:nberwo:1157
Template-Type: ReDIF-Paper 1.0
Title: Raids and Imitation
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: LS
Number: 1158
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1158
File-URL: http://www.nber.org/papers/w1158.pdf
File-Format: application/pdf
Publication-Status: published as "Raids and OFfer Matching" Research in Labor Economics, Vol. 8 part A Pages 141-165, 1986, ed. Ron Ehrenberg Greenwich, CT: JAI Press
Abstract: Many job changes occur without intervening spells of unemployment. A model is constructed in an attempt to understand this phenomenon. It implies that the best workers are hired away first because, with imperfect information, prices do not fully adjust for quality. Thus, there develops stigma associated with failing to receive outside offers. The force of the stigma, which affects wages, depends upon the likelihood of discovering a worker's ability, the size of the market, and the speed of diffusion of information. In some occupations, it implies that there quickly develop pronounced differences in the treatment of raided and unraided workers. A consequence is a theory of occupational wage dispersion. The Peter Principle - that workers are promoted to a level of incompetence - is a direct implication.The model can be applied to product markets as well to explain the relationship between price and time on the shelf.
Handle: RePEc:nbr:nberwo:1158
Template-Type: ReDIF-Paper 1.0
Title: Case Mix, Costs, and Outcomes: Differences Between Faculty and Community Services in a University Hospital
Author-Name: Alan M. Garber
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Author-Name: James F. Silverman
Note: EH
Number: 1159
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1159
File-URL: http://www.nber.org/papers/w1159.pdf
File-Format: application/pdf
Publication-Status: published as Garber, Alan M., Victor R. Fuchs and James F. Silverman. "Aase Mix, Costs , and Outcomes: Differences Between Faculty and Community Services in a University Hospital." The New England Journal of Medicine, Vol. 310, No. 19 (May 10, 1984), pp. 1231-1237
Abstract: In order to gain insight into the possible consequences of prospective payment for university hospitals, we studied 2,025 admissions to the faculty and community services of a university hospital, measuring differences in case mix, costs, and outcomes. The faculty service case mix was disproportionately weighted toward the more costly diagnoses, but even after adjustment for diagnosis-related groups (DRGs), costs were 11 percent higher on the faculty service. The differential was proportionately greater for diagnostic costs than for routine or treatment costs, and the differential was particularly large (70 percent) for patients with a predicted probability of death (DTHRISK) of .25 or greater.The in-hospital mortality rate was appreciably lower on the faculty service after adjustment for case mix and patient characteristics. The mortality differential between the two services was particularly large for patients in the high death risk category. Comparison of a matched sample of 51 pairs of admissions from the high death risk category confirmed the above results with respect to costs and in-hospital mortality, but follow-up revealed that the mortality rates were equal for the two services at nine months after discharge.
Handle: RePEc:nbr:nberwo:1159
Template-Type: ReDIF-Paper 1.0
Title: A Linearized Version of Lucas's Neutrality Model
Author-Name: Bennett T. McCallum
Note: EFG
Number: 1160
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1160
File-URL: http://www.nber.org/papers/w1160.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "A Linearized Version of Lucas's Neutrality Model." Canadian Journal of Economics, Vol. 17, No. 1, (February 1984), pp. 138-145.
Abstract: The model developed in Robert Lucas's influential "Expectations and the Neutrality of Money" has not been widely used for extensions or modifications of the original analysis, in part because of its difficulty of manipulation.The present paper describes a linearized version that--unlike other models prominent in the rational expectations literature--retains the original's mainfeatures yet is comparatively easy to manipulate.Two examples of modifications facilitated by this linearization are included. These involve an autoregressive money growth specification and the assumption of lump-sum (rather than proportional)monetary transfers.
Handle: RePEc:nbr:nberwo:1160
Template-Type: ReDIF-Paper 1.0
Title: Housing Subsidies: Effects on Housing Decisions, Efficiency, and Equity
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 1161
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1161
File-URL: http://www.nber.org/papers/w1161.pdf
File-Format: application/pdf
Publication-Status: published as Rosen, Harvey S. "Housing Subsidies: Effects on Housing Decisions, Efficiency, and Equity." Handbook of Public Economics, Vol. 1, edited by Alan J. Auerbach and Martin Feldstein, pp. 375-420. Amsterdam: Elsevier Science Publishers B.V., (1985).
Abstract: This paper surveys the effects of two of the most important federal policies toward housing: the "implicit subsidy" for owner-occupied housing in the income tax code, and the provision of housing for low income families at rents below cost. Emphasis is placed on the methodological problems that arise in attempts to assess the efficiency and distributive implications of these programs.Section 1 critically discusses the rationalization for a government housing policy. Section 2 investigates the econometric problems associated with estimating the effects of government policy upon housing decisions.The federal tax treatment of owner-occupation and how it affects the cost and demand for homeownership are discussed in Section 3. In Section 4, the positive and normative implications of U.S. policies for low income housing are evaluated.The conclusion notes that the policies under concern have led to a greater than efficient amount of housing consumption, and have on net probablyl ed to a more unequal distribution of income.
Handle: RePEc:nbr:nberwo:1161
Template-Type: ReDIF-Paper 1.0
Title: On Low-Frequency Estimates of "Long-Run" Relationships in Macro- economics
Author-Name: Bennett T. McCallum
Note: EFG
Number: 1162
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1162
File-URL: http://www.nber.org/papers/w1162.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "On Low-Frequency Estimates of "Long-Run" Relationships in Macroeconomics." Journal of Monetary Economics, Vol. 14, No. 1, (July 1984), pp. 3-14.
Abstract: A number of recent studies have attempted to test propositions concerning "long runt" economic relationships by means of frequency-domain time series techniques that concentrate attention on low frequency co-movements of variables.The present paper emphasizes that many of these propositions involve expectational relationships that are not inherently related to specific frequencies or periodicities. Thus the association of low-frequency time series test statistics with long-run economic propositions is not generally warranted. That such an association can be misleading is demonstrated by analysis of examples taken from notable papers by Geweke, Lucas, and Summers.
Handle: RePEc:nbr:nberwo:1162
Template-Type: ReDIF-Paper 1.0
Title: Variable Earnings and Nonlinear Taxation
Author-Name: Michael Rothschild
Author-Person: pro48
Author-Name: Robert Moffitt
Author-Person: pmo48
Note: PE
Number: 1163
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/w1163
File-URL: http://www.nber.org/papers/w1163.pdf
File-Format: application/pdf
Publication-Status: published as Moffitt, Robert and Michael Rothschild. "Variable Earnings and Nonlinear Taxation," Journal of Human Resources, Vol. 22, No. 3, Summer 1987, pp. 405- 421.
Abstract: We explore the interaction between two facts. The first is that income is variable; the second is that the tax and transfer system transforms before tax income into after tax income in highly non-linear ways. The effect is to penalize (and reward) income variability in a manner which is both substantial and capricious.
Handle: RePEc:nbr:nberwo:1163
Template-Type: ReDIF-Paper 1.0
Title: Unionism, Price-Cost Margins, and the Return to Capital
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 1164
Creation-Date: 1983-07
Order-URL: http://www.nber.org/papers/w1164
File-URL: http://www.nber.org/papers/w1164.pdf
File-Format: application/pdf
Abstract: This paper examines available industry data on two profitability measures, the price-cost margin and the ratio of quasi-rents to capital, for the purpose of determining the effect of unionism on profits. It finds that unionism reduces profitability and that this effect occurs in highly concentrated industries. The effect of unionism is quite substantial in most calculations, suggesting that the fraction organized in a sector be included in standard Industrial Organization profitability calculations in the future.
Handle: RePEc:nbr:nberwo:1164
Template-Type: ReDIF-Paper 1.0
Title: The Equilibrium Approach to Labor Markets
Author-Name: Sherwin Rosen
Note: LS
Number: 1165
Creation-Date: 1983-07
Order-URL: http://www.nber.org/papers/w1165
File-URL: http://www.nber.org/papers/w1165.pdf
File-Format: application/pdf
Publication-Status: published as Sherwin Rosen, 1996. "The Equilibrium Approach to Labor Markets," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(99), pages 189-204.
Abstract: This paper exposits the modern theory of equalizing differences,viewed as optimal assignments of workers to jobs. The basic ideas are first illustrated in a simple model with binary choices of work attributes.Multinominal choices are briefly considered after that. Empirical implications are stressed, with special emphasis on elements of selectivity and stratification by tastes and technology. Applications are sketched for certain aspects of the economics of discrimination, human capital, the value of safety and the theory of implicit contracts. Issues raised by assignment stratification according to worker traits and productivities are discussed, and the principle sorting model by comparative advantageis outlined. The implied valuation system on personal traits and its relationship to factor-analytic models, as well as selectivity issues in educational and occupational choice illustrate this aspect of the theory.
Handle: RePEc:nbr:nberwo:1165
Template-Type: ReDIF-Paper 1.0
Title: International Policy Coordination in a Dynamic Macroeconomic Model
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 1166
Creation-Date: 1983-07
Order-URL: http://www.nber.org/papers/w1166
File-URL: http://www.nber.org/papers/w1166.pdf
File-Format: application/pdf
Abstract: This paper illustrates the role for macroeconomic policy coordination when interdependent economies are pursuing disinflationary policies. Under flexible exchangerates, policy makers have an incentive to reduce inflation by pursuing contractionary policies that yield a currency appreciation. In a Nash, perfect foresight equilibrium,policy authorities in the model pursue contractionary policies to achieve currency appreciation, but these attempts cancel out, with the result that all countries end up pursuing excessively contractionary policies (relative to asymmetric Pareto optimum). The paper presents these resultsin a two-country, infinite-horizon difference game.
Handle: RePEc:nbr:nberwo:1166
Template-Type: ReDIF-Paper 1.0
Title: The Level and Volatility of Interest Rates in the United States: The Roles of Expected Inflation, Real Rates, and Taxes
Author-Name: John H. Makin
Author-Name: Vito Tanzi
Note: PE
Number: 1167
Creation-Date: 1983-07
Order-URL: http://www.nber.org/papers/w1167
File-URL: http://www.nber.org/papers/w1167.pdf
File-Format: application/pdf
Publication-Status: published as Taxation, Inflation and Interest Rates, ed. Vito Tanyi International Monetary Fund Washington DC, 1984.
Abstract: This paper attempts to demonstrate a need to expand the simple Fisherian view whereby changes in interest rates are explained largely by changes in expected inflation. It presents and tests a model of expected, after-tax real interest rate behavior which, together with a group of explanatory variables suggested by a structural model, takes full account of implications of a broad range of U.S. tax code provisions for behavior of interest rates. Determinants of interest rate volatility are also investigated.The model and results of empirical testing suggest:(1) why the measured impact on interest rates of changes in anticipated inflation has been below levels anticipated by many investigators; (2) how the measured impact on interest rates of explanatory variables is conditional on tax rates which may change over time; (3) larger than expected fiscal deficits have a moderate positive impact on interest rates (40 basis points per 100 billion annual rise for three-month Treasury bills) while lower than expected money growth may also raise interest rates (as iri the second quarter of 1981 when it did so by an estimated 24 basis points);(4) inflation uncertainty produces no significant impact on interest rates due to the econometric effect of including a measure of excess capacity; (5) an unexpected rise in money demand may be responsible for persistently higher interest rates during the first half of 1982 but during most of the 1960-82 period money supply shocks had a more powerful impact on interest rates.
Handle: RePEc:nbr:nberwo:1167
Template-Type: ReDIF-Paper 1.0
Title: Housing Tenure, Uncertainty, and Taxation
Author-Name: Harvey S. Rosen
Author-Person: pro55
Author-Name: Kenneth T. Rosen
Author-Name: Douglas Holtz-Eakin
Note: PE
Number: 1168
Creation-Date: 1983-07
Order-URL: http://www.nber.org/papers/w1168
File-URL: http://www.nber.org/papers/w1168.pdf
File-Format: application/pdf
Publication-Status: published as Rosen, Harvey S., Kenneth T. Rosen and Douglas Holtz-Eakin. "Housing Tenure, Uncertainty, and Taxation." The Review of Economics and Statistics, Vol . 66, No. 3, (August 1984), pp. 405-416.
Abstract: Modern empirical work on the choice between renting and owning focuses on the concept of the "user cost" of housing, which integrates into a single measure the various components of housing costs. The standard approach implicitly assumes that households know the user cost of housing with certainty. However, the ex post user cost measure exhibits substantial variability over time, and it is highly unlikely that individuals believe themselves able to forecast these fluctuations with certainty. In this paper, we construct and estimate a model of the tenure choice that explicitly allows for the effects of uncertainty. The results suggest that previous work which ignored uncertainty may have overstated the effects of the income tax system upon the tenure choice.
Handle: RePEc:nbr:nberwo:1168
Template-Type: ReDIF-Paper 1.0
Title: Changes in the Balance Sheet of the U.S. Manufacturing Sector, 1926-1977
Author-Name: John H. Ciccolo, Jr.
Author-Name: Christopher F. Baum
Note: ME
Number: 1169
Creation-Date: 1983-07
Order-URL: http://www.nber.org/papers/w1169
File-URL: http://www.nber.org/papers/w1169.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Ben M. (ed.) Corporate Capital Structures in the United States. Chicago: University of Chicago Press, 1985.
Publication-Status: published as Changes in the Balance Sheet of the U.S. Manufacturing Sector, 1926-1977, John H. Ciccolo, Jr., Christopher F. Baum. in Corporate Capital Structures in the United States, Friedman. 1985
Abstract: This is a report on the results of a research project, sponsored by the NBER's Program on Financial Markets and Monetary Economics, which involves the collection and organization of income account and balance sheet data, at the firm level, for the years 1926-77. The primary data source for the study is Moody's Industrial Manual. Working at the firm level, it is possible to obtain accurate information on the market values of traded securities.This paper presents and discusses some of the aggregate characteristics of the dataset and also reports the results of estimating a simple portfolio model which attempts to explain changes in firm balance sheet flows for the periods 1927-35 and 1965-77.The data collected for the study, as well as software necessary to manage them efficiently, are available from the authors. An NBER Technical Paper will shortly be available to describe the dataset and software in detail.
Handle: RePEc:nbr:nberwo:1169
Template-Type: ReDIF-Paper 1.0
Title: Wage Indexation and Exchange Market Intervention in a Small Open Economy
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 1170
Creation-Date: 1983-07
Order-URL: http://www.nber.org/papers/w1170
File-URL: http://www.nber.org/papers/w1170.pdf
File-Format: application/pdf
Publication-Status: published as Turnovsk, Stephen J. "Wage Indexation and Exchange Market Intervention in a Small Open Economy." Canadian Journal of Economics, Vol. 16, No. 4, (November 1983), pp. 574-592.
Abstract: The analysis of this paper stresses the interdependence between wage indexation on the one hand, and exchange market intervention on the other,as tools of'macroeconomic stabilization policy in a small open economy subject to stochastic disturbances. It is shown how the choice of eitherpolicy instrument impinges on the effectiveness of the other. In particular,if the domestic money wage is fully indexed to some weighted average of the domestic and foreign price levels, then irrespective of what that chosen weight may be, exchange market intervention is rendered totally ineffective insofar as the stabilization of the real part of the domestic economy is concerned. Likewise, if the monetary authority intervenes in the exchange market so as to exactly accommodate for nominal movements in the demand for money, thereby rendering the excess demand for money dependent only upon real variables, then any form of wage indexation is totally ineffective for the stabilization of the real part of the system. In either polar case, the respective instrument can stabilize the domestic price level. Alternative combinations of policy for the stabilization for domestic and foreign disturbances are considered.
Handle: RePEc:nbr:nberwo:1170
Template-Type: ReDIF-Paper 1.0
Title: Consensus and Uncertainty in Economic Prediction
Author-Name: Victor Zarnowitz
Author-Name: Louis A. Lambros
Note: EFG
Number: 1171
Creation-Date: 1983-07
Order-URL: http://www.nber.org/papers/w1171
File-URL: http://www.nber.org/papers/w1171.pdf
File-Format: application/pdf
Publication-Status: published as Zarnowitz, Victor and Louis A. Lambros. "Consensus and Uncertainty in Economic Prediction," Journal of Political Economy, Vol. 95, No. 3, pp. 591-621, June 1987.
