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Template-Type: ReDIF-Paper 1.0
Title: Interest Rate Determination in Developing Countries: A Conceptual Framework
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Mohsin S. Khan
Note: ITI IFM
Number: 1531
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1531
File-URL: http://www.nber.org/papers/w1531.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian and Mohsin S. Khan. "Interest Rate Determination in Developing Countries" A Conceptual Framework," International Monetary Fund Staff Papers, Vol. 32, No. 3, September 1985, pp. 377-403.
Abstract: As a number of developing countries move towards more liberalized financial systems, the question of how interest rates respond to foreign influences and domestic policies is one that policymakers in these countries have started to face. Most existing studies of interest rates typically treat only the extreme cases of either a fully open economy, where some form of interest rate arbitrage holds, or a completely closed economy, in which interest rates are determined solely by domestic monetary factors. Developing countries, however, generally fall somewhere between these two extremes, so that the standard models of interest rate determination would not seem to be relevant to their case.The purpose of this paper is to outline a theoretical framework that can serve as a starting point for analyzing interest rate determination in those developing countries that are in the process of removing controls on the financial sector and restrictions on capital flows. The approach suggested here combines elements of the closed-economy and open-economy models, and thus is able to incorporate the influences of foreign interest rates, expected changes in exchange rates, and monetary developments on domestic interest rates. An interesting feature of the resulting model is that the approximate degree of financial openness, defined as the extent to which domestic interest rates are linked to foreign interest rates, can in fact be as certained from the data of the particular country. To illustrate the empirical validity of the proposed model it was applied to two countries -- Colombia and Singapore. These two countries are quite different in terms of levels of financial development and degrees of openness, and thus provide a useful first test of the general nature of the model. The model is able to represent both these cases quite adequately. The estimates indicate that in Colombia both foreign and domestic factors are important, while domestic interest rates in Singapore are fully determined by foreign interest rates and variations in the exchange rate. This is precisely what would have been expected, given the characteristics of the respective financial systems in the two countries.
Handle: RePEc:nbr:nberwo:1531
Template-Type: ReDIF-Paper 1.0
Title: On the Interest Rate Elasticity of the Demand for International Reserves: Some Evidence from Developing Coutries
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 1532
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1532
File-URL: http://www.nber.org/papers/w1532.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian. "On the Interest Rate Elasticity of the Demand for International Reserves: Some Evidence from Developing Countries," Journal of International Money and Finance, Vol. 4, No. 3, pp. 287-295. (June 1985)
Abstract: Contrary to what is suggested by the theory, most empirical studies on the demand for international reserves have failed to find a significant(negative) coefficient for the opportunity cost of holding reserves. In this paper it is argued that the reason for this is that the opportunity cost of holding international reserves has been measured incorrectly. In the empirical analysis presented in this paper the spread between the interest rate at which countries can borrow from abroad and LIBOR is used as a proxy for the net opportunity cost for holding reserves. The results obtained using data for a group of developing countries for 1976-198O show that when this net opportunity cost is used, the regression coefficient is significantly negative.
Handle: RePEc:nbr:nberwo:1532
Template-Type: ReDIF-Paper 1.0
Title: Tax Aversion, Deficits and the Tax Rate-Tax Revenue Relationship
Author-Name: Roger N. Waud
Note: PE
Number: 1533
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1533
File-URL: http://www.nber.org/papers/w1533.pdf
File-Format: application/pdf
Publication-Status: published as Waud, Roger N."Politics, Deficits, and the Laffer Curve." Public Choice, Vol. 47, No. 3, pp. 509-517, (September 1985)."Tax Aversion and the Laffer Curve." From Scottish Journal of Political Economy, Vol. 33, No. 3, (August 1986).