Publication-Status: published as Consensus and Uncertainty in Economic Prediction, Victor Zarnowitz. in Business Cycles: Theory, History, Indicators, and Forecasting, Zarnowitz. 1992
Abstract: The usual practice in economic forecasting is to report point predictions without specifying the attached probabilities. Periodic surveys of such forecasts produce group averages, which are taken to indicate the "consensus" of experts. Measures of the dispersion of individual forecasts around these averages are interpreted as indicating "uncertainty." However, consensus is best defined as the degree of agreement among the corresponding point predictions reported by different forecasters, while uncertainty is properly understood as referring to the diffuseness of the distributions of probabilities that individual forecasters attach to the different possible values of an economic variable. The NBER-ASA quarterly economic outlook surveys provide unique informationon probabilistic forecast distributions reported by a large number of individuals for changes in GNP and the implicit price deflator in 1969-81. These data permit comparisons of related point and probability forecasts from the same sources.The matched mean point forecasts and mean probability forecasts are found to agree closely. Standard deviations of point forecasts are generally smaller than the mean standard deviations of the predictive probability distributions for the same targets. Thus the former tend to understate uncertainty as measured by the latter. This is so particularly for short horizons.
Handle: RePEc:nbr:nberwo:1171
Template-Type: ReDIF-Paper 1.0
Title: LDC's Foreign Borrowing and Default Risk: An Empirical Investigation
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 1172
Creation-Date: 1983-07
Order-URL: http://www.nber.org/papers/w1172
File-URL: http://www.nber.org/papers/w1172.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sabastian. LDC's Foreign Borrowing and Default Risk: An Empirical Investigation." American Economic Review, Vol. 74, No. 4, (September 1984), pp. 726-734.
Abstract: This paper investigates to what extent the international financial community has taken into account the risk characteristics of borrowing less developed countries when granting loans. Specifically, this study analyzes the determinants of the spread between the interest rate charged to a particular country and the London Interbank Borrowing Rate (LIBOR). The empirical analysis uses data on 727 public and publicly guarantied Eurodollar loans granted to 19 LDC's between 1976 and 1980. The results obtained show that lenders in Eurocredit markets have tended to take into account (some of) the risk characteristics of borrowers. In particular it was found that the level of the spread will be positively related to the debt/GNP ratio and the debt service ratio. On the other hand, the spread will benegatively related to the international reserves to GNP ratio and the propensity to invest. The results obtained also show that an increase in the foreign debt coupled with an equivalent increase in international reserves will tend to leave the perceived probability of default unaffected. The empirical analysis presented in this paper also indicates that as late as 1980 the international financial community had not perceived any significant increase in the probabilities of defaulting in the countries that eventually run into serious debt problems (i.e., Argentina, Brazil, Mexico).
Handle: RePEc:nbr:nberwo:1172
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Dynamics With Sluggish Prices Under Alternative Price-Adjustment Rules
Author-Name: Maurice Obstfeld
Author-Person: pob13
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: ITI IFM
Number: 1173
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1173
File-URL: http://www.nber.org/papers/w1173.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice & Rogoff, Kenneth, 1984. "Exchange Rate Dynamics with Sluggish Prices under Alternative Price-Adjustment Rules," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 159-74, February.
Abstract: This paper studies exchange rate behavior in models with moving long-run equilibria incorporating alternative price-adjustment mechanisms.The paper demonstrates that price-adjustment rules proposed by Mussa andby Barro and Grossman yield models that are empirically indistinguishable from each other. For speeds of goods-market adjustment that are "too fast," the Barro-Grossman rule appears to induce instability; but we argue that when the ruleis interpreted properly, models incorporating it are dynamically stable regardless of the speed at which disequilibriumis eliminated. The Barro-Grossman pricing scheme is shown to be a natural generalization, to a setting of moving long-run equilibria, of less versatile schemes proposed in earlier literature on exchange rate dynamics.
Handle: RePEc:nbr:nberwo:1173
Template-Type: ReDIF-Paper 1.0
Title: International Trade, Foreign Investment, and the Formation of the Entrepreneurial Class
Author-Name: Gene M. Grossman
Author-Person: pgr21
Note: ITI IFM
Number: 1174
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1174
File-URL: http://www.nber.org/papers/w1174.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Gene M. "International Trade, Foreign Investment, and the Formation of the Entrepreneurial Class." American Economic Review, Vol. 74, No. 4, (September 1984), pp. 605-614.
Abstract: In this paper, I examine the argument that free trade may be harmful to less developed countries, because such international competition inhibits the formation of a local entrepreneurial class.I view the entrepreneur as the manager of the industrial enterprise, as well as the agent who bears the risks associated with industrial production. A two-sector model of a small open economy is developed in which the size of the entrepreneurial class is endogenous.It is shown that the entrepreneurial class is smaller under free trade than would be first-best optimal in the presence of efficient risk-sharing institutions such as stock markets. Nonetheless, there are potential gains from trade, and any protectionist policy that increases the number of entrepreneurs will have deleterious welfare consequences.
Handle: RePEc:nbr:nberwo:1174
Template-Type: ReDIF-Paper 1.0
Title: The Implications of an Endogenous Money Supply for Monetary Neutrality
Author-Name: Robert G. King
Author-Person: pki21
Author-Name: Bharat Trehan
Author-Person: ptr229
Note: EFG
Number: 1175
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1175
File-URL: http://www.nber.org/papers/w1175.pdf
File-Format: application/pdf
Publication-Status: published as King, Robert G. and Bharat Trehan. "Money: Endogeneity and Neutrality." Journal of Monetary Economics, (November 1984).
Abstract: This paper examines the implications of an endogenous money supply for the perceived(by econometricians) and actual nonneutrality of money in rational expectations models of the class put forward by Lucas (1972, 1973) and Barro(1976, 1980) that stress incomplete information. First,if there is contemporaneous policy response (e.g., to interest rates),then a simultaneous equations bias produces inconsistency in tests that use contemporaneous monetary statistics such as those proposed by King (1981) and Boschen-Grossman (1983).Thus, an econometrician might erroneously conclude that money is nonneutral ina fully classical model. Second, if money acts as a 'signal' about economic conditions then autonomous (policy induced) changes in the money stock can have real effects. In contrast to the nonneutrality of money in the Lucas-Barro analysis, which arises due to incomplete information about monetary aggregates, this nonneutrality requires that monetary information be utilized by economic agents.
Handle: RePEc:nbr:nberwo:1175
Template-Type: ReDIF-Paper 1.0
Title: Optimal Stock Trading with Personal Taxes: Implications for Prices and the Abnormal January Returns
Author-Name: George M. Constantinides
Author-Person: pco144
Note: ME PE
Number: 1176
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1176
File-URL: http://www.nber.org/papers/w1176.pdf
File-Format: application/pdf
Publication-Status: published as Constantinides, George M. "Optimal Stock Trading with Personal Taxes: Implications for Prices and the Abnormal January Returns." Journal of Financial Economics, Vol. 13, No. 1, (1984), pp. 65-89.
Abstract: The tax law confers upon the investor a timing option--to realize capital losses and defer capital gains. With the tax rate on long term capital gains and losses being about half the short term rate, the tax law provides a second timing option--to realize capital losses short term and realize capital gains long term, if at all. Our theory and simulation with actual stock prices over the 1962-1977 period establish that the second timing option is extremely valuable: Taxable investors should realize their long term capital gains in high variance stocks and repurchase the same or similar stock, in order to reestablish the short-term status and realize potential future losses short term.Tax trading does not explain the positive abnormal returns of small firms. In the presence of transactions costs, tax trading predicts that the volumeof tax-loss selling increases from January to December and ceases inthe first few days of January. The trading volume seasonal maps into a stockprice seasonal only if tax-loss sellers are assumed irrational or ignorant of the price seasonality.
Handle: RePEc:nbr:nberwo:1176
Template-Type: ReDIF-Paper 1.0
Title: A Theory of Current Account and Exchange Rate Determinations
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 1177
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1177
File-URL: http://www.nber.org/papers/w1177.pdf
File-Format: application/pdf
Publication-Status: published as Aizenman, Joshua. "A Theory of Current Account and Exchange Rate Determinations." European Economic Review, Vol. 23, (1983), pp. 261-280.
Abstract: The purpose of this paper Is to construct a two-period, two-country model that derives the current account, the exchange rate,the terms of trade, and real interest rates from optimal behavior principles.This is done by constructing a model that uses money mainly as a means of exchange, where the technology of exchange is flexible due to potential substitutability of time and real balances as a means of coordinating transactions. The discussion results in a framework that integrates elements of net saving theories and the monetary approach into a unified structure, in which the two approaches are complementary viewpoints.
Handle: RePEc:nbr:nberwo:1177
Template-Type: ReDIF-Paper 1.0
Title: A Model of Exchange-Rate Determination with Policy Reaction: Evidence From Monthly Data
Author-Name: William H. Branson
Note: ITI IFM
Number: 1178
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1178
Publication-Status: published as P. Malgrange and P. A. Muet, editors. Contemporary Macroeconomic Modelling. Oxford: Basil Blackwell, 1984.
Abstract: During the 1970s an extensive theoretical literature has developed analyzing market determination of freely floating exchange rates. At the same time, there has been extensive and continuous intervention in the market by central banks. Exchange rates have not been floating freely; they have been managed, or manipulated, by central banks. However, most of the description of exchange rate policy, as actually practiced, has been informal, or "literary," not integrated with the formal theoretical literature. Recent examples are the surveys in Branson (l98la) and Mussa (1981).In this paper I integrate exchange-rate policy into a model of exchange-rate behavior, and examine the monthly data from the 1970s econometrically,to infer hypotheses about policy behavior. I focus on four major currencies, the U.S. dollar, the Deutschemark, Sterling, and the Japanese yen,and analyze movements in their effective (weighted) exchange rates ascalculated by the IMF. In section II a model of market determination of a floating exchange-rate is laid out. It is a rational-expectations version of the model in Branson(1977), and it draws on the model of Kouri (1978). It is the same as the model in Branson (1983). 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, as recently emphasized by Dornbusch (1980) and Frenkel (1981), is clear.The model emphasizes imperfect substitutability between domestic and foreign bonds, in order to prepare for the analysis of intervention policy in section III. Exchange-rate policy is introduced in section III. We analyze the options available to the central bank that wants to reduce the jump in the exchange rate following a real or monetary disturbance--"news" about the current account, relative prices, or money. This is the policy characterized as"leaning against the wind" in Branson (1976). The distinction is made between monetary policy and sterilized intervention. In section IV we turn to the monthly data. The quarterly data were analyzed in Branson (1983). Systems of vector autoregressions (VARs) are estimated for each of the countries, 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 Japan drives exchange rates, and policy in Germany and the U.K. reacts by moving interest rates, and by sterilized intervention. This is essentially the same result that appeared on the quarterly data in Branson (1983). Thus the analyses tend to reinforce each other; both datasets tell basically the same story.
Handle: RePEc:nbr:nberwo:1178
Template-Type: ReDIF-Paper 1.0
Title: Public Sector Labor Markets
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Joshua L. Schwarz
Note: LS
Number: 1179
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1179
File-URL: http://www.nber.org/papers/w1179.pdf
File-Format: application/pdf
Publication-Status: published as Ehrenberg, Ronald and Joshua Schwarz. "Public Sector Labor Markets." Handbook of Labor Economics, edited by Orley Ashenfelter and Richard Layard. North-Holland, 1986.
Abstract: This paper provides a critical survey of the literature dealing with public sector labor markets. It discusses the research by economists on wage determination in the state and local sector (including the effects of unions), on the estimation of compensating wage differentials for pecuniary and nonpecuniary job characteristics, on the effects of unions on productivity, on the estimation of public/private pay differentials, and on gender and race discrimination in the public sector. Numerous suggestions for future research are offered.
Handle: RePEc:nbr:nberwo:1179
Template-Type: ReDIF-Paper 1.0
Title: An Investigation of Risk and Return in Forward Foreign Exchange
Author-Name: Robert J. Hodrick
Author-Person: pho115
Author-Name: Sanjay Srivastava
Note: ITI IFM
Number: 1180
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1180
File-URL: http://www.nber.org/papers/w1180.pdf
File-Format: application/pdf
Publication-Status: published as Hodrick, Robert J. and Sanjay Srivastava. "An Investigation of Risk and Return in Forward Foreign Exchange." Journal of International Money and Finance, Vol. 3, No. 1, (April 1984), pp. 5-29.
Abstract: This paper examines the determination of risk premiums in foreign exchange markets. The statistical model is based on a theoretical model of asset pricing, which leads to severe cross-equation constraints. Statistical tests lead to a rejection of these constraints. We examine the robustness of these tests to time variation in parameters and to the presence of heteroskedasticity. We find that there is evidence for heteroskedasticity and that the conditional expectation of the risk premium is a nonlinear function of the forward premium. Accounting for this nonlinearity, the specification appears to be time invariant. Out of sample portfolio speculaton is profItable but risky.
Handle: RePEc:nbr:nberwo:1180
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy Regimes, Expected Inflation, and the Response of Interest Rates to Money Announcements
Author-Name: V. Vance Roley
Author-Name: Carl E. Walsh
Author-Person: pwa23
Note: ME
Number: 1181
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1181
File-URL: http://www.nber.org/papers/w1181.pdf
File-Format: application/pdf
Publication-Status: published as Roley, V. Vance and Carl E. Walsh. "Monetary Policy Regimes, Expected Inflation, and the Response of Interest Rates to Money Announcements." Quarterly Journal of Economics, Vol. 100, Supplement, (1985), pp. 1011-1039.
Abstract: This paper examines the response of the term structure of interest rates to weekly money announcements. Estimated responses for both the pre- and post-October 1979 periods are first presented. Then, two competing hypotheses involving the policy anticipations and expected inflation effects are formally specified and compared to the estimated responses.Both hypotheses are found to be consistent with the responses, but they have sharply different implications about the Federal Reserve's short-run monetary policy. The expected inflation hypothesis implies that weekly money surprises should have persistent effects on the level of the money stock, reflecting shifts in the Federal Reserve's long-run target. In contrast, the policy anticipations hypothesis implies that the effectof money surprises should diminish over time, reflecting the Federal Reserve's desire to offset deviations from target. Additional empirical results reported in the paper support this latter description of the money stock process.
Handle: RePEc:nbr:nberwo:1181
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Planning and Disequilibrium: Estimates for Poland, 1955-1980
Author-Name: Richard Portes
Author-Person: ppo132
Author-Name: Richard E. Quandt
Author-Name: David Winter
Author-Name: Stephen Yeo
Note: ITI IFM
Number: 1182
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1182
File-URL: http://www.nber.org/papers/w1182.pdf
File-Format: application/pdf
Publication-Status: published as Portes, Richard, Richard Quandt, David Winter and Stephen Yeo. "Macroeconomic Planning and Disequilibrium: Estimates for Poland, 1955-1980," Econometrica, Vol. 55, No. 1, (January 1987), pp. 19-41.
Abstract: This paper specifies and estimates a four-equation disequilibrium model of the consumption goods market in a centrally planned economy(CPE).The data are from Poland for the period 1955-1980, but the analysis is more general and will be applied to other CPEs as soon as the appropriate data sets are complete.This work is based on previous papers of Portes and Winter (P-W) and Charemza and Quandt(C-Q).P-W applied to each of four CPEs a discrete-switching disequilibrium model with a household demand equation for consumption goods, a planners' supply equation, and a "min" condition stating that the observed quantity transacted is the lesser of the quantities demanded and supplied.C-Q considered how an equation for the adjustment of planned quantities could be integrated into a CPE model with fixed prices and without the usual price adjustment equation.They made plan formation endogenous and permitted the resulting plan variables to enter the equations determining demand and supply.This paper implements the C-Q proposal in the P-W context.It uses a unique new data set of time series for plans for the major macroeconomic variables in Poland and other CPEs.The overall framework is applicable to any large organization which plans economic variables.