Abstract: This paper offers a possible explanation for the existence of continual government budget deficits such as experienced in a number of industrialized countries in recent years. Based on the assumption that higher tax rates cause more intensive tax-aversion behavior (tax avoidance and tax evasion), together with the assumption that the time horizon relevant for political decision makers is shorter than that required for complete private sector response to tax rate change, our analysis suggests why there seems to be an inherent bias toward budget deficits. Because of tax aversion an inverse relationship between tax rates and tax revenues may exist at low levels of the tax rate. Consequently determined attempts to eliminate or reduce deficits can become self-defeating, almost certainly so when there is a structural deficit. Our analysis suggests that if an economy is on the downward sloping portion of a stylized Laffer curve political expedience, uncertainty about the shape of the curve, and a common wisdom that tax rate increases reduce deficits can all conspire to keep the budget trapped in deficit. Finally, in the presence of inflation deficit growth may be less if there is indexation of income tax rates to inflation, contrary to conventional wisdom.
Handle: RePEc:nbr:nberwo:1533
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Policies in the OECD and LDC External Adjustmemt
Author-Name: Jeffrey Sachs
Author-Name: Warwick J. McKibbin
Author-Person: pmc14
Note: ITI IFM
Number: 1534
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1534
File-URL: http://www.nber.org/papers/w1534.pdf
File-Format: application/pdf
Abstract: In this paper, the authors describe a simulation model for analyzing the effects of macroeconomic policies in the OECD on global macroeconomic equilibrium. Particular attention is paid to the effects on developing countries of alternative mixes of monetary and fiscal policies in the OECD.Though the model is quite small, it has several properties which make it attractive for policy analysis. First, the important stock-flow relationships and intertemporal budget constraints are carefully observed, so that the modelis useful for short-run and long-run analysis. Budget deficits, for example,cumulate into a stock of public debt which must be serviced, while current account deficits cumulate into a stock of foreign debt. Second, the asset markets are forward looking, so that the exchange rate is conditioned by the entire future path of policies rather than by a set of short-run expectations. Third, the model is amenable to policy optimization exercises, and in particular can be used to study the effects of policy coordination versus non-coordination in the OECD, on global macroeconomic equilibrium.
Handle: RePEc:nbr:nberwo:1534
Template-Type: ReDIF-Paper 1.0
Title: Tariffs vs. Quotas with Endogenous Quality
Author-Name: Kala Krishna
Author-Person: pkr26
Note: ITI IFM
Number: 1535
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1535
File-URL: http://www.nber.org/papers/w1535.pdf
File-Format: application/pdf
Publication-Status: published as Krishna, Kala. "Tariffs versus Quotas with Endogenous Quality." Journal of International Economics, Vol. 23, (1987), pp. 97-122.
Abstract: This paper analyzes some aspects of the effects of trade restrictions (such as tariffs, quotas and quality controls) and their desirability when the quantity of the imported good is endogenous, and the foreign producer is a monopolist. It uses a fairly general model based on the work of Spence and Sheshinski. A crucial determinant of the direction of these effects is shown to be the valuation of increments in quality by marginal consumers,relative to that of all consumers on average. A way of comparing infinitesimal equivalent policies is developed and used to compare import equivalent policies. For reasonable characterizations of demand - tariffs are shown to dominate quotas on the basis of their revenue effects alone, while quotas are shown to dominate tariffs on the basis of their quality effects alone. Also, quality controls are shown to dominate both tariffs and quotas on the basis of revenue effects alone for reasonable characterizations of demand. Some special cases are also analyzed, including the case where demand is modelled along the lines of Swan - and only services of the good produced matter to consumers.
Handle: RePEc:nbr:nberwo:1535
Template-Type: ReDIF-Paper 1.0
Title: On the Economic Interpretation and Measurement of Optimal Capacity Utilization with Anticipatory Expectations
Author-Name: Catherine J. Morrison
Note: PR
Number: 1536
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1536
File-URL: http://www.nber.org/papers/w1536.pdf
File-Format: application/pdf
Publication-Status: published as Morrison, Catherine J. "On the Economic Interpretation and Measurement of Optimal Capacity Utilization with Anticipatory Expectations," Review of Economic Studies, Vol. 52, pp. 295-310. April 1985
Abstract: This study builds on recent research giving the notion of capacity utilization clearer economic foundations. In this research optimal output Y* is defined as the minimum point on the firm's short-run average total cost curve, and capacity utilization is then computed as CU=Y/Y*, where Y is actual output. Here I extend these concepts to include adjustment costs due to changes in the stock of capital, and nonstatic expectations of future output demand and input prices. The more general notion of CU is shown to depend on the shadow values of the firm's quasifixed inputs, and is decomposed to isolate the effects of anticipatory expectations. An empirical comparison is then made between traditional indices and alternative economic CU measures, using annual U.S. manufacturing data 1954-80. The calculated indices exhibit plausible patterns, which can be interpreted as the effects of nonstatic expectations and adjustment costs.
Handle: RePEc:nbr:nberwo:1536
Template-Type: ReDIF-Paper 1.0
Title: Protection and the Product Line: Monopoly and Product Quality
Author-Name: Kala Krishna
Author-Person: pkr26
Note: ITI IFM
Number: 1537
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1537
File-URL: http://www.nber.org/papers/w1537.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review Volume 31, No.1 Feb 1990
Abstract: Thereare three points made in this paper. The first is that the question concerning choice of a product line by a monopolist is similar in structure to other adverse selection problems -- and can be analyzed in an elementary way by adapting techniques recently developed for such problems. Such an analysis is developed in the first section. The second is that when a foreign monopolist produces a product line, protection will change the composition of the entire product line.The nature of such effects is studied in the second section and this analysis is greatly simplified by the results of the first sectton. In line with empirical work on the subject, quotas are shown to raise the average quality of imports, while the effects of tariffs are ambiguous.The third concerns the possibility of profit shifting protection which is welfare increasing. The welfare consequences of protection are analyzed in the third section, and are shown to depend crucially on the distribution of consumers.
Handle: RePEc:nbr:nberwo:1537
Template-Type: ReDIF-Paper 1.0
Title: Workers' Compensation, Wages, and the Risk of Injury
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Note: LS
Number: 1538
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1538
File-URL: http://www.nber.org/papers/w1538.pdf
File-Format: application/pdf
Publication-Status: published as New Perspectives in Workers' Compensation, edited by John F. Burton, Jr.,pp. 71-96. New York: ILR Press, 1989.
Abstract: This paper provides an analysis and summary of the effects of the Workers' Compensation (WC) system on wages and work injury experience. It stresses how lessons learned from other forms of social insurance can be applied to research on WC. I begin with a brief overview of the characteristics of the WC system. Next, some simple labor market models are sketched that provide implications about how the system might affect employee compensation and the frequency and duration of both work injuries and reported WC claims.The bilk of the paper critically analyzes the relevant empirical literature, summarizing what we have learned from it and suggesting future research directions.
Handle: RePEc:nbr:nberwo:1538
Template-Type: ReDIF-Paper 1.0
Title: Academic Ability, Earnings, and the Decision to Become a Teacher: Evidence From the National Longitudinal Study of the High School Class of 1972
Author-Name: Charles F. Manski
Author-Person: pma111
Note: LS
Number: 1539
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1539
File-URL: http://www.nber.org/papers/w1539.pdf
File-Format: application/pdf
Publication-Status: published as Wise, David (ed.) Public Sector Payrolls. Chicago: University of Chicago Press, 1987.
Publication-Status: published as Academic Ability, Earnings, and the Decision to Become a Teacher: Evidence from the National Longitudinal Study of the High School Class of 1972, Charles F. Manski. in Public Sector Payrolls, Wise. 1987
Abstract: Perceived shortcomings in the quality of American education at the elementary and secondary school levels have drawn much public attention recently. In particular, concern with the composition of the teacher force has been prominent. Informed assessment of the various proposals for increasing the quality of the teaching force is possible only if we can forecast the extent to which these proposals, if enacted, would influence the occupational choice decisions of high ability young adults. Until now,there has been no basis for making such forecasts.The research reported here examines the relationships between academic ability, earnings, and the decision to become a teacher through analysis of data from a national sample of college graduates. Inspection of the data reveals that the frequency of choice of teaching as an occupation is inversely- related to academic ability. Conditioning on sex and academic ability, the earnings of teachers are much lower, on average, than those of other working college graduates. Conditioning on sex, the earnings of teachers tend to rise only slightly, if at all, with academic ability. An econometric analysis suggests that in the absence of a minimum ability standard, increases in teacher earnings would yield substantial growth in the size of the teaching force but minimal improvement in the average academic ability of teachers. If teacher salaries are not increased, institution of a minimum ability standard would improve the average ability of the teaching force but reduce its size. The average ability of the teaching force can be improved and the size of the teaching force maintained if minimum ability standards are combined with sufficient salary increases. It appears that the average academic ability of teachers can be raised to the average of all college graduates if a minimum SAT score (verbal +math) of 800 is required for teacher certification and teacher salaries are raised by about ten percent over their present levels.