Handle: RePEc:nbr:nberwo:1182
Template-Type: ReDIF-Paper 1.0
Title: Arbitrator Decision Making: When Are Final Offers Important?
Author-Name: Max H. Bazerman
Author-Name: Henry S. Farber
Note: LS
Number: 1183
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1183
File-URL: http://www.nber.org/papers/w1183.pdf
File-Format: application/pdf
Publication-Status: published as Bazerman, Max H. and Henry S. Farber. "Arbitrator Decision Making: When Are Final Offers Important?" Industrial and Labor Relations Review, Vol. 39, No. 1, pp. 76-89, October 1985.
Abstract: Central to understanding the effect of arbitration schemes on the process of collective bargaining is understanding the process by which arbitrators make decisions. A model of arbitrator behavior inconventional arbitration is developed that allows the arbitration award to be a function of both the offers of the parties and the(exogenous) facts of the case. The weight that the arbitrator puts on the facts relative to the offers is hypothesized to be a function of the quality of the offers as measured by the difference between the offers. Two special cases of this model are derived: 1) the arbitrator bases the award strictly on the offers of the parties(split-the-difference) and 2) the arbitrator bases the award strictly on the facts of the case.The model is implemented empirically using data gathered from practicing arbitrators regarding their decisions in twenty-five hypothetical cases. These data have the advantage that they allow causal inference regarding the effect on the arbitration award of the facts relative to the offers. On the basis of the estimates, both of the special case models are strongly rejected. The arbitration awards are found to be influenced by both the offers of the parties and the facts of the case. In addition, the weight put on the facts of the case relative to the offers is found to vary significantly with the quality of the offers. When the offers are of low quality (far apart)the arbitrator weights the facts more heavily and the offers less heavily.These results suggest that the naive split-the difference view of arbitrator behavior, which is the basis of the critique of conventional arbitration that has led to the adoption of final-offer arbitration, is no correct in its extreme view. On the other hand,the awards are affected by the offers so that the parties can manipulate the outcome to some extent by manipulating their offers. However, the scope for this sort of influence is limited by the finding that the offers are weighted less heavily as their quality deteriorates.
Handle: RePEc:nbr:nberwo:1183
Template-Type: ReDIF-Paper 1.0
Title: Optimal Bond Trading with Personal Taxes: Implications for Bond Prices and Estimated Tax Brackets and Yield Curves
Author-Name: George M. Constantinides
Author-Person: pco144
Author-Name: Jonathan E. Ingersoll Jr.
Note: PE ME
Number: 1184
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1184
File-URL: http://www.nber.org/papers/w1184.pdf
File-Format: application/pdf
Publication-Status: published as Constantinides, George M. and Jonathan E. Ingersoll, Jr. "Optimal Bond Trading with Personal Tax: Implications for Bond Prices and Estimated Tax Brackets and Yield Curves." Journal of Finance, Vol. 37, no. 2, May 1982, pp. 349-352.
Publication-Status: published as Constantinides, George M. and Jonathan E. Ingersoll, Jr. "Optimal Bond Trading with Personal Taxes." Journal of Financial Economics, Vol. 13, No. 3 , (September 1984), pp. 299-335.
Abstract: The assumption that bondholders follow either a buy-and-hold or a continuous realization trading policy, rather than the optimal trading policy,is at variance with reality and, as we demonstrate, may seriously bias the estimation of the yield curve and the implied tax bracket of the marginal investor. Tax considerations which govern a bondholder's optimal trading policy include the following: realization of capital losses, short term if possible; deferment of the realization of capital gains, especially if they are short term; changing the holding period status from long term to short term by sale of the bond and repurchase, so that future capital losses may be realized short term; and raising the basis through sale of the bond and repurchase in order to deduct from ordinary income the amortized premium. Because of the interaction of these factors, no simple characterization of the optimal trading policy is possible. We can say, however, that it differs substantially from the buy-and-hold policy irrespective of whether the bondholder is a bank, a bond dealer, or an individual. We obtain these strong results even when we allow for transactions costs and explicitly consider numerous IRS regulations designed to curtail tax avoidance.
Handle: RePEc:nbr:nberwo:1184
Template-Type: ReDIF-Paper 1.0
Title: Stagflation and Productivity Decline in Canada, 1974-1982
Author-Name: John F. Helliwell
Author-Person: phe368
Note: ITI IFM
Number: 1185
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1185
File-URL: http://www.nber.org/papers/w1185.pdf
File-Format: application/pdf
Publication-Status: published as Helliwell, John F. "Stagflation and Productivity Decline in Canada, 1974-19 82." Canadian Journal of Economics, Vol. 17, No. 2, (May 1984), pp. 191-21 6.
Abstract: The MACE model of Canada employs a nested production structure in which there is a vintage bundle of capital and energy that is combined with efficiency units of labour to define potential output for given quantities of employed factors. The actual level of output is derived from an estimated utilization-rate equation, in which the ratio of actual to potential output depends on unexpected sales, profitability, and the gap between actual and desired inventories. Using this production structure, it is possible to attribute 30% of the decline in labour productivity between 1973 and 1982, relative to a steady growth case, to desired substitution of labour for energy, one-third to unexpectedly low demand, and one-fifth to low profitability. The unexplained residual is less than one-fifth. The macroeconomic structure of the model is then used totrace the underlying reasons for the differences between steady growth and actual history. It is concluded that most of the changes in factor proportions, demand, and profitability in Canada were due to the changes in world oil prices and the parallel changes in inflation and real output in other industrial countries.
Handle: RePEc:nbr:nberwo:1185
Template-Type: ReDIF-Paper 1.0
Title: Risk, Inflation, and the Stock Market
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Note: ME
Number: 1186
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1186
File-URL: http://www.nber.org/papers/w1186.pdf
File-Format: application/pdf
Publication-Status: published as Pindyck, Robert S. "Risk, Inflation, and the Stock Market." The American Economic Review, Vol. 74, No. 3, (June 1984), pp. 335-351.
Abstract: Most explanations for the decline in share values over the past two decades have focused on the concurrent increase in inflation.This paper considers an alternative explanation: a substantial increase in the riskiness of capital investments. We show that the variance of firms' real gross marginal return on capital has increased significantly, increasing the relative riskiness of investors' returns on equity, and that this can explain a large part of the market decline. We also assess the effects of increase in the mean and variance of the inflation rate, and a decline in firms' expected return on capital.
Handle: RePEc:nbr:nberwo:1186
Template-Type: ReDIF-Paper 1.0
Title: Capital Controls and Covered Interest Parity
Author-Name: Takatoshi Ito
Note: ME
Number: 1187
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1187
File-URL: http://www.nber.org/papers/w1187.pdf
File-Format: application/pdf
Publication-Status: published as Ito, Takatoshi. "Capital Controls and Covered Interest Parity Between the Dollar and the Yen," Economic Studies Quarterly, Vol. 37, No. 3, September 1986, pp. 223-241.
Abstract: This paper examines covered interest parity between Yen-denominated and dollar-denominated assets: Euro-yen and Euro-dollar three month deposit rates,and the representative and comparable three-month interest rates in Japan andin the U.S. An objective of this paper is to single out the portion of deviations from covered interest parity that is caused by capital controls imposed by the Japanese authority.To that end, new measures of one-way arbitrage gain are defined taking into account transactions costs associatedwith the bid-ask spread of exchange rates and the transactions tax on repurchase agreements, Gensaki, in Japan. According to our measure, covered interest parity has been holding, as theory predicts, in the Euro market since 1977.The Euro-Yen market must have been thin to have caused violations toparity in 1975 and 1976. Capital controls imposed by the Japanese Government are detected by one-way arbitrage measures between Gensaki in Japan and Euro-Dollar deposits between 1975 and 1980.After a new law was enacted in December 1980 which lifted most capital controls, covered interest parity has been holding between Gensaki and dollar-denominated assets.
Handle: RePEc:nbr:nberwo:1187
Template-Type: ReDIF-Paper 1.0
Title: The Spatial Mismatch Hypothesis: Are There Teenage Jobs Missing in the Ghetto?
Author-Name: David T. Ellwood
Note: LS
Number: 1188
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1188
File-URL: http://www.nber.org/papers/w1188.pdf
File-Format: application/pdf
Publication-Status: published as Ellwood, David T. "The Spatial Mismatch Hypothesis: Are There Teenage Jobs Missing in the Ghetto?" The Black Youth Employment Crisis, edited by Richard B. Freeman and Harry Holzer, 1986, pp. 147-185, Chicago: University of Chicago Press.
Publication-Status: published as The Spatial Mismatch Hypothesis: Are There Teenage Jobs Missing in the Ghetto?, David T. Ellwood. in The Black Youth Employment Crisis, Freeman and Holzer. 1986
Abstract: This paper examines the hypothesis that the extraordinarily highrates of unemployment among black youth can be linked to a geographic mismatch between the residences of black youth and the jobs they might occupy. Chicago's labor market is examined in detail. The paper reports that black youth do in fact seem to live further from jobs than white youth do. However, the differences are not great enough to generate large differences in employment rates unless geographic search costs are very high. To explore the possible impact the differences really do have,a wide variety of models are examined and estimated.These models uniformly reject the hypothesis that a geographic mismatch is a major cause for black-white differences. Blacks who live near large concentrations of jobs seem to fair only slightly better than those who live far from such concentrations. And in areas where whites and blacks live in close geographic proximity, the racial employment differences remain very large.
Handle: RePEc:nbr:nberwo:1188
Template-Type: ReDIF-Paper 1.0
Title: Theoretical Issues in International Borrowing
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 1189
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1189
File-URL: http://www.nber.org/papers/w1189.pdf
File-Format: application/pdf
Abstract: The current crisis in international lending points up a lesson re-learned several times in the past 150 years: the international loan markets function very differently from the textbook model of competitive lending. This paper discusses various extensions of the basic model.First, we amend the textbook model to show how limitations on a government'staxing authority may greatly affect its optimal borrowing strategy.Second, we explore the implications of adebtor country's option to repudiate debt.Third, we show that efficient lending may require collective actions by bank syndicates, and that a breakdown in collective action can result in serious inefficiencies and even financial panics.
Handle: RePEc:nbr:nberwo:1189
Template-Type: ReDIF-Paper 1.0
Title: The Economy of Israel
Author-Name: Stanley Fischer
Note: EFG ITI IFM
Number: 1190
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1190
File-URL: http://www.nber.org/papers/w1190.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley. "The Economy of Israel." Carnegie-Rochester Conference Series on Public Policy, Vol. 20, (1984), pp. 7-55 and 57-67. With comments by Jacob Frenkel.
Abstract: The paper opens with a description of the salient features of the Israeli economy. These consist of a large government sector(the government budget has absorbed more than 80% of GNP in some recent years); high levels of defense spending; a large government budget deficit; a large current account deficit (about 20%of GNP); triple digit inflation; and extensive indexation of both wages and long term financial commitments. A descriptive model of the economy is then presented, which includes the particular asset menu of the Israeli economy, and its properties examined. Finally,the rrodel is used in analyzing aspects of the Israeli inflationary experience.The currency liberalization of 1977, which increased the access of Israelis to foreign assets, shares respensibility for the high rate of inflation. The possibilities of ending the inflation are discussed.
Handle: RePEc:nbr:nberwo:1190
Template-Type: ReDIF-Paper 1.0
Title: Years of Service and Probability of Promotion
Author-Name: Katharine G. Abraham
Author-Person: pab32
Author-Name: James L. Medoff
Note: LS
Number: 1191
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1191
File-URL: http://www.nber.org/papers/w1191.pdf
File-Format: application/pdf
Publication-Status: published as Abraham, Katharine G. and James L. Medoff. "Length of Service and Promotions in Union and Nonunion Work Groups," Industrial and Labor Relations Review, Vo. 38, No. 3, April 1985, pp. 408-420.
Abstract: This study provides evidence which we believe challenges some conventional assumptions about the promotion process. Based on survey information collected from a large random sample of U.S. private sector firms, we reach two main conclusions. First,seniority independent of productivity appears to play a significant role even in nonunion promotion decisions. Second, the differences between union and nonunion promotion processes, at least with regard to the weight assigned to seniority per se, appear to be important but less dramatic than is popularly supposed.
Handle: RePEc:nbr:nberwo:1191
Template-Type: ReDIF-Paper 1.0
Title: International R&D Rivalry and Industrial Strategy
Author-Name: Barbara J. Spencer
Author-Person: psp2
Author-Name: James A. Brander
Author-Person: pbr168
Note: ITI IFM
Number: 1192
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1192
File-URL: http://www.nber.org/papers/w1192.pdf
File-Format: application/pdf
Publication-Status: published as Spencer, Barbara J. and James A. Brander. "International R&D Rivalry and Industrial Strategy." Review of Economic Studies, Vol. 50, No. 163, (October 1983), pp. 707-722.
Abstract: This paper presents a theory of government intervention which provides an explanation for "industrial strategy" policies such as R&D or export subsidies in imperfectly competitive international markets. Each producing country has an incentive to try to capture a greater share of rent-earning industries using subsidies, but the subsidy-ridden international equilibrium is jointly suboptimal. The equilibrium in the strategic game involving firms and governments is modelled as a three stage subgame perfect Nash equilibrium. The assumption that the government is the first player in this game allows it to influence equilibrium industry outcomes by altering the set of credible actions open to firms.
Handle: RePEc:nbr:nberwo:1192
Template-Type: ReDIF-Paper 1.0
Title: Trade Warfare: Tariffs and Cartels
Author-Name: James A. Brander
Author-Person: pbr168
Author-Name: Barbara J. Spencer
Author-Person: psp2
Note: ITI IFM
Number: 1193
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1193
File-URL: http://www.nber.org/papers/w1193.pdf
File-Format: application/pdf
Publication-Status: published as Brander, James A. and Barbara J. Spencer. "Trade Warfare: Tariffs and Cartels." Journal of International Economics, Vol. 16, No. 3, (May 1984), pp. 227-242.
Abstract: National governments have incentives to intervene in international markets, particularly in encouraging export cartels and in imposing tariffs on imports from imperfectly competitive foreign firms. Although the optimal response to foreign monopoly is usually a tariff, a specific subsidy will be optimal if demand is very convex, as with constant elasticity demand. If ad valorem tariffs or subsidies are considered, a subsidy is optimal if the elasticity of demand increases as consumption increases.The critical conditions in both ad valorern and specific cases hold generally for Cournot ologopoly. Noncooperative international policy equilibrium will be characterized by export cartels and rent-extracting tariffs.
Handle: RePEc:nbr:nberwo:1193
Template-Type: ReDIF-Paper 1.0
Title: A 'Reciprocal Dumping' Model of International Trade
Author-Name: James A. Brander
Author-Person: pbr168
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 1194
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1194
File-URL: http://www.nber.org/papers/w1194.pdf
File-Format: application/pdf
Publication-Status: published as Brander, James A. and Paul Krugman. "A 'Reciprocal Dumping' Model of International Trade." Journal of International Economics, Vol. 15, No. 3/4, (November 1983), pp. 313-321.
Abstract: This paper develops a model in which the rivalry of oligopolistic firms serves as an independent cause of international trade. The model shows how such rivalry naturally gives rise to "dumping" of output in foreign markets, and shows that such dumping can be "reciprocal" -- that is, there may be two-way trade in the same product. Reciprocal dumpingis shown to be possible for fairly general specification of firm behaviour.The welfare effects of this seemingly pointless trade are ambiguous. On one hand, resources are wasted in the cross-handling of goods; on the other hand, increased competition reduces monopoly distortions. Surprisingly,in the case of free entry and Cournot behaviour reciprocal dumping is unanibiuously beneficial.
Handle: RePEc:nbr:nberwo:1194
Template-Type: ReDIF-Paper 1.0
Title: Activist Monetary Policy and Exchange Rate Overshooting: The Deutsche Mark/Dollar Rate
Author-Name: David H. Papell
Author-Person: ppa73
Note: ITI IFM
Number: 1195
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1195
File-URL: http://www.nber.org/papers/w1195.pdf
File-Format: application/pdf
Publication-Status: published as Papell, David H. "Activist Monetary Policy and Exchange Rate Overshooting: The Deutsche Mark/Dollar Rate." Journal of International Money and Finance, Vol. 3, No. 3, (December 1984), pp. 293-310.
Abstract: After a decade of generalized floating, it is clear that bilateral exchange rates exhibit more variability than the economic aggregates; relative prices, incomes, and money supplies, that generally comprise the fundamentals of theories of exchange rate determination. Dornbush's over-shooting hypothesis is the best known explanation of this phenomenon. This paper shows that accommodative monetary policy (with respect to prices) has the potential to cause the economy to switch from exchange rate overshooting to undershooting. Using constrained maximum likelihood methods, the model is estimated for Germany and the United States. The results provide strong evidence in support of the overshooting hypothesis for the Deutsche Mark/Dollar exchange rate.
Handle: RePEc:nbr:nberwo:1195
Template-Type: ReDIF-Paper 1.0
Title: Optimal and Time Consistent Exchange Rate Management in an Overlapping Generations Economy
Author-Name: Jonathan Eaton
Author-Person: pea5
Note: ITI IFM
Number: 1196
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/w1196
File-URL: http://www.nber.org/papers/w1196.pdf
File-Format: application/pdf
Publication-Status: published as Eaton, Jonathan. "Optimal and Time Consistent Exchange-Rate Management inan Overlapping-Generations Economy." Journal of International Money and Finance, Vol. 4, No. 1, (March 1985), pp. 83-100.
Abstract: This paper analyzes exchange rate management in a simple overlapping generations model. This framework is used to evaluate alternative policies in terms of their implications for the welfare of individuals in the economy.The analysis identifies two objectives of monetary policy,providing adesirable store of value and collecting seigniorage. When the chief concern is to provide a desirable store of value (as when the monetary authority's major constituency consists of the asset holders of the economy), a policy of fixing the exchange rate does better when shocks are primarily of domestic origin while floating becomes more desirable when foreign shocks predominate. When seigniorage concerns are paramount (as when the authority's constituency is the young generation) flexible rates do better.When seigniorage concernsare paramount and when the monetary authority cannot establish a reputation for conducting monetary policy in a way that makes the currency a desirable store of value, a national currency may not be viable in the absence of exchange controls. Such controls may be justified in this situation.
Handle: RePEc:nbr:nberwo:1196
Template-Type: ReDIF-Paper 1.0
Title: The Profitability of Currency Speculation
Author-Name: John F. O. Bilson
Author-Name: David A. Hsieh
Note: ITI IFM
Number: 1197
Creation-Date: 1983-09
Order-URL: http://www.nber.org/papers/w1197
File-URL: http://www.nber.org/papers/w1197.pdf
File-Format: application/pdf
Publication-Status: published as Bilson, John F. O. & Hsieh, David A., 1987. "The profitability of currency speculation," International Journal of Forecasting, Elsevier, vol. 3(1), pages 115-130.
Abstract: This paper presents the results of a post-sample simulation of a speculative strategy using a portfolio of foreign currency forward contracts.The main new features of the speculative strategy are (a)the use of Kalman filters to update the forecasting equation, (b) the allowance for transactions,costs and margin requirements and (c) the endogenous determination of the leveraging of the portfolio. While the forecasting model tended to overestimate profit and underestimate risk, the strategy was still profitable over a three year period and it was possible to reject the hypothesis that the sum of profits was zero. Furthermore, the currency portfolio was found to have an extremely low market risk. Combinations of the speculative currency portfolio with traditional portfolios of U.S. equities resulted in considerable improvements in risk-adjusted returns on capital.
Handle: RePEc:nbr:nberwo:1197
Template-Type: ReDIF-Paper 1.0
Title: A Technique for Indicating Comparative and Perdicting Changes in Trade Ratios
Author-Name: Robert E. Baldwin
Author-Name: R. Spence Hilton
Note: ITI IFM
Number: 1198
Creation-Date: 1983-09
Order-URL: http://www.nber.org/papers/w1198
File-URL: http://www.nber.org/papers/w1198.pdf
File-Format: application/pdf
Publication-Status: published as Baldwin, Robert E. and R. Spence Hilton. "A Technique for Indicating Comparative Costs and Predicting Changes in Trade Ratios," The Review of Economics and Statistics, Vol. LXVI, No. 1, February 1984, pp. 105-110.
Abstract: This paper estimates relative differences in factor prices (and thus industry comparative cost differences) between the United States and each of eight country groups by relating differences in factor-use requirement and actual bilateral export/import ratios across industries. Predictions concerning changes in industry export/import ratios are also made (and tested against actual subsequent changes) by comparing these trade ratios with those expected on the basis of the estimated average differences infactor costs and assuming that adjustment lags are the major reason for the differences between these ratios.
Handle: RePEc:nbr:nberwo:1198
Template-Type: ReDIF-Paper 1.0
Title: Slipping into and out of Poverty: The Dynamics of Spells
Author-Name: Mary Jo Bane
Author-Name: David T. Ellwood
Note: LS
Number: 1199
Creation-Date: 1983-09
Order-URL: http://www.nber.org/papers/w1199
File-URL: http://www.nber.org/papers/w1199.pdf
File-Format: application/pdf
Publication-Status: published as Bane, Mary Jo and David T. Ellwood. "Slipping into and out of Poverty: The Dynamics of Spells." Available through ERIC Clearinghouse on Urban Education, ERIC Document Reproduction Service, Arlington, Virginia alsoin Journal of Human Resources, Vol. 21, No.1, Winter 1986.
Abstract: This paper examines the dynamics of poverty. Previous analyses of the dynamics of poverty have either examined only fluctuations in the male heads earnings or looked at the frequency of poverty periods over a fixed time frame. We argue that a more appropriate way to understand the dynamics of poverty is to define spells of poverty. Using this methodology we find that the majority of poor persons at any point in time are in fact in the midst of a rather long spell of poverty. The methodology also allows us to estimate the extent to which poverty spell beginnings and endings are associated with changes in income or changes in family structure. Less than 40 percent of poverty spell beginnings seem to be caused by a drop in the heads earnings,while 60 percent of endings occur when the head's earnings increase. As a result we argue that to understand the causes and potential remedies for poverty, researchers must focus on household formation decisions and on the behavior of so called secondary family members.
Handle: RePEc:nbr:nberwo:1199
Template-Type: ReDIF-Paper 1.0
Title: Accumulation of Property by Southern Blacks Before World War I: Commentand Further Evidence
Author-Name: Robert A. Margo
Author-Person: pma319
Note: DAE
Number: 1200
Creation-Date: 1983-09
Order-URL: http://www.nber.org/papers/w1200
File-URL: http://www.nber.org/papers/w1200.pdf
File-Format: application/pdf
Publication-Status: published as Margo, Robert A. "Accumulation of Property by Southern Blacks Before World War I: Comment and Further Evidence," American Economic Review, Vol. 74, No. 4, 1984, pp. 768-776.
Abstract: The pace and pattern of wealth accumulation by Southern blacks in the period before World War I is of central importance to the historical evolution of black/white income differences. This paper extends recent work by Robert Higgs, who used data on assessed wealth for Georgia to study the temporal and cross-sectional variation in black wealth accumulation during the post-bellum era. Using similar data for five additional states, I show that one of Higgs' principal conclusions -- measured by tax assessments, blacks accumulated wealth more rapidly than whites -- is a general finding, but that the cross-sectional determinants of black wealth appear to have varied markedly across states. Issues of assessment ratio bias are also considered, and using data for one state, I demonstrate that failure to account for intrastate and race differences in assessment ratios may bias the cross-sectional findings and significantly overstate the true relative (black/white) growth rate of black wealth.
Handle: RePEc:nbr:nberwo:1200
Template-Type: ReDIF-Paper 1.0
Title: Average Marginal Tax Rates U.S. Household Interest and Dividend Income 1954-80
Author-Name: Arturo Estrella
Author-Person: pes29
Author-Name: Jeffrey C. Fuhrer
Author-Person: pfu8
Note: DAE
Number: 1201
Creation-Date: 1983-09
Order-URL: http://www.nber.org/papers/w1201
File-URL: http://www.nber.org/papers/w1201.pdf
File-Format: application/pdf
Abstract: This paper carefully outlines a method for the calculation of average marginal tax rates. The method is applied to Statistics of Income data for dividend and interest income earned by U.S. households from 1954 to 1980. To illustrate the effects these data can have inempirical work, the tax rates are used in comparing the sample moments of before and after-tax real yields on financial assets.
Handle: RePEc:nbr:nberwo:1201
Template-Type: ReDIF-Paper 1.0
Title: Forecasting and Conditional Projection Using Realistic Prior Distributions
Author-Name: Thomas Doan
Author-Name: Robert B. Litterman
Author-Person: pli374
Author-Name: Christopher A. Sims
Author-Person: psi12
Note: EFG
Number: 1202
Creation-Date: 1983-09
Order-URL: http://www.nber.org/papers/w1202
File-URL: http://www.nber.org/papers/w1202.pdf
File-Format: application/pdf
Publication-Status: published as Doan, Thomas, Robert B. Litterman and Christopher A. Sims. "Forecasting and Conditional Projection Using Realistic Prior Distributions," Econometric Reviews, Vol. 3, No. 1 Jan. 1984, pp. 1-100.
Abstract: This paper develops a forecasting procedure based on a Bayesian method for estimating vector autoregressions. The procedure is applied to ten macroeconomic variables and is shown to improve out-of-sample forecasts relative to univariate equations. Although cross-variables responses are damped by the prior, considerable interaction among the variables is shown to be captured by the estimates.We provide unconditional forecasts as of 1982:12 and 1983:3.We also describe how a model such as this can be used to make conditional projections and to analyze policy alternatives. As an example, we analyze a Congressional Budget Office forecast made in 1982:12.While no automatic causal interpretations arise from models like ours, they provide a detailed characterization of the dynamic statistical interdependence of a set of economic variables, which may help inevaluating causal hypotheses, without containing any such hypotheses themselves.
Handle: RePEc:nbr:nberwo:1202
Template-Type: ReDIF-Paper 1.0
Title: A Simple Account of the Behavior of Long-Term Interest Rates
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 1203
Creation-Date: 1983-09
Order-URL: http://www.nber.org/papers/w1203
File-URL: http://www.nber.org/papers/w1203.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, John Y. and Robert J. Shiller. "A Simple Account of the Behaviorof Long-Term Interest Rates." American Economic Review, Vol. 74, No. 2, ( May 1984), pp. 44-48.
Abstract: Recent empirical research on the term structure of interest rates has shown that the long-term interest rate is well described by adistributed lag on short-term interest rates, but does not conform to the expectations theory of the term structure. It has been suggested that the long rate "overreacts" to the short rate. This paper presents aunified taxonomy of risk premia, or deviations from the expectations theory. This enables the hypothesis of overreaction to be formally stated. It is shown that, if anything, the long rate has underreacted to the short rate. However, the independent movement of the long rate is primarily responsible for the failure of the expectations theory.
Handle: RePEc:nbr:nberwo:1203
Template-Type: ReDIF-Paper 1.0
Title: Rewards to Continued Work: The Economic Incentives For Postponing Retirement
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Author-Name: Gary S. Fields
Note: LS
Number: 1204
Creation-Date: 1983-09
Order-URL: http://www.nber.org/papers/w1204
File-URL: http://www.nber.org/papers/w1204.pdf
File-Format: application/pdf
Publication-Status: published as Mitchell, Olivia S. and Gary S. Fields. "Rewards for Continued Work: The Economic Incentives for Postponing Retirement." Horizontal Equity, Uncertainty and Economic Well-Being, Studies in Income & Wealth Volume 50, edited by Martin David and Timothy Smeeding, Chicago: UCP, (1985), pp. 269 - 292.
Publication-Status: published as Rewards for Continued Work: The Economic Incentives for Postponing Retirement, Olivia S. Mitchell, Gary S. Fields. in Horizontal Equity, Uncertainty, and Economic Well-Being, David and Smeeding. 1985
Abstract: Using a new data file on pay and pensions, this paper presents and discusses new empirical evidence on how olde rworkers' income opportunities change as they age. It also develops a detailed description of private pension structures and the ways in which pensions reward deferred retirement. The data imply that the present discounted value of total lifetime income rises when people postpone retirement, but the size of the income increment varies with age. The data also show that some pension plans encourage early retirement while others penalize it.
Handle: RePEc:nbr:nberwo:1204
Template-Type: ReDIF-Paper 1.0
Title: A Test of Portfolio Crowding-Out and Related Issues in Finance
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ME
Number: 1205
Creation-Date: 1983-09
Order-URL: http://www.nber.org/papers/w1205
File-URL: http://www.nber.org/papers/w1205.pdf
File-Format: application/pdf
Publication-Status: published as Frankel, Jeffrey A. "Portfolio Crowding-Out Empirically Estimated," Quarterly Journal of Economics, Vol. 100, Supplement, (1985), pp. 1041-1065.
Abstract: This paper tests hypotheses regarding the parameters in investors'asset demand functions. Most important is the hypothesis that federal bonds are closer substitutes for equity than for money; it is associated with the hypothesis of "portfolio crowding out" by federal borrowing. Previous regression studies of asset demand functions have not been able to obtain precise and plausible estimates for the parameters, without the imposition of prior beliefs. The present paper uses a MLE technique that dominates regression in that it makes full use of the constraint that the parameters are not determined arbitrarily, but rather are determined by mean-variance optimization on the part of the investor. The technique also dominates, on the other hand, previous estimates of the optimal portfolio from ex post return data, in that expected returns are not assumed to be constant over time, or to change slowly, but rather are allowed to fluctuate freely. Thus the framework is consistent with questions such as the effects of a sudden increase in federal debt on the expected returns of the various assets.Some hypotheses are tested where the answer seems clear in advance, such as a negative effect of the supply of money on the expected rate of return on equities. There the results of the MLE technique are much more plausible than the regression results. In the case of greatest controversy, a point estimate shows portfolio crowding in, not portfolio crowding out.
Handle: RePEc:nbr:nberwo:1205
Template-Type: ReDIF-Paper 1.0
Title: Economic Development, Infant Mortality, and Their Dynamics in Latin America
Author-Name: Tadashi Yamada
Note: EH
Number: 1206
Creation-Date: 1983-09
Order-URL: http://www.nber.org/papers/w1206
File-URL: http://www.nber.org/papers/w1206.pdf
File-Format: application/pdf
Abstract: The main issue of this paper is to study infant mortality in Latin America in recent decades. In so doing, two questions must be answered: First, how large is the economic loss in terms of net national product due to child mortality under the age of 15 and what are the major causes of death? Second, has the decline of infant mortality been principally a product of economic development in Latin American countries?Surprisingly enough, there is significant variation of economic losses across Latin American countries, such as from 0.99% of the net national product in Uruguay to 18.93% in Haiti. Eleven among the nineteen countries in Latin America show their economic losses to be more than 3% of the net national product in recent years in marked contrast to those values found by Kuznets (1980) for Egypt (2.68%) and the Netherlands (0.17%) in 1937. As the major causes of death in Latin America, these diseases -- influenzaand pneumonia, enteritis and other diarrheal diseases, and other infective and parasitic diseases -- account for one-third or more of total deaths for many Latin American countries. Being provided with the fact that the proportion of infant mortality only is roughly about 20 - 30%of total deaths across the countries,we speculate that these above diseases will be exclusively responsible for the high mortality in childhood in Latin America.The Cranger-Sims dynamic system shows that economic development in Latin America does not have strong explanatory power in accounting for the behavior of infant mortality rate in recent decades. Therefore, the empirical results seem to support the view that medical and health technological development is the major cause of the reduction in infant mortality rates in Latin American countries in recent decades. However, when economic development Granger-causes infant mortalityas observed for only two countries, the former becomes the main source of variation of the latter over long horizons.