Handle: RePEc:nbr:nberwo:1539
Template-Type: ReDIF-Paper 1.0
Title: Determinants of Slave and Crew Mortality in the Atlantic Slave Trade
Author-Name: Richard H. Steckel
Author-Person: pst352
Author-Name: Richard A. Jensen
Note: DAE
Number: 1540
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1540
File-URL: http://www.nber.org/papers/w1540.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic History, vol.46, no.1, pp57-77, March 1986.
Abstract: This paper measures and analyzes death rates that prevailed in the Atlantic slave trade during the late 1700s. Crew members died primarily from fevers (probably malaria) and slaves died primarily from gastrointestinal diseases. Annual death rates in this activity were 230 per thousand among the crew and 83 per thousand among slaves. The lack of immunitiesto the African disease environment contributed to the high death rates among the crew. The spread of dysentery among slaves during the voyage was probably exacerbated by congestion and poor nutrition. Death rates differed systematically by region of origin in Africa and season of the year. There was little interaction between the incidence of slave and crew deaths. The high death rates make the slave trade a demographic laboratory for study of health and mortality and an economic laboratory for study of markets for free labor.
Handle: RePEc:nbr:nberwo:1540
Template-Type: ReDIF-Paper 1.0
Title: The U.S. Capital Stock in the Nineteenth Century
Author-Name: Robert E. Gallman
Note: DAE
Number: 1541
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1541
File-URL: http://www.nber.org/papers/w1541.pdf
File-Format: application/pdf
Publication-Status: published as Gallman, Robert E. "The U.S. Capital Stock in the Nineteenth Century," Long-Term Factors in American Economic Growth, Income and Wealth Conference Volume 51, ed. by S.L. Engerman and R.E. Gallman. Chicago: UCP, 1986.
Abstract: This paper -- prepared for and presented at a meeting of the Conference on Research in Income and Wealth -- describes a set of seven capital stock estimates for the U.S., distributed at decennial intervals, 1840 through 1900.The estimates link with Raymond Goldsmith's work on the twentieth century to form a capital stock series covering well over 100 years of U.S. history. The paper describes the theoretical underpinnings of the new estimates, the sources of the evidence from which they were constructed, the types of estimating procedures followed, and the relationships of the new series to other economic aggregates. A few of the ways in which the series illuminates the nature of the nineteenth century U.S. economy and the course of U.S. economic development are taken up.
Handle: RePEc:nbr:nberwo:1541
Template-Type: ReDIF-Paper 1.0
Title: Efficient Inflation Forecasts: An International Comparison
Author-Name: Alex Kane
Author-Person: pka501
Author-Name: Leonard Rosenthal
Note: ME
Number: 1542
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1542
File-URL: http://www.nber.org/papers/w1542.pdf
File-Format: application/pdf
Abstract: This paper addresses the question of whether nominal Eurocurrency interest rates provide significant information about expected inflation. To test this question two sets of inflation forecasts for the U.S. and five European countries were generated: 1) from time series of past inflation rates;2) by forecasting real rates from time series of past real rates and subtracting these forecasts from nominal rates. The accuracy of the two sets of inflation forecasts was compared. The results indicate that nominal Eurocurrency rates provide valuable marginal information about expected inflation for the U.S. and U.K., but not for the other European countries.
Handle: RePEc:nbr:nberwo:1542
Template-Type: ReDIF-Paper 1.0
Title: Short-Term Movements of Long-Term Real Interest Rates: Evidence from the U.K. Indexed Bond Market
Author-Name: James A. Wilcox
Note: ME
Number: 1543
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1543
File-URL: http://www.nber.org/papers/w1543.pdf
File-Format: application/pdf
Abstract: The central goverment now issues both nominal and iflation indexed long-term bonds in the United Kingdom. The difference in their yields provides one measure of the long-term expevted rate of inflation. The evidence suggests that higher long-term, expected , real yields are associated with forecasts of higher income, with tigher monetary policy, and with positive aggregate supply shocks. Changes in the short-termgrowth rate of the monbetary base, which presumably capture the so-called liquidity effect on the short-terminterst rates, do not perceptibly alterlong-term real rates. Long-term real rates also appear to be unaffected by the rate of expected inflation. Comparison with nominal interest rate equiation estimates reveals that conclusions about the effect of all variables are extremely sensitive to the choice of a proxy for expected long-term inflation.
Handle: RePEc:nbr:nberwo:1543
Template-Type: ReDIF-Paper 1.0
Title: Taxable and Tax-Exempt Interest Rates: The Role of Personal and Corporate Tax Rates
Author-Name: Joe Peek
Author-Person: ppe90
Author-Name: James A. Wilcox
Note: ME
Number: 1544
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1544
File-URL: http://www.nber.org/papers/w1544.pdf
File-Format: application/pdf
Publication-Status: published as Peek, Joe and James A. Wilcox. "Tax Rates and Interest Rates on Tax-Exempt Securities." New England Economic Review, (January/February 1986) pp. 29-41 .
Abstract: This paper investigates empirically the effects of personal and corporate taxes on taxable interest rates and on the spread between taxable and tax-exempt rates. Two main sets of results emerge. First, we establish that the effective marginal investors in the Treasury bill market are households, as opposed to tax-exempt institutions or corporations. We find no evidence of corporate tax rate effects on Treasury bill yields. The study is then extended to an examination of the tax-exempt market. The results there contradict the hypothesis that commercial bank arbitrage generally ensures that the taxable-tax-exempt interest rate spread is determined by the corporate tax rate. Our estimates decisively reject the corporate in favor of the personal income tax rate as being the relevant tax rate of the marginal investor in this market as well.
Handle: RePEc:nbr:nberwo:1544
Template-Type: ReDIF-Paper 1.0
Title: Portfolio Choice and the Debt-to-Income Relationship
Author-Name: Benjamin M. Friedman
Note: ME
Number: 1545
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1545
File-URL: http://www.nber.org/papers/w1545.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "Portfolio Choice and Debt-to-Incoome Relationship." American Economic Review, Vol. 75, No. 2, (May 1985), pp. 338-343.
Abstract: The ratio of outstanding debt to gross national product in the United States has shown essentially no time trend over a period measured not in years but in decades. The research reported in this paper indicates that lenders' portfolio behavior exhibits characteristics that could provide aplausible explanation of this phenomenon. Given the long-run stability of the U.S. economy's wealth in relation to income, the question of lenders' behavior explaining the stable aggregate debt-to-income ratio turns on whether investors treat debt and other assets as close or distant substitutes in their portfolios. Analysis of financial assets' respective risk properties indicates that debt and equity are indeed sufficiently distant substitutes for lenders' behavior to confine the debt-to-income ratio within relatively narrow limits. In particular, the substitutability of debt and equity securitiesis sufficiently limited that very large movements in expected return differentials -- movements so large as presumably to elicit offsetting responses from borrowers -- would be required to induce major changes in the debt share of investors' aggregate portfolio, and hence in the economy's aggregate debt-to-income ratio.
Handle: RePEc:nbr:nberwo:1545
Template-Type: ReDIF-Paper 1.0
Title: Trade Restrictions as Facilitating Practices
Author-Name: Kala Krishna
Author-Person: pkr26
Note: ITI IFM
Number: 1546
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1546
File-URL: http://www.nber.org/papers/w1546.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 26, pp. 251-270, (1989).