Handle: RePEc:nbr:nberwo:1206
Template-Type: ReDIF-Paper 1.0
Title: Longitudinal Analyses of the Effects of Trade Unions
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 1207
Creation-Date: 1983-09
Order-URL: http://www.nber.org/papers/w1207
File-URL: http://www.nber.org/papers/w1207.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 2, no. 1, (January 1984): pp. 1-26.
Abstract: This paper examines how measurement error biases longitudinal estimates of union effects. It develops numerical examples, statistical models, and econometric estimates which indicate that measurement error is a major problem in longitudinal data sets, so that longitudinal analyses do not provide the research panacea for determining the effects of unionism (or other economic forces) some have suggested. There are three major findings:1) The difference between the cross-section and longitudinal estimates is attributable in large part to random error in the measurement of who changes union status. Given modest errors of measurement, of the magnitudes observed,and a moderate proportion of workers changing union status, also of the magnitudes observed, measurement error biases downward estimated effects of unions by substantial amounts. 2) Longitudinal analysis of the effects of unionism on nonwage and wage outcomes tends to confirm the significant impact of unionism found in cross-section studies, with the longitudinal estimates of both nonwage and wage outcomes lover in the longitudinal analysis than in the cross-section analysis of the same data set. 3) The likely upward bias of cross-section estimates of the effect of unions and the likely downward bias of longitudinal estimates suggests that,under reasonable conditions, the two sets of estimates bound the "true" union impact posited in standard models of what unions do.
Handle: RePEc:nbr:nberwo:1207
Template-Type: ReDIF-Paper 1.0
Title: Recent Perspectives in and on Macroeconomics
Author-Name: Benjamin M. Friedman
Note: ME
Number: 1208
Creation-Date: 1983-09
Order-URL: http://www.nber.org/papers/w1208
File-URL: http://www.nber.org/papers/w1208.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Recent Perspectives in and on Macroeconomics." Issues in Contemporary Macroeconomics and Distribution, edited by George R. Feiwel, pp. 270-286. London: Macmillan Publishing,1985.
Abstract: The experience of costly disinflation in the early 1980s has contradicted the central policy promise of the new classical macroeconomics just as sharply as the experience of accelerating inflation in the l970s contradicted the chief promise of earlier thinking. Much of the attractive appeal of each approach rested on its holding out the prospect of successfully dealing with the foremost macroeconomic policy issue of its time -unemployment in the earlier case, and inflation more recently -without incurring the costs that previous thinking associated with effective solutions. Inflation did accelerate in the 1970s, however, and now the real economic costs of disinflation have proved remarkably in line with conventional estimates antedating the new classical macroeconomics. The implication of this unfortunate outcome is not, of course, simply to return to earlier approaches,but to retain what is theoretically appealing about the methodology of the new classical macroeconomics i a form that does not lead to falsified policy conclusions.
Handle: RePEc:nbr:nberwo:1208
Template-Type: ReDIF-Paper 1.0
Title: Managing the U.S. Government Deficit in the 1980s
Author-Name: Benjamin M. Friedman
Note: ME
Number: 1209
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1209
File-URL: http://www.nber.org/papers/w1209.pdf
File-Format: application/pdf
Publication-Status: published as Wachter, Michael L. and Susan M. Wachter (eds.) Removing Obstacles to Economic Growth. Philadelphia: University of Pennsylvania Press, 1984.
Abstract: In the absence of major policy changes, federal government budget deficits will probably constitute a serious impediment to any increase inthe U.S. economy's net investment rate, and may even depress the investment rate still further, during the latter 1980s. The U.S. Government's outstanding debt is now rising sharply in relation to gross national product,and, under either current legislation or the budget policies proposed by the Reagan Administration, it will continue to do so. This sustained upward movement of the government debt ratio will be unprecedented in U.S. peacetime experience. Because government debt and private-sector debt have historically moved inversely in relation to gross national production the United States, a rising government debt ratio over time implies a sustained contraction of private debt relative to the economy's size. This reduction in the private sector's relative debt position in turn implies a constriction of its ability to finance investment in net new capital formation.
Handle: RePEc:nbr:nberwo:1209
Template-Type: ReDIF-Paper 1.0
Title: Using Monetary Control to Dampen the Business Cycle: A New Set of First Principles
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 1210
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1210
File-URL: http://www.nber.org/papers/w1210.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Robert J. "Using Monetary Control to Dampen the Business Cycle: A New Set of First Principles," Removing Obstacles to Economic Growth, eds. M . and S. Wachter, 1984, Philadelphia: University of Pennsylvania Press, pp . 302-336.
Abstract: This paper reviews the main characteristics of cyclical behavior in the postwar U. S. economy and reviews the arguments for and against an activist stabilization policy to dampen business cycles. Four major behavioral characteristics are identified from summary data on U. S.postwar business cycles. These involve (1) the volatility of velocity growth in comparison with that of money growth, (2) the inertia of inflation, (3) the natural rate of unemploymentas a dividing line between Conditions of accelerating and decelerating inflation, and (4)the role of supply shocks.The volatility of nominal CNP growth suggests that a target for nominal GNP growth might be considered as a possible alternative to control of monetary aggregates. Major qualifications to the case for this approach include lags and forecasting errors, uncertainty about policy multipliers, uncertainty about the natural rate of unemployment,and recent critiques based on the rational expectations view of macro-economic behavior.The paper treats supply shocks and institutional rigidities as constraints faced by policymakers.These influence the optimal degree of monetary accommodation of supply shocks and the choice among alternative paths for economic recovery. The analysis of constraints faced by the central bank contrasts with the usual analysis of a central bank operating in isolation.
Handle: RePEc:nbr:nberwo:1210
Template-Type: ReDIF-Paper 1.0
Title: Automobile Prices and Quality: Did the Gasoline Price Increase Change Consumer Tastes in the U.S.?
Author-Name: Makoto Ohta
Note: PR
Number: 1211
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1211
File-URL: http://www.nber.org/papers/w1211.pdf
File-Format: application/pdf
Publication-Status: published as Ohta, Makoto and Zvi Griliches. "Automobile Prices and Quality: Did the Gasoline Price Increases Change Consumer Tastes in the U.S.?" Journal of Business & Economic Statistics, Vol. 4, No. 2, (April 1986), pp. 187-198.
Abstract: Did the 1973 and 1979 gasoline price rises change consumer views about the relative quality of different cars? This question is investigated by testing the null hypothesis that imputed characteristic prices have remained constant over time. A hedonic model that takes gasoline costs into account is developed and some of its theoretical implications are outlined.The statistical methods required for its estimation and for the testing of the particular null hypothesis are discussed and then used to analyze the prices of U.S. passenger cars in the used market during 1970-1981. If one does not take gasoline costs into account in such computations one must conclude that consumers changed their relative evaluations of car qualities significantly in both periods: October 1973 to April 1974 and April to October1979. However, when gasoline efficiency terms are included in the model,the estimated relative qualities are much more stable over time, with no period showing significant changes, and it is possible to maintain the "constancy of tastes" assumption. Since the main model adjusts not only for the effect of gasoline price increases but also for the effects of changes in other prices and income, we develop two alternative approaches which adjust solely for the increase in gasoline prices. Applying these to the 1979 period we find that a significant fraction of the coefficient change that did occur during this period can be attributed to the gasoline price increase alone,indicating that this is indeed a major component of what happened.
Handle: RePEc:nbr:nberwo:1211
Template-Type: ReDIF-Paper 1.0
Title: Social Security Reform and Labor Supply
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: AG LS
Number: 1212
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1212
File-URL: http://www.nber.org/papers/w1212.pdf
File-Format: application/pdf
Publication-Status: published as Gustman, Alan L. and Thomas L. Steinmeier. "The 1983 Social Security Reforms and Labor Supply Adjustments of Older Individuals in the Long Run." Journal of Labor Economics, Vol. 3, No. 2, (April 1985), pp. 237-253.
Abstract: A structural life-cycle retirement model with an improved specification over previous models is used to analyze and compare the long-run labor supply effects of the rules for Social Security in place in 1972,1977 and 1983, and for an actuarially fair system. The effects of separate provisions from the 1983 amendments are examined. These include the raising of the normal retirement age to 67, the increase in the delayed retirement credit to 8 percent, and the lowering of the reduction rate for earnings over the test amount to one dollar for every three dollars of earnings.
Handle: RePEc:nbr:nberwo:1212
Template-Type: ReDIF-Paper 1.0
Title: Capital Allocation in Mult-Division Firms: Hurdle Rates vs. Budgets
Author-Name: Robert A. Taggart, Jr.
Note: ME
Number: 1213
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1213
File-URL: http://www.nber.org/papers/w1213.pdf
File-Format: application/pdf
Publication-Status: published as Taggart, Robert A., Jr. "Capital Allocation in Multi-Division Firms: Hurdle Rates vs. Budgets," Journal of Financial Research, Vol. 10, No. 3, Fall 1987, pp. 177-189.
Abstract: It is common practice for firms to ration capital funds to their divisions, rather than set a price and let the divisions use as much as they want. This appears to be true even when the overall firm faces no rationing in the capital market. This paper offers an interpretation of this phenomenon based on Martin Weitzman's "Prices vs. Quantities" model. It is found that a rationing systemis advantageous when division managers do not perceive the full consequences of their investment decisions for the firm as a whole. By contrast, a pricing system for allocating capital among divisions would be favored when the division managers possess valuable information that cannot be costlessly communicated to headquarters. It is then argued that actual capital budgeting practice in many firms reflects a mixture of these two systems and can thus be interpreted as an attempt to reap both kinds of benefits at once.
Handle: RePEc:nbr:nberwo:1213
Template-Type: ReDIF-Paper 1.0
Title: Average Marginal Tax Rates from Social Security and the Individual Income Tax
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: Chaipat Sahasakul
Note: EFG PE
Number: 1214
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1214
File-URL: http://www.nber.org/papers/w1214.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J. and Chaipat Sahasakul. "Average Marginal Tax Rates from Social Security and the Individual Income Tax." Journal of Business, Vol. 59, no. 4, pt. 1, (October 1986), pp. 555-566.
Abstract: We extend previous estimates of the average marginal tax rate from the federal individual income tax to include social security "contributions." The social security tax is a flat-rate levy on labor earnings (and income from self-employment) up to a ceiling value of earnings. Our computations consider first, the tax rates on employers, employees and the self-employed; second the amounts of income that accrue to persons with earnings below the ceiling; and third, the effective deductibility of employer's social security contributions from workers' taxable income. We find that the net impact of social security on the average marginal tax rate is below .02 until 1966, but than rises to .03 in 1968, .04 in 1973, .05 in 1974,and .06 in 1979. Thus, since 1965, the overall average marginal tax rate rises more rapidly than that from the income tax alone. In 1980 this overall rate is 36%. We note that, in comparison with the income tax, the social security levy generates 3-4 times as much revenue per unit of contribution to the average marginal tax rate. The social security tax is relatively "efficient" because first, it is a flat-rate tax (rather than a graduated one) for earnings below the ceiling, and second, there is a zero marginal tax rate at the top. However, the last feature has become less important in recent years. The rapid increase in the ceiling on earnings raised the fraction of total salaries and wages accruing to persons with earnings below the ceiling from 29% in 1965 to 68% in 1982.
Handle: RePEc:nbr:nberwo:1214
Template-Type: ReDIF-Paper 1.0
Title: Taxes, Default Risk, and Yield Spreads
Author-Name: Jess B. Yawitz
Author-Name: Kevin J. Maloney
Author-Name: Louis H. Ederington
Note: ME
Number: 1215
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1215
File-URL: http://www.nber.org/papers/w1215.pdf
File-Format: application/pdf
Publication-Status: published as Ederington, Louis H., Kevin J. Maloney and Jess B. Yawitz. "Taxes, Default Risk, and Yield Spreads," Journal of Finance, September 1985.
Abstract: This paper represents an extension and integration of recent empirical and theoretical research on default risk and taxability. The purpose of the paper is to develop and test a model of interest rate spreads which incorporates both the effect of taxes and differences in default probabilities in a theoretically correct manner. There is an important fundamental difference between our approach to explaining yield spreads and the approach most commonly taken in literature. Unlike nearly all of the previous work, we do not begin with a yield spread model, i.e.,one which begins by examining differences in yields, but rather begin with an expected return or pricing model, which can then be expressed in the yield spread format. This is a fundamental difference in approaches which we feel leads to a superior theoretical formulation which can then be tested empirically without many of the problems inherent in the alter-native approach. The theoretical model is a simple extension of earlierwork on default by Bierman and Hass (1975) and Yawitz (1977), altered appropriately to take explicit account of tax effects. While there is a considerable literature that analyzes the effect of taxability on rate spreads, we are unaware of any previous study that considers tax consequences in the event of default, a rather surprising omission.
Handle: RePEc:nbr:nberwo:1215
Template-Type: ReDIF-Paper 1.0
Title: Sticky Prices, Money and Business Fluctuations
Author-Name: Robert G. King
Author-Person: pki21
Author-Name: Joseph G. Haubrich
Author-Person: pha107
Note: EFG
Number: 1216
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1216
File-URL: http://www.nber.org/papers/w1216.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, Vol. 23, no. 2 (1991): 243-259.
Abstract: Can nominal contracts make a difference for the neutrality of money if these arise endogenously in general equilibrium? This paper utilizes aversion of Lucas's seminal equilibrium business cycle theory to address this question. However, we depart from Lucas in assuming that (1) agents have complete information about the money stock; (ii) fundamental shocks to the system are purely redistributive and private information; and (iii) moral hazard precludes conventional insurance markets.With an exogenous restriction on contracts, money is fully neutral. But, when this restrictionis lifted, efficient risk-sharing between suppliers and demanders leads to a potential nonneutralitv of money. In particular, if an increase in the money growth rate signals a rise in the dispersion of shocks to demanders' wealth,then prices adjust only partially to monetary shocks and there is a positive association between money and output.
Handle: RePEc:nbr:nberwo:1216
Template-Type: ReDIF-Paper 1.0
Title: Corporate Pension Policy and the Value of PBGC Insurance
Author-Name: Alan J. Marcus
Author-Person: pma1156
Note: PE
Number: 1217
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1217
File-URL: http://www.nber.org/papers/w1217.pdf
File-Format: application/pdf
Publication-Status: published as Marcus, Alan J. "Spinoff/Terminations And The Value Of Pension Insurance," Journal of Finance, 1985, v40(3), 911-924.
Publication-Status: published as Marcus, Alan J. "Corporate Pension Policy and the Value of PBGC Insurance," Issues in Pension Economics, edited by Z. Bodie, J. Shoven, D. Wise, Chicago: UCP, 1987.
Publication-Status: published as Corporate Pension Policy and the Value of PBGC Insurance, Alan Marcus. in Issues in Pension Economics, Bodie, Shoven, and Wise. 1987
Abstract: This paper derives the value of PBGC pension insurance under two scenarios of interest. The first allows for voluntary plan termination, which appears to be legal under current statutes. In the second scenario, termination is prohibited unless the firm is bankrupt. Optimal pension funding strategy under each scenario is examined. Finally,empirical estimates of PBGC liabilities are calculated. These show that a small number of funds account for a large fraction of total prospective PBGC liabilities, that those total liabilities greatly exceed current PBGC reserves for plan terminations, and that PBGC liabilities could be substantially reduced by the prohibition of voluntary termination.
Handle: RePEc:nbr:nberwo:1217
Template-Type: ReDIF-Paper 1.0
Title: Liability for Harm Versus Regulation of Safety
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 1218
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1218
File-URL: http://www.nber.org/papers/w1218.pdf
File-Format: application/pdf
Publication-Status: published as Shavell, Steven. "Liability for Harm Versus Regulation of Safety." Journal of Legal Studies, Vol. 13, (June 1984), pp. 357-374.
Abstract: Liability in tort and the regulation of safety are considered as means of controlling accident risks using the instrumentalist, economic method of analysis.Four general determinants of the relative social desirability of liability and regulation are first identified--differences in knowledge about risky activities as between a social authority and private parties; the possibility that parties would not be able to pay fully for harm done; the chance that they would not face suit for harm done; and administrative costs. On the basis of analysis of these determinants, it is suggested that the choices observed to be made between liability and regulation are, when broadly viewed, socially rational: Notably, activities that create the risk of the typical tort and that are little regulated characteristically display features leading us to say that they ought to be controlled mainly by liability. And activities that are much regulated -- especially ones involving significant hazards to health or to the environment -- ought to be directly constrained in important ways, taking into account their usual features.