Abstract: This paper deals with the effect of trade restrictions on competition in oligopolistic markets. Quantitative restrictions, such as VER's (Voluntary Export Restrictions) are shown to affect the extent to which foreign firms can compete in the domestic market, and hence to raise the equilibrium prices and profits of both domestic and foreign firms --when such restrictions are not too severe. This increase in prices and profits is shown to make it unlikely for VER's to raise National Welfare. In addition, I show that domestic output may fall due to the VER's. For these reasons, VER's do not seem to be desirable ways of restricting imports.Tariffs and Quotas are also shown to be non-equivalent in such oligopoly models. A comparison of the effects of tariffs and quotas shows that it would be in the interest of domesti cmanufacturers t lobby for VER's instead of import equivalent tariffs. In addition, it is shown that the foreign firm would prefer VER's to import equivalent tariffs, even if tariff revenues were refunded to them. Thus, the recent VER's on Japanese automobiles may well have been in the interests of both Japanese and American firms, and at the expense of the nation as a whole.
Handle: RePEc:nbr:nberwo:1546
Template-Type: ReDIF-Paper 1.0
Title: Productivity, R&d, and Basic Research at the Firm Level in the 1970s
Author-Name: Zvi Griliches
Note: PR
Number: 1547
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1547
File-URL: http://www.nber.org/papers/w1547.pdf
File-Format: application/pdf
Publication-Status: published as Griliches, Zvi. "Productivity, R&D, and Basic Research at the Firm Level inthe 1970s," American Economic Review, Vol. 76, No. 1, (March 1986), pp. 1 41-154.
Publication-Status: published as Productivity, R&D, and Basic Research at the Firm Level in the 1970s , Zvi Griliches. in R&D and Productivity: The Econometric Evidence, Griliches. 1998
Abstract: A new data set (the NSF-Census match) containing information on the R&D expenditures, sales, employment, and other detail for approximately 1,000 largest manufacturing firms in the U.S. during 1957-1977 is analyzed using a standard production function framework augmented by the addition of an R&D "capital" and "mix" variables (basic as a fraction of total and privately financed as a fraction of total). The results indicate that R&D continued to contribute to productivity growth in U.S. manufacturing also in the 1970's, with no significant decline in its effectiveness as com-pared to the 1960's; that the contribution of the basic research component of such expenditures was significantly higher than its nominal ratio would imply; and that while federally financed R&D expenditures did have a positive effect on measured productivity growth of these firms, this effect was significantly smaller than the comparable contribution of privately financed R&D expenditures.
Handle: RePEc:nbr:nberwo:1547
Template-Type: ReDIF-Paper 1.0
Title: Pricing Adjustable Rate Mortgages
Author-Name: Patric H. Hendershott
Note: ME
Number: 1548
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1548
File-URL: http://www.nber.org/papers/w1548.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H "Pricing Adjustable-Rate Mortgages." Solving the Menu Problem, Proceedings of the Tenth Annual Conference, pp. 99-119. San Francisco: Federal Home Loan Bank of San Francisco1985.
Abstract: This paper provides a framework for pricing adjustable rate mortgages and summarizes some evidence on the prices (additions to the coupon rate) necessary to cover expected losses from binding of varios interest rate caps and from mortgage default and foreclosure. Both interst rate and default risk are shown to be heavily inluenced by the form of the mortgage instrument as well as the underlying drift and uncertainty in interest rates and house prices.
Handle: RePEc:nbr:nberwo:1548
Template-Type: ReDIF-Paper 1.0
Title: Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model
Author-Name: Andrew B. Abel
Author-Person: pab10
Note: EFG
Number: 1549
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1549
File-URL: http://www.nber.org/papers/w1549.pdf
File-Format: application/pdf
Publication-Status: published as Abel, Andrew B. "Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model," Journal of Monetary Economics, Vol. 16, No. 1, July 1985, pp. 55-71.
Abstract: This paper analyzes the dynamic behavior of capital accumulationin Stockman's (1981) cash-in-advance model. If the cash-in-advance constraint applies only to consuittion, then money is superneutral along the transition path as well as in the long run. Alternatively, if the cash-in-advance constraint applies to gross investment as well as consumption, then a permanent increase in the rate of monetary growth reduces the steady state capital stock. The effect on the speed of adjustment depends on the sign of a certain simple function of the parameters of preferences and technology.