Handle: RePEc:nbr:nberwo:1218
Template-Type: ReDIF-Paper 1.0
Title: Uncertainty Over Causation and the Determination of Civil Liability
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 1219
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1219
File-URL: http://www.nber.org/papers/w1219.pdf
File-Format: application/pdf
Publication-Status: published as Shavell, Steven. "Uncertainty Over Causation and the Determination of Civil Liability." Journal of Law and Economics, Vol. 28, October 1985, pp. 587-609.
Abstract: Situations in which there is uncertainty over the cause of harm are studied (e.g., was the lung cancer due to normal exposure to medical x-radiation, to smoking, to exposure to carcinogens discharged by a chemical plant?); and the effects on incentives to reduce risk of various ways of treating such uncertainty under the liability system are identified using a theoretical model of the occurrence of harm. The main points are these. Use of a threshold probabilit' of causation (e.g., 50%) as a criterion for determining liability may adversely affect behavior: parties might face a diminished burden of liability (if their probability of causation systematically fell below the threshold) and thus do too little to reduce risk; or they might face an extra burden (if their probability were systematically above the threshold), and thus do too much. Second, the best all or nothing criterion for determining liability (a criterion under which a party is fully liable if at all liable) is different in form from a threshold probability criterion. Third, liability in proportion to the probability of causation is superior to all other criteria and results in socially ideal behavior.These points are demonstrated and analyzed in two types of case: where the uncertainty involves a party versus natural or "background" factors; and where it involves which party among several was the author of harm. The importance of the points is shown to depend on the type of case, and as well on the form of liability (strict liability or the negligence rule).The interpretation of the analysis and important qualifications to it are discussed in a concluding section.
Handle: RePEc:nbr:nberwo:1219
Template-Type: ReDIF-Paper 1.0
Title: A Model of the Socially Optimal Use of Liability and Regulation
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 1220
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1220
File-URL: http://www.nber.org/papers/w1220.pdf
File-Format: application/pdf
Publication-Status: published as Shavell, Steven. "A Model of the Optimal Use of Liability and Safety Regulation." Rand Journal of Economics, Vol. 15, No. 2, (Summer 1984), pp. 271- 280.
Abstract: Liability and safety regulation are examined as means of controlling risks in a theoretical model of the occurrence of accidents. According to the model, regulation does not result in appropriate reduction of risk -- due to the regulator's lack of knowledge about risk -- nor does liability result in that outcome -- because the incentives it creates are diluted by the chance that parties would not be sued for harm done or would not be able to pay fully for it. Thus, either liability could turn out to be superior to regulation or the reverse could be true. But as is stressed, joint use of the two means of controlling risk is generally socially advantageous, and the characteristics of their optimal joint use are determined.
Handle: RePEc:nbr:nberwo:1220
Template-Type: ReDIF-Paper 1.0
Title: The Conduct of Domestic Monetary Policy
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 1221
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1221
File-URL: http://www.nber.org/papers/w1221.pdf
File-Format: application/pdf
Publication-Status: published as Ando, Albert, Hidekazu Eguchi, Roger Farmer, and Yoshio Suzuki (eds.) Monetary Policy in Our Times: Proceedings of the First International Conference Held by the Institute for Monetary and Economic Studies of the Bank of Japan. Cambridge, MA and London: The M.I.T. Press, 1985.
Abstract: This paper develops the view that monetary policy operates within a set of basic constraints that limit the set of outcomes that it can achieve.These include constraints on aggregate supply behavior that determine how a given path of nominal income growth will be divided between inflation and output growth, as well as "velocity" constraints that influence the path of nominal income growth that will result from any given time path for the monetary base, monetary aggregates, or interest rates.The interaction of monetary policy decisions with shifts in constraints helps to explain the sources of deteriorating macroeconomic performance in the 1970s and early 1980s.The role of aggregate supply behavior is illustrated with a one-equation approach to the econometric problem of predicting how changes in nominal GNP growth will be divided between inflation and real GNP growth. The results from the equation estimated through 1980 are used to examine the behavior of inflation during the 1981-82 recession, and to predict the behavior of inflation and unemployment that would ac-company alternative paths of nominal GNP growth after 1982.The role of velocity is examined in a new set of multivariate exogeneity tests using the vector-autoregressive (VAR) approach for three separate sample periods (1953-61, 1962-70, and 1971-79).The major conclusions are that the monetary base has no significant explanatory role for spending changes. The Treasury bill rate appears to carry the main explanatory power, working directly on spending in the 1950s and indirectly through the money multiplier in the 1970s.
Handle: RePEc:nbr:nberwo:1221
Template-Type: ReDIF-Paper 1.0
Title: Economic and Statistical Analysis of Discrimination in Hiring
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Robert S. Smith
Note: LS
Number: 1222
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1222
File-URL: http://www.nber.org/papers/w1222.pdf
File-Format: application/pdf
Publication-Status: published as Ehrenberg, Ronald G. and Robert S. Smith. "Economic and Statistical Analysis of Discrimination in Hiring." Proceedings of the 36 Annual Meetings ofthe Industrial Relations Research Association, ed. by Barbara Dennis, (1984), pp. 22-33.
Abstract: Legal and administrative determinations of employers' compliance with "equal employment opportunity" (EEO) requirements often hinge on the issue of the availability of protected class members to employers. That is,courts and affirmative action review agencies compare the hire rates of protected class members (the ratio of the number of protected class members hired to the number who applied or who were potentially available) to the comparable ratio for other applicants, in assessing whether an employer's hiring policies meet the standards required of them by equal opportunity regulations. The purpose of this paper is to review what economic theory suggests affects availability and to analyze the extent to which these factors are considered in administrative or judicial decisions concerning hiring policies. In our analyses, we point out areas where there seem tobe inconsistencies or unresolved issues.
Handle: RePEc:nbr:nberwo:1222
Template-Type: ReDIF-Paper 1.0
Title: Modeling Individuals' Behavior: Evaluation of a Policymaker's Tool
Author-Name: Alan L. Gustman
Author-Person: pgu327
Note: LS
Number: 1223
Creation-Date: 1983-10
Order-URL: http://www.nber.org/papers/w1223
File-URL: http://www.nber.org/papers/w1223.pdf
File-Format: application/pdf
Publication-Status: published as Gustman, Alan L. "Modeling Individuals' Behavior: Evaluation of a Policymaker's Tool." Journal of Policy Analysis and Management, Vol. 3, No. 2, (Winter 1984), pp. 191-205.
Abstract: With a continuous decline in the cost of manipulating data and a continuous increase in the richness of data banks, policymakers have increasing opportunities to build and apply so-called micro-simulation models--modelsthat attempt to simulate the behavior of the individuals in a large population under a specified program. The efforts of the Department of Labor to use a model in evaluating proposed changes in the unemployment insurance system point up both the power and the weaknesses of such models. Any user who applies these models without attempting to understand which of their strengths and weaknesses are most important for analyzing the problem at hand is asking for trouble. Easy to use or not,these models are not user friendly.
Handle: RePEc:nbr:nberwo:1223
Template-Type: ReDIF-Paper 1.0
Title: Rational Expectations Models in Macroeconomics
Author-Name: John B. Taylor
Author-Person: pta174
Note: EFG
Number: 1224
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1224
File-URL: http://www.nber.org/papers/w1224.pdf
File-Format: application/pdf
Publication-Status: published as Taylor, John B. "Rational Expectations Models in Macroeconomics," Frontiers of Economics, ed. by Kenneth J. Arrow and Seppo Houkupohju, Basil Blackwell Publishers, (1985), pp. 391-425.
Publication-Status: published as Taylor, John B. "Rational Expectations Models in Macroeconomics," Frontiers of Economics, edited by Kenneth J. Arrow and Seppo Honkapohja, pp. 391-42 5. Oxford: Basil Blackwell Ltd. 1985.
Abstract: This paper is a review of rational expectations models used in macroeconomic research. The purpose is to examine in some detail the differences between the models, the advantages and disadvantages of alternative models the empirical support for the models and their policy implications. The main theme is that there os a wide diversity among rational expectations models in macroeconomics, despite their common expectational assumptions and methods of analysis. Information-based and contast-based theories are reviewed as alternative models of aggregate supply. A brief review od rational expectations models of the demand side is also provided, along with a discusion of some problems with the rational expextations assumption.
Handle: RePEc:nbr:nberwo:1224
Template-Type: ReDIF-Paper 1.0
Title: Optimal Stabilization Rules in a Stochastic Model of Investment with Gestation Lags
Author-Name: John B. Taylor
Author-Person: pta174
Note: EFG
Number: 1225
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1225
File-URL: http://www.nber.org/papers/w1225.pdf
File-Format: application/pdf
Publication-Status: published as Taylor, John B. "Optimal Stabilization Rules in a Stochastic Model of Investments with Gestation Lags." Studies in Econometrics, Time Series, & Multivariate Statistics, ed. by Samuel Karlin, Takeshi Amemiya, Leo Goodman, (Academic Press, 1983), pp. 207-226.
Abstract: This paper considers the problem of calculating optimal policy rules to stabilize fluctuations in investment in an economy where firms' investment behavior can be described by a dynamic optimization model. In the optimization model, the dynamics of investment are generated by heterogeneous gestation lags between the start and completion of capital projects, rather than by adjustment costs in the installation of capital. A procedure is derived for calculating policy rules for an arbitrary autoregressive process generating fluctuations in firms sales. Through stochastic simulation we investigate the effects of using certain suboptimal policy rules in cases where there are constraints against using the optimal rules.
Handle: RePEc:nbr:nberwo:1225
Template-Type: ReDIF-Paper 1.0
Title: Unions, Pensions, and Union Pension Funds
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 1226
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1226
File-URL: http://www.nber.org/papers/w1226.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B. "Unions, Pensions, and Union Pension Funds." Pensions , Labor, and Individual Choice, edited by David A. Wise. Chicago: University of Chicago Press, (1985), pp. 89-121.
Publication-Status: published as Unions, Pensions, and Union Pension Funds, Richard B. Freeman. in Pensions, Labor, and Individual Choice, Wise. 1985
Abstract: This paper examines the role of trade unions as determinants of: pension coverage, expenditures by firms for pensions; the provisions of pension plans; and pension fund investments. It also examines the impact of union pensions on the age-earnings profile of union workers. It has four basic findings:(1) Unions greatly increase pension coverage, and alter the determinants of coverage, in ways that go beyond the monopoly wage effects of unionism.(2) Unions alter the provisions of pension plans in ways that benefit senior workers and that equalize pensions among workers.(3) Estimates of the age-earnings profile of union workers are seriously flawed by failure to take account of the union impact on pensions, which generally enhance the earnings of the oldest groups.(4) Union pension funds can and do shun the stocks of nonunion firms without lowering the value of the portfolio. Investments in actual projects which take lower returns are, up to a point, justifiable in terms of the full economic benefit accruing to workers.
Handle: RePEc:nbr:nberwo:1226
Template-Type: ReDIF-Paper 1.0
Title: Patents and R&D: Searching for a Lag Structure
Author-Name: Bronwyn H. Hall
Author-Person: pha54
Author-Name: Zvi Griliches
Author-Name: Jerry A. Hausman
Author-Person: pha893
Note: PR
Number: 1227
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1227
File-URL: http://www.nber.org/papers/w1227.pdf
File-Format: application/pdf
Publication-Status: published as Hall, Bronwyn H., Zvi Griliches and Jerry Hausman. "Patents and R and D: Is There a Lag?" International Economic Review, Vol. 27, No. 2, (June 1986),pp. 265-283. See also NBER Reprint #0775 and NBER Working Paper #1454.
Abstract: This paper extends earlier work on the R&D to patents relationship (Pakes-Griliches 1980, and Hausman, Hall, and Griliches, 1984) to a larger but shorter panel of firms. Using both non-linear least squares and Poisson type models to treat the problem of discreteness in the dependent variable the paper tries to discern the lag structure of this relationship in greater detail. Since the available time series are short, two different approaches are pursued in trying to solve the lag truncation problem: In the first the influence of the unseen past is assumed to decline geometrically; in the second,the unobserved past series are assumed to have followed a low order autoregression. Neither approach yields strong evidence of a long lag. The available sample, though numerically large,turns out not to be particularly informative on this question. It does reconfirm, however, a significant effect of R&D on patenting (with most of it occurring in the first year or two) and the presence of rather wide and semi-permanent differences among firms in their patenting policies.
Handle: RePEc:nbr:nberwo:1227
Template-Type: ReDIF-Paper 1.0
Title: U.S. International Trade Policies in a World of Industrial Change
Author-Name: J. David Richardson
Note: ITI PE IFM
Number: 1228
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1228
File-URL: http://www.nber.org/papers/w1228.pdf
File-Format: application/pdf
Publication-Status: published as Richardson, J. David. "International Trade Policies in a World of Industrial Change." Industrial Change and Public Policy, pp. 267-312. Kansas City: Federal Reserve Bank of Kansas City, 1983.
Abstract: This paper assesses the place of active trade policy in U.S. industrial change.The growing role of imperfectly competitive multinational corporations provides new arguments for more active U.S. trade policy, as does an increased social consensus that governments should insure what markets do not. Arguments against more active U.S. trade policy stem from its manage ability in a democratic system of checks and balances, from its possible perception as a form of policy aggression, and from the likelihood that there are feasible alternatives to trade policy with smaller implementation costs, administrative costs, incentive costs, and resource-diversion costs. Considered promising among such alternatives are government adjustment programs, foreign-exchange-market intervention, and macroeconomic renovation. Sections 2 and 3 of the paper describe how international economic and policy environments encourage industrial change and pressure U.S. trade policy. Section 4 describes the pros and cons of more active U.S. trade policy where imperfectly competitive industrial structure and missing insurance markets are taken as facts of life. Section 5 assesses alternatives to more active U.S.trade policy, including, in addition to those mentioned above, strict reliance on market forces.
Handle: RePEc:nbr:nberwo:1228
Template-Type: ReDIF-Paper 1.0
Title: The Social Cost of Labor, and Project Evaluation: A General Approach
Author-Name: Joseph E. Stiglitz
Author-Name: Raaj Kumar Sah
Author-Person: psa736
Note: PE
Number: 1229
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1229
File-URL: http://www.nber.org/papers/w1229.pdf
File-Format: application/pdf
Publication-Status: published as Sah, Raaj Kumar and Joseph E. Stiglitz. "The Social Cost of Labor and Project Evaluation: A General Approach." Journal of Public Economics, Vol. 28,(1985), pp. 135-163.
Abstract: This paper develops a general methodology for analyzing shadow wage (and other shadow prices). Our approach is to identify those reduced form relationships describing the economy which are central to the determination of the shadow wage, and use these to obtain simple formulae for the shadow wage. Among the aspects of the economy on which we focus are: (i) the difference between the domestic and international prices, (ii) the equilibrating mechanisms in the economy, (iii) the mechanisms which determine earnings of industrial and agricultural workers, (iv) the nature of migration, and (vi) the intertemporal trade-offs and the attitudes towards inequality. These aspects are modelled in a general manner, which can be specialized to a number of alternative hypotheses concerning technology, behavioral postulates, and institutional settings. Most earlier results on the shadow wages are derived as special cases of our formulae. In addition, we identify a number of new qualitative results concerning the relationship between the shadow wage and the market wage.
Handle: RePEc:nbr:nberwo:1229
Template-Type: ReDIF-Paper 1.0
Title: Exchange-Rate Dynamics
Author-Name: Maurice Obstfeld
Author-Person: pob13
Author-Name: Alan C. Stockman
Author-Person: pst94
Note: ITI PE IFM
Number: 1230
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1230
File-URL: http://www.nber.org/papers/w1230.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice and Alan C. Stockman. "Exchange-Rate Dynamics." Handbook of International Economics, edited by P.B. Kenen and R.W. Jones, pp. 917- 977. Amsterdam: Elsevier Science Publishers B.V., (1985).
Abstract: This paper discusses the dynamic behavior of exchange rates, focusing both on the exchange rate's response to exogenous shocks and the relation between exchange-rate movements and movements in important endogenous variables such as prices, interest rates, output, and the current account. Aspects of exchange-rate dynamics are studied in a variety of models, some of which are based on postulated supply and demand functions for assets and goods, and some of which are based on explicit individual utility-maximizing problems. Section 1 surveys the terrain. Section 2 explores the simplest model in which the relation among the exchange rate, price levels, and the terms of trade can be addressed -- a flexible-price small-country model in which wealth effects are absent and domestic and foreign goods are imperfect substitutes. Section 3 introduces market frictions so that the role of endogenous output fluctuations can be studied. Both sticky-price models and alternative market-friction models are discussed. Section 4 studies the link between the accumulation of foreign assets and domestic capital and the exchange rate.Section 5 examines deterministic and stochastic models in which individual behavior is derived from an explicit intertemporal optimization problem. Finally, section 6 offers concluding remarks.
Handle: RePEc:nbr:nberwo:1230
Template-Type: ReDIF-Paper 1.0
Title: Food Stamps as Money and Income
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Author-Name: James M. Johannes
Note: LS
Number: 1231
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1231
File-URL: http://www.nber.org/papers/w1231.pdf
File-Format: application/pdf
Publication-Status: published as Hamermesh, Daniel S. and James M. Johannes. "Food Stamps as Money and Income." Journal of Political Economy, January 1986, pp. 205-213.
Abstract: Food Stamps represent nearly $11 billion of personal income in the United States. The coupons that are issued to represent the purchasing power available to recipients are also reserves for the commercial banking system.This study asks how closely these coupons are substitutable for what is usually considered as money, and how well Food Stamps function as a fiscal stabilizer (whether they increase consumption more than does ordinary income). The results, based on estimates for 1959-1981, suggest that Food Stamp coupons are perfectly substitutable for Ml, and a revised money-supply series including "Food Stamp Money" is included in an Appendix. Estimates of consumption functions indicate that the MPC out of income in the form of Food Stamps is higher than that out of ordinary income. Taken together, the results suggest that the Food Stamp program is an automatic fiscal and monetary stabilizer -- under its provisions, both the money stock and disposable income are increased during a recession.
Handle: RePEc:nbr:nberwo:1231
Template-Type: ReDIF-Paper 1.0
Title: The Theory of Optimum Deficits and Debt
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ITI IFM
Number: 1232
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1232
File-URL: http://www.nber.org/papers/w1232.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. "The Theory of Optimum Deficits and Debt." The Economics of Large Government Deficits. Federal Reserve Bank of Boston Conference Series Number 27. (October 1983)
Abstract: The paper surveys a number of neo-classical and neo-Keynesian approcaches to government financial policy. After reviewing the very restrictive conditions under which financial policy is just a veil without real consequences, non-neutral financial policy in neo-classical models is analyzed. At full employment, the substitution of borrowing for lump sum taxes crowds outprivate capital formation in a closed economy.Government financial policy can be used to implement optimal intertemporal risk distribution schemes. In the presence of distortionary taxes, the smoothing of tax rates over time may be optimal even where this involves systematic and predictable departures from continuous budget balance. The case for deficit finance and the operation of the automatic fiscal stabilizers in a Keynesian world with disequilibrium in labour and output markets is restated.The case for any kind of active financial policy rests on the presence of capital market imperfections (including incomplete contingent forward markets such as insurance markets), on the longevity of the institution of government and on the government's unique ability to tax. Finally, certain long-run aspects of the fiscal and monetary stance are analyzed. This includes their sustainability, i.e. the consistency of long-term spending and taxation plans with the monetary objectives and the crowding outtargets. The concepts of the comprehensive net worth of the public sector and its permanent income are central to this analysis. The current U.K. position appears to be one of an unsustainable, "permanent surplus."
Handle: RePEc:nbr:nberwo:1232
Template-Type: ReDIF-Paper 1.0
Title: Openness, Relative Prices and Macro Policies
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 1233
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1233
File-URL: http://www.nber.org/papers/w1233.pdf
File-Format: application/pdf
Publication-Status: published as Aizenman, Joshua. "Openness, Relative Prices and Macro-Policies." Journal of International Money and Finance, Vol. 4, No. 1, (March 1985), pp. 5-17.
Abstract: This paper analyzes the role of relative prices in the conduct of wage indexation and monetary policy in a small economy producing traded and non-traded goods under a flexible exchange rate regime. It is shown that the beneficial effect of using relative prices in addition to aggregate prices as indicators for the conduct of the above policies increases with openness. The response of policies to relative prices rises with openness,and has dampening effects on the volatility of deviations from purchasing power parity. The analysis demonstrates that the beneficial effect of allowing a"basket" indexation (or a money rule that responds also to relative prices) lies in mitgating the effects of foreign shocks.
Handle: RePEc:nbr:nberwo:1233
Template-Type: ReDIF-Paper 1.0
Title: Public Opinion and the Balanced Budget
Author-Name: Alan S. Blinder
Author-Person: pbl41
Author-Name: Douglas Holtz-Eakin
Note: EFG
Number: 1234
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1234
File-URL: http://www.nber.org/papers/w1234.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. and Douglas Holtz-Eakin. "Public Opinion and the Balanced Budget." American Economic Review, Vol. 74, No. 2, (May 1984), pp. 144-14 9.
Abstract: While most Americans have long favored a balanced federal budget , not all do. This paper uses cross-sectional differences among respondents to two public opinion polls to try to discriminate among competing hypotheses about why Americans want the budget balanced. Logit models are fit to data from two different public opinion polls : a Gallup poll and a CBS/New York Times poll conducted , respectively, in March and April of 1980, a time when the proposed balanced budget amendment to the Constitution was very much in the news. In each case , a large majority favored a balanced budget requirement. However, they favor it for a smorgasbord of reasons and at unclear price. It appears that political affiliation, ideology and personal circumstances are far less important determinants of the choice than economic rationales.
Handle: RePEc:nbr:nberwo:1234
Template-Type: ReDIF-Paper 1.0
Title: Inflation and Growth
Author-Name: Stanley Fischer
Note: EFG
Number: 1235
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1235
File-URL: http://www.nber.org/papers/w1235.pdf
File-Format: application/pdf
Abstract: Models of inflation and growth in the sixties emphasized the portfolio substitution mechanism by which higher inflation made capital more attractive to hold relative to money, leading to higher capital intensity, and in the transition period to higher growth.The empirical evidence, however, is that growth and inflation are negatively correlated. Reasons for this negative correlation are investigated, and then embodied in a simple monetary maximizing model. Higher inflation is associated with lower growth because lower real balances reduce the efficiency of factors of production, and because there may be a link between government purchases and the use of the inflation tax. Comparative steady states and comparative dynamics is analyzed and the generally negative association between inflation and growth, both in steady states and in transition processes, is demonstrated.
Handle: RePEc:nbr:nberwo:1235
Template-Type: ReDIF-Paper 1.0
Title: Optimal Trade and Industrial Policy Under Oligopoly
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Gene M. Grossman
Author-Person: pgr21
Note: ITI IFM
Number: 1236
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1236
File-URL: http://www.nber.org/papers/w1236.pdf
File-Format: application/pdf
Publication-Status: published as Eaton, Jonathan and Gene M. Grossman. "Optimal Trade and Industrial Policy Under Oligopoly." Quarterly Journal of Economics, Vol. 101, No. 2, (May 1986), pp. 383-406.
Abstract: In this paper we provide an integrative treatment of the welfare effects of trade and industrial policy under oligopoly, and characterize qualitatively the form that optimal intervention takes under a variety of assumptions about the number of firms, their conjectures about the response of their rivals to their actions, the substitutability of their productsand the markets in which they are sold. We find that when no domestic consumption occurs optimal policy under duopoly with a single home firm depends on the difference between firms' actual responses to their rivals and the response that their rivals' conjecture. If conjectures are consistent ,free trade is optimal. A tax or subsidy is indicated depending on the sign of the difference between the conjectured and the actual reponse.With more than one home firm but still no domestic consumption, an export tax is indicated if conjectures are consistent. Production subsidies and export tax-cum-subsidies can raise national welfare in the presence of domestic consumption, because these policies can mitigate the extent of the consumption distortion implicit in the deviation of price from marginal cost.
Handle: RePEc:nbr:nberwo:1236
Template-Type: ReDIF-Paper 1.0
Title: A Structural Retirement Model
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 1237
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1237
File-URL: http://www.nber.org/papers/w1237.pdf
File-Format: application/pdf
Publication-Status: published as Gustman, Alan and Thomas Steinmeier. "A Structural Retirement Model." Econometrica, Vol. 54, No. 3, (May 1986), pp. 555-584.
Abstract: The model analyzed here constrains most work on the main job to be full time. Partial retirement requires a job change and a wage reduction.Estimates of utility function parameters and their distributions incorporate information on age of leaving the main job and of full retirement. These estimates determine the slope at different ages and the convexity of within period indifference curves between compensation and leisure. Even though age specific dummy variables are not used, the model closely tracks retirement behavior. Policy analysis based on earlier models with simpler structures is shown to be misleading.
Handle: RePEc:nbr:nberwo:1237
Template-Type: ReDIF-Paper 1.0
Title: Does Knowledge Intensity Matter? A Dynamic Analysis of Research and Development, Capital Utilization and Labor Requirements
Author-Name: Jeffrey I. Bernstein
Author-Person: pbe327
Author-Name: M. Ishaq Nadiri
Note: PR
Number: 1238
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1238
File-URL: http://www.nber.org/papers/w1238.pdf
File-Format: application/pdf
Abstract: In this paper we have developed a dynamic analysis of a firm under-taking research and development (R&D) investment, physical capital accumulation and utilization, along with labor requirement decisions. Empirical work has found that there are significant costs to develop knowledge. Consequently, R&D capital is treated as a quasi-fixed factor, along with the traditional physical capital stock. A number of empirically relevant implications arise from the analysis. It is shown that along the dynamic path as the R&D intensity of physical capital increases, knowledge per worker rises and the utilization rate of physical capital decreases. We distinguish between the intertemporal movement of the firm,and the response to unanticipated changes in demand and cost conditions. An increase in product demand causes the firm to increase both the R&D growth rate and the labor intensity of R&D capital. Contrary to a viewpoint held by many,the R&D investment does not displace labor. Finally, our model provides a framework to justify the empirically observed direct relationship between the physical capital growth and utilization rates.
Handle: RePEc:nbr:nberwo:1238
Template-Type: ReDIF-Paper 1.0
Title: Uncertainty, Welfare Cost, and the 'Adaptability' of U.S. Corporate Taxes
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Andrew B. Lyon
Author-Person: ply2
Author-Name: Richard J. Rosen
Note: PE
Number: 1239
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1239
File-URL: http://www.nber.org/papers/w1239.pdf
File-Format: application/pdf
Publication-Status: published as Don Fullerton & Andrew B. Lyon & Richard J. Rosen, 1984. "Uncertainty, Welfare Cost and the "Adaptability" of U.S. Corporate Taxes," The Scandinavian Journal of Economics, vol 86(2).
Abstract: Alternative corporate tax systems differ in their ability to adapt to changes in the rate of inflation. Absent complete indexing of depreciation allowances, a tax system may use the expected inflation rate to set accelerated depreciation allowances in a way that minimizes the welfare loss from them is allocation of capital. This welfare loss is a nonlinear function of the assumed inflation rate, however, so the welfare loss at the expected inflation rate may be quite different from the expected welfare loss. We compute these two welfare concepts for each of three alternative corporate tax schemes in the U.S. and for two different relationships between inflation and interest rates. One important finding is that the Auerbach-Jorgenson first year recovery plan is not equivalent to indexing as is often claimed, if uncertainty about inflation implies uncertainty about the real after-tax discount rate.
Handle: RePEc:nbr:nberwo:1239
Template-Type: ReDIF-Paper 1.0
Title: Anti-Discrimination or Reverse Discrimination: The Impact of Changing Demographics, Title VII and Affirmative Action on Productivity
Author-Name: Jonathan S. Leonard
Author-Person: ple190
Note: LS
Number: 1240
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1240
File-URL: http://www.nber.org/papers/w1240.pdf
File-Format: application/pdf
Publication-Status: published as Leonard, Jonathan S. "Anti-Discrimination or Reverse Discrimination: The Impact of Changing Demographics, Title VII and Affirmative Action on Productivity"Journal of Human Resources, Vol. 19, No. 2,(Spring 1984), pp. 145-17 4.
Abstract: Opponents of the integration by race and gender of the American workplace have argued that forced equity will entail reduced productivity as employers are forced to hire lower quality females and minorities. The numerous wage equation studies always reach the same dead-end: residual differences across race or gender are due either to discrimination or to unobserved quality differences. This study takes a new approach, and directly estimates over time the ratio of minority to white male, and of female to white male productivity, using a new two-digit SIC industry by state production function data set for 1966 and 1977. The major finding is that there is no significant evidence that the productivity of minorities or females decreased relative to that of white males as relative minority and female employment increased during the 1960's and 1970's. This study also presents evidence that Title VII litigation has played a significant role in increasing black employment. This suggests that the employment of minorities and females has not entailed large efficiency costs, and that Title VII litigation has had some success in fighting racial discrimination. Direct tests of the impact of Title VII litigation and affirmative action regulation also find no significant evidence that these policies have contributed to a productivity reduction.
Handle: RePEc:nbr:nberwo:1240
Template-Type: ReDIF-Paper 1.0
Title: Taxation and the Location of U.S. Investment Abroad
Author-Name: Daniel J. Frisch
Author-Name: David G. Hartman
Note: PE
Number: 1241
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/w1241
File-URL: http://www.nber.org/papers/w1241.pdf
File-Format: application/pdf
Abstract: Tax policy toward the overseas income of U.S. firms is an important issue since foreign investment accounts for a sizabLe fraction of total investment by U.S. firms. At present there is no consensus on the degree to which U.S. firms respond to tax incentives when making international investment decisions. This paper seeks to shed light on this issue. Because the tax systems of (at least) two countries are involved,the specification of tax incentives is far from trivial. For example, U.S.treatment is based on the foreign tax credit mechanism. In its purest form,this mechanism would insure that the net tax rate on all income of U.S. firms would be equal to the U.S. rate, rendering the tax rates in the host countries irrelevant. In fact, actual U.S. tax practice is far removed from an idealized foreign tax credit mechanism. For instance the U.S. tax is not collected until income is repatriated from abroad; section I points out that deferral changes the incentive effects in fundamental ways. Foreign income tax rates definitely do matter in theory; in fact, they may be of overriding importance.The remainder of the paper seeks to test these theoretical considerations. First,we describe the cross-section data that were collected for this purpose. Then, we report the result that U.S. firms respond to net rates of return in general and to properly specified tax rates in particular.
Handle: RePEc:nbr:nberwo:1241
Template-Type: ReDIF-Paper 1.0
Title: International Capital Mobility and the Coordination of Monetary Rules
Author-Name: Nicholas Carlozzi
Author-Name: John B. Taylor
Author-Person: pta174
Note: EFG
Number: 1242
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1242
File-URL: http://www.nber.org/papers/w1242.pdf
File-Format: application/pdf
Publication-Status: published as Carlozzi, Nicholas and John B. Taylor. "International Capital Mobility andthe Coordination of Policy Rules," Exchange Rate Management Under Uncertainty, ed, by Jagdeep S. Bhandari, MIP Press, 1985.
Abstract: The paper develops a two-country model with flexible exchange rates and perfect capital mobility, for evaluating the alternative macroeconomic policy rules. Macroeconomic performance is measured in terms of fluctuations in inflation and output. Expectations are rational, and prices are sticky; wagesetting is staggered over time. The countries are linked by aggregate spending effects, relative price effects, and mark-up pricing arrangements. The modelis solved and analyzed through deterministic and stochastic simulation techniques. The results suggest that international capital mobility is not necessarily an impediment to efficient domestic macroeconomic performance. Changes in the expected appreciation or a depreciation of the exchange rate along with differentials between real interest rates in the two countries can permit macroeconomic performance in one country to be relatively independent of the policy rule chosen by the other country. The results depend on the particular parameter values used in the model and suggest the need for further econometric work to determine the size of these parameters.