Handle: RePEc:nbr:nberwo:1549
Template-Type: ReDIF-Paper 1.0
Title: On the Optimal Taxation of Capital Income in the Open Economy
Author-Name: David G. Hartman
Note: PE
Number: 1550
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1550
File-URL: http://www.nber.org/papers/w1550.pdf
File-Format: application/pdf
Abstract: The optimal taxation of foreign and domestic investors' incomes is examined with a simple overlapping-generations model. Even when tax rates are allowed to discriminate between these groups,the optimal tax rates on both domestic and foreign investors' incomes in the small open economy are identical and equal to the optimal rate of tax in the closed economy. In light of the emphasis in the literature on the extent to which the elasticity of international flows might lower optimal capital income taxes, this conclusion is quite a surprise. In the large open economy, the optimal tax rate on foreign investors'income alone is a weighted average of one and the small economy tax rate. The optimal tax rate on domestic income is, again, unaffected by the openness ofthe economy. When a uniform tax rate must be set in the large open economy, it is generally higher than the optimal tax rate for a closed economy, a conclusion contrary to the conventional wisdom. However, a higher elasticity of international capital flows is associated with a lower tax rate, as expected, butthe rate remains above the closed-economy rate. In summary, openness matters for optimal tax policy, primarily in the case of the large economy. The reason is mainly the ability to burden foreign investors with a tax liability.
Handle: RePEc:nbr:nberwo:1550
Template-Type: ReDIF-Paper 1.0
Title: The Welfare Effects of a Capital Income Tax in an Open Economy
Author-Name: David G. Hartman
Note: PE
Number: 1551
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1551
File-URL: http://www.nber.org/papers/w1551.pdf
File-Format: application/pdf
Publication-Status: Published as "Taxation and the Effects of Inflation on the Real Capitol Stock in an Open Economy", International Economic Review, Vol. 20, no. 2(1979): 417-426.
Abstract: International capital mobility has typically been ignored in discussions of the welfare effects of the capital income tax. In the a typical analysis which does consider the open economy it is recognized that highly-elastic capital flows could significantly alter the usual conclusions. While there have been strenuous debates about the elasticity of international capital flows, there can be little disagreement that international ownership of capital is an important and growing phenomenon. In this paper, we explore the welfare effects of changes in the capital income tax from a different perspective: that of a country in which foreign ownership of a portion of the capital stock and foreign owners' payment of taxesis a reality. With this modification in emphasis, a simple graphical analysis is sufficient to indicate that international capital ownership could easily dominate other welfare effects of tax changes. At least, the arguments presented in this paper raise a caution about ignoring the openness of the economy simply because elasticities are believed small.
Handle: RePEc:nbr:nberwo:1551
Template-Type: ReDIF-Paper 1.0
Title: Monopolistic Competition and Deviations from PPP
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 1552
Creation-Date: 1985-01
Order-URL: http://www.nber.org/papers/w1552
File-URL: http://www.nber.org/papers/w1552.pdf
File-Format: application/pdf
Abstract: The purpose of this paper is to explain deviations from PPP in an economy charaterived by a mononolistic competitive market structure in which pricing decisions incur costs. That lead producers to pre-set the price path for several periods. The paper derives an optimal pricing rule, including the optimal pre-setting horizon. It does so for a rational expectation equilibrium, characterized by staggered, unsynchronized price setting, for which the degree of staggering is endogenously determined. The discussion focuses on the critical role of the degree of domestic-foreign goods substitutability in explaining observable deviations from PPP.
Handle: RePEc:nbr:nberwo:1552
Template-Type: ReDIF-Paper 1.0
Title: Valuing the Government's Tax Claim on Risky Corporate Assets
Author-Name: Saman Majd
Author-Name: Stewart C. Myers
Note: ME PE
Number: 1553
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1553
File-URL: http://www.nber.org/papers/w1553.pdf
File-Format: application/pdf
Abstract: This paper explores the effects of tax asymmetries on the value of risky capital investments made by corporations.The government's claim on the firm is shown to be equivalent to a portfolio of options on the firm's revenues. The tax law's provisions for carrying tax losses forward and backward are introduced, necessitating a numerical solution for the value ofthe government's claim. The results show that asymmetric taxation of operating gains and losses can significantly affect the after-tax net present value of corporate investment opportunities.