Handle: RePEc:nbr:nberwo:1242
Template-Type: ReDIF-Paper 1.0
Title: The Forecasting Ability of Money Market Fund Managers and its Economic Value
Author-Name: Alex Kane
Author-Person: pka501
Author-Name: Young Ki Lee
Note: ME
Number: 1243
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1243
File-URL: http://www.nber.org/papers/w1243.pdf
File-Format: application/pdf
Abstract: The model proposed by Merton(1981) to determine the value of forecasting ability is adapted to investigate whether money market fund managers successfully anticipate changes in the yield curve by adjusting the average maturity of their portfolios in the right direction. The potential economic value of such behavior is assessed, and it is shown that if the portfolios of all money market funds were aggregated it would appear that managers are good forecasters even if individually they possess insignifcant forecasting ability. At the same time, the economic value of the aggregate portfolio will be diminished because of the reduced net change in average maturity. Thus, diversifying into many money market funds will not attain the gain that could be realized if an individual manager had a forecasting ability equal to the quality of the average forecast.A sample of 34 money market funds is investigated. Analysis suggests that a small fraction of the funds exhibited forecasting skills, but even they generated negligible economic value because the changes in their portfolios average maturity were too small.There appears to be no relationship between forecasting ability and economic success of money market funds as measured by asset size and growth.
Handle: RePEc:nbr:nberwo:1243
Template-Type: ReDIF-Paper 1.0
Title: Activist Monetary Policy, Imperfect Capital Mobility, and the Overshooting Hypothesis
Author-Name: David H. Papell
Author-Person: ppa73
Note: ITI IFM
Number: 1244
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1244
File-URL: http://www.nber.org/papers/w1244.pdf
File-Format: application/pdf
Publication-Status: published as Papell, David H. "Activist Monetary Policy, Imperfect Capital Mobility, and the Overshooting Hypothesis," Journal of International Economics, Vol. 1 8, No. 3/4, May 1985, pp. 219-240.
Abstract: The hypothesis of exchange rate over shooting is investigated in the context of a model that incorporates activist monetary policy, variable output, imperfect capital mobility, and slow price adjustment. Monetary policy which accommodates prices and/or interest rates is shown to increase the likelihood of undershooting. Using constrained maximum likelihood methods,the model is estimated for Germany and Japan since the advent of generalized floating in 1973. Based on the estimated parameter values, the mark exhibits overshooting while the yen is characterized by undershooting. The constraints implied by the model cannot (by likelihood ratio tests) be rejected at standard significance levels for either country.
Handle: RePEc:nbr:nberwo:1244
Template-Type: ReDIF-Paper 1.0
Title: The Welfare Effects of Trade and Capital Market Liberalization: Consequences of Different Sequencing Scenarios
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Sweder van Wijnbergen
Author-Person: pva412
Note: ITI IFM
Number: 1245
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1245
File-URL: http://www.nber.org/papers/w1245.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian and Sweder van Wijnbergen. "The Welfare Effects of Tradeand Capital Market Liberalization." International Economic Review, Vol. 27 , No.1, (February 1986), pp. 141-148.
Abstract: This paper deals with the dynamics of trade and capital account liberalization in a developing country. The welfare consequences of trade and capital account liberalization under alternative sequencing scenarios are investigated. We draw on standard trade theory results to show that the opening of the capital account in the presence of trade distortions may be welfare reducing if foreign borrowing is used to increase investment. However we demonstrate that this welfare reducing effect of opening the capital account will not occur if shadow prices are used to guide investment decisions. It is then shown that if capital market restrictions fall disproportionally on investment (as opposed to consumption) a gradual reduction of import tariffs is superior to an abrupt trade liberalization.
Handle: RePEc:nbr:nberwo:1245
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Interest Rates on Mortgage Prepayments
Author-Name: Jerry Green
Author-Person: pgr476
Author-Name: John B. Shoven
Note: PE
Number: 1246
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1246
File-URL: http://www.nber.org/papers/w1246.pdf
File-Format: application/pdf
Publication-Status: published as Green, Jerry R. and John B. Shoven, "The Effects of Interest Rates on Mortgage Prepayments," Journal of Money, Credit and Banking, Vol. 18, No. 1, pp. 41-59, Feb. 1986.
Abstract: Three main types of mortgages are fixed interest contracts which automatically fall due on the sale of a dwelling, fixed rate loans which are assumable by a buyer, and floating rate instruments. When interest rates rise, the fall in the economic value of these assets in savings and loan associations' portfolios varies from one form of mortgage to another. For either of the fixed interest rate contracts, the cash flow from the mortgage is constant as long as it has not been prepaid. If the interest rate rises,the homeowner has a nominal capital gain, since his loan is then at a below market interest rate. He would therefore be less likely to prepay. The fall in the savings and loans' net worth arises from two factors: (1) the interest rate differential for mortgages of a fixed duration, and (2) the endogenous lengthening of the duration.This paper is an attempt to measure the dependence of the duration of mortgages on the implicit unrealized capital gain of mortgage holders resulting from interest rate changes. Our estimate is based on a sample of 4,000 mortgages issued in California which were active in 1975. We follow their payment history from 1975 to 1982. Using a Proportional Hazards Model, we estimate the percentage reduction in prepayment probability associated with interest rate changes. Our results indicate that for due-on-sale fixed interest rate mortgages, a sudden increase in the interest rate from 10 to 15 percent would induce a 23 percent loss in the economic value of the mortgage. If the mortgage were assumable,this loss would be 28 percent. Correspondingly, the 6-year average time to repayment of mortgages at a constant interest rate would be lengthened to nine years for due-on-sale mortgages, and 13-1/2 years for assumable ones.
Handle: RePEc:nbr:nberwo:1246
Template-Type: ReDIF-Paper 1.0
Title: The Economics of Saving
Author-Name: Mervyn A. King
Note: PE ME
Number: 1247
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1247
File-URL: http://www.nber.org/papers/w1247.pdf
File-Format: application/pdf
Publication-Status: published as in "Frontiers of Economics," Arrow, Kenneth and S. Honkapohja (eds.) Oxford and New York: Blackwell, 1985.
Abstract: This paper analyses recent contributions to the theory of household saving and examines empirical evidence on the subject. It focuses on (a) the derivation and estimation of first-order conditions for a consumer's optimum lfe-cycle consumption plan, (b) the conditions under which such conditions may be used to derive an aggregate consumption function, (c) the relationship between constraints in labor and cyclical markets and the notion of a "representive consumer" in macroeconomic models, and (d) the extent to which existing empirical evidence lends support to a life-cycle model of consumer behavior. Further empirical tests are proposed.
Handle: RePEc:nbr:nberwo:1247
Template-Type: ReDIF-Paper 1.0
Title: Earnings and Dividend Announcements is there a Corroboration Effect?
Author-Name: Alex Kane
Author-Person: pka501
Author-Name: Young Ki Lee
Author-Name: Alan J. Marcus
Author-Person: pma1156
Note: ME
Number: 1248
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1248
File-URL: http://www.nber.org/papers/w1248.pdf
File-Format: application/pdf
Publication-Status: published as Kane, Alex, Young Ki Lee, and Alan J. Marcus. "Earnings and Dividend Announcements: Is There a Corroboration Effect?" Journal of Finance, Vol. 39, No. 4, (September 1984), pp. 1091-1099.
Abstract: We examine abnormal stock returns surrounding contemporaneous earnings and dividend announcements in order to determine whether investors evaluate the two announcements in relation to each other.We find that there is a statistically significant interaction effect.The abnormal return corresponding to any earnings or dividend announcement depends upon the value of the other announcement. This evidence suggests the existence of a corroborative relationship between the two announcements. Investors give more credence to unanticipated dividend increases or decreases when earnings are also above or below expectations, and vice versa.
Handle: RePEc:nbr:nberwo:1248
Template-Type: ReDIF-Paper 1.0
Title: Trade Unions and Productivity: Some New Evidence on an Old Issue
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: James L. Medoff
Note: LS
Number: 1249
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1249
File-URL: http://www.nber.org/papers/w1249.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B. and James L. Medoff. "Trade Unions and Productivity: Some New Evidence on an Old Issue." Annals of the American Academy of Political and Social Science, Vol. 473, The Future of American Unionism (May, 1984): 149-164.
Abstract: This paper summarized some new evidence concerning the impact of collective bargaining on productivity for workers of a given quality working with the same amount of capital. The new findings, which are based on econometric investigations, indicate that in many sectors,in particular manufacturing and construction, unionized work places are on average more productive than those that are nonunion. This positive union productivity effect is not an immutable constant. For example,in the underground bituminous coal industry, unionized mines were significantly less productive than nonunion mines in 1975 although they were significantly more productive in 1965.The routes by which unions affect productivity have not yet been carefully delineated, and they appear to differ from sector to sector. In manufacturing, reduced turnover and improved management seem to be key; in construction, better trained workers and more rationalized hiring and supervision seem to be primary. Finally, while the union/nonunion productivity differential is likely to be positive, it is on average not large enough to offset the greater compensation and capital intensity under unionism. Hence,higher productivity and lower profitability appear to go hand in hand under collective bargaining.
Handle: RePEc:nbr:nberwo:1249
Template-Type: ReDIF-Paper 1.0
Title: Annuity Markets, Savings, and the Capital Stock
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: John B. Shoven
Author-Name: Avia Spivak
Note: PE
Number: 1250
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1250
File-URL: http://www.nber.org/papers/w1250.pdf
File-Format: application/pdf
Publication-Status: published as Kotlikoff, Laurence J., John B. Shoven and Avia Spivak. "Annuity Markets, Savings, and the Capital Stock." Issues in Pension Economics, edited by Zvi Bodie, John Shoven and David A. Wise, Chicago: UCP, 1987.
Publication-Status: published as Annuity Markets, Savings, and the Capital Stock, Laurence J. Kotlikoff, John B. Shoven, Avia Spivak. in Issues in Pension Economics, Bodie, Shoven, and Wise. 1987
Abstract: This article examines how the availability of annuities affects savings and inequality in economies in which neither private nor public pensions initially exist. The absence of widespread market or government annuity insurance is clearly descriptive of many less developed countries in the world today; it was also a characteristic of virtually all countries prior to World War II. The paper compares economies with perfect insurance with economies in which completely selfish parents and children pool longevity risk to their mutual advantage. The analysis of the latter economies takes into account the infinite sequence of risk sharing bargains of successive parents with their children. Such bargains affect current risk sharing between parents and child because they determine the welfare of current children when they become parents. Calculations based on the CBS utility function indicate that perfecting annuity insurance can significantly reduce national savings. Indeed, the insurance aspects of government pensions are potentially as important as underfunding government pensions in reducing national savings.
Handle: RePEc:nbr:nberwo:1250
Template-Type: ReDIF-Paper 1.0
Title: Life-Cycle Labor Force Participation of Married Women: Historical Evidence and Implications
Author-Name: Claudia Goldin
Author-Person: pgo601
Note: DAE
Number: 1251
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1251
File-URL: http://www.nber.org/papers/w1251.pdf
File-Format: application/pdf
Publication-Status: published as Goldin, Claudia. "Life-Cycle Labor Force Participation of Married Women: Historical Evidence and Implications," Journal of Labor Economics, vol. 7,(January 1989), pp.20-47.
Abstract: The five-fold increase in the labor force participation rate of married women over the last half century was not accompanied by a substantial increase in the average job market experience of working women. Two data sets giving life-cycle labor force histories for cohorts of women born from the 1880s to 1910s indicate substantial (unconditional) heterogeneity in labor force participation. Married women in the labor force had a high degree of attachment to it; increased participation rates brought in women with little prior job experience and reduced cumulated years experience. According to extant schedules froma 1939 Women's Bureau Bulletin, 86% of married women born around 1895 and working in 1939 had been employed 50% of the years since beginning work, and 47% had worked 88% of those years. Average years of experience for cross sections of working married women hardly increased from 1920 to 1950, rising from 9 to 10.5 years. Because wages are calculated only for currently employed individuals, the steadiness in relative wages of women to men over this period may result from stable experience ratings for employed married women. An exploration of the determinants of labor force persistence points to the importance of occupational choice early in the work history of a woman and to the rise in clerical and professional occupations in extending life-cycle labor force participation.
Handle: RePEc:nbr:nberwo:1251
Template-Type: ReDIF-Paper 1.0
Title: Costs and Benefits of an Anti-Inflationary Policy: Questions and Issues
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Marcus H. Miller
Author-Person: pmi133
Note: ITI IFM
Number: 1252
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1252
File-URL: http://www.nber.org/papers/w1252.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. and Marcus H. Miller. "Costs and Benefits of an Anti-Inflationary Policy: Questions and Issues." Inflation and Unemployment: Theory, Experience and Policy Making, edited by Victor Argy and John Nevile, pp . 11-38. London: George Allen & Unwin, Ltd., 1985.
Abstract: This paper analyses how the output or unemployment cost of achieving a sustainable reduction in the rate of inflation depends on the structure of the wage-price process and how the "sacrifice ratio" can be minimized. In models where the natural rate is invariant under the anti-inflationary policies, price level inertia is not sufficient for a positive sacrifice ratio. Without sluggishness in the core inflation rate, a zero sacrifice ratio can be achieved simply through intelligent demand management. With sluggish core inflation, the sacrifice ratio is positive unless intelligent demand management is complemented by cost-reducing fiscal measures o reffective incomes policy. Letting the exchange rate float does not reduce the sacrifice ratio. If core inflation is partly backward-looking and partly forward-looking, current core inflation may be a function of current and past expectations of future recessions. Conventional sacrifice ratio calculations ignore forward-looking aspects of behaviour and may therefore underestimate the true cost of disinflation. If there is hysteresis in the natural rate (e.g. through a gradual adjustment of the natural rate towards the actual rate) and if there is sluggish core inflation, the sacrifice ratio will become infinite.Whenever sluggish core inflation is present, credibility of the anti-inflationary (monetary) policy alone cannot obviate a positive sacrifice ratio.
Handle: RePEc:nbr:nberwo:1252
Template-Type: ReDIF-Paper 1.0
Title: Tariff Liberalization Policy and Financial Restrictions
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 1253
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1253
File-URL: http://www.nber.org/papers/w1253.pdf
File-Format: application/pdf
Publication-Status: published as Aizenman, Joshua. "Tariff Liberalization Policy and FInancial Restrictions." Journal of International Economics, Vol. 19, (1985), pp. 241-255.
Abstract: The purpose of this paper is to assess how restrictions on capital mobility affect adjustment to a tariff liberalization policy. This is done by comparing the adlustment process under free and restricted convertibility of foreign assets in a regime where the commercial exchange rate is pegged. It is shown that trade liberalization causes in the short run a larger drop in domestic goods prices and a smaller current account deficit in a regime with restricted convertibility. Similar results apply also for the long-run current account effects of the liberalization: they are smaller under financial restrictions.
Handle: RePEc:nbr:nberwo:1253
Template-Type: ReDIF-Paper 1.0
Title: Imported Materials Prices, Wage Policy, and Macroeconomic Stabilization
Author-Name: Richard C. Marston
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 1254
Creation-Date: 1983-12
Order-URL: http://www.nber.org/papers/w1254
File-URL: http://www.nber.org/papers/w1254.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, Vol. 18, No. 2, pp. 273-284, (May 1985).
Abstract: This paper analyzes two simple wage rules that keep employment constant when there are shocks to the prices of imported materials. One rule ties nominal wages to the GNP deflator rather than the consumer price index. The second rule, followed by Japan after the second oil price shock, ties the real wage to real GNP. The paper shows the effects on output, real income, and other macroeconomic variables of choosing either rule in place of the real wage stability provided by conventional wage indexation.
Handle: RePEc:nbr:nberwo:1254