Handle: RePEc:nbr:nberwo:1553
Template-Type: ReDIF-Paper 1.0
Title: Labor and Investment Demand at the Firm Level: A Comparison of French, German and U.S. Manufacturing, 1970-79
Author-Name: Jacques Mairesse
Author-Person: pma712
Author-Name: Brigitte Dormont
Note: PR
Number: 1554
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1554
File-URL: http://www.nber.org/papers/w1554.pdf
File-Format: application/pdf
Publication-Status: published as Dormont, Brigitte and Jacques Mairesse. "Labor and Investment at the Firm Level: A Comparison of French, German and U.S. Manufacturing," European Economic Review, Vo. 28, No. 1-2, June-July 1985, pp. 201-231.
Abstract: We investigate how labor and investment demand at the firm level (gross as well as net and replacement investment separately) differs in French, German and U.S. manufacturing, and has changed since the 1974-75 crisis. We use three consistent panel data samples of large firms for1970-79, and rely on simple models of the accelerator-profits type. We find that the accelerator effects and the profits effects did not vary much between 1970-73 and 1976-79, and were quite comparable in the three countries, the former being of a more permanent nature and the latter more transitory.To a large extent these effects account for the important changes and differences in labor and investment demand between the two subperiods and across the three countries.
Handle: RePEc:nbr:nberwo:1554
Template-Type: ReDIF-Paper 1.0
Title: Why Construction Industry Productivity is Declining
Author-Name: Steven G. Allen
Author-Person: pal6
Note: PR
Number: 1555
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1555
File-URL: http://www.nber.org/papers/w1555.pdf
File-Format: application/pdf
Publication-Status: published as Allen, Steven G. "Why Construction Industry Productivity is Declining," Review of Economics and Statistics, Vol. LXVII, No. 4, (November 1985) pp. 6 61-669.
Abstract: According to unpublished data compiled by BLS, productivity in the construction industry reached a peak in 1968 and, except for a brief and small upturn between 1974 and 1976, has been falling ever since. This paper examines the sources of this productivity decline between 1968 and 1978 by estimating a production function to assign weights to various factors responsible for productivity change and deriving a new price deflator for construction which does not rely on labor or material cost indexes, thus eliminating a systematic bias toward overstating the rate of growth of prices.The production function analysis indicates that productivity should have declined by 8.8 percent between 1968 and 1978,representing 41 percent of the observed decline. The biggest factor in this decline was the reduction in skilled labor intensity resulting from a shift in the mix of output from largescale commercial, industrial, and institutional projects to single-family houses. Other important factors include declines in the average number of employees per establishment, capital-labor ratio, percent union, and the average age of workers. The difference between the official deflator and the new deflator proposed here accounts for an additional 51 percent of the reported productivity decline, leaving only 8 percent of the decline unexplained.
Handle: RePEc:nbr:nberwo:1555
Template-Type: ReDIF-Paper 1.0
Title: Monetary vs. Fiscal Policy Effects: A Review of the Debate
Author-Name: Bennett T. McCallum
Note: EFG
Number: 1556
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1556
File-URL: http://www.nber.org/papers/w1556.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "Monetary vs. Fiscal Policy Effects: A Review of the Debate." The Monetary vs. Fiscal Policy Debate, edited by R. W. Hafer, pp . 9-29. Totowa, NJ: Rowman & Allanheld, Publishers, 1986.
Publication-Status: published as McCallum, Bennett T. "Monetary Policy Without Monetary Aggregates," FRB Saint Louis - Review, 1994, v76(2), 216-218.
Abstract: This paper reviews empirical findings, econometric issues,and theoretical results bearing upon the "monetary vs. fiscal policy" debate that began with the 1963 Friedrnan-Meiselman study.The main substantive conclusions are not very dramatic.The clearest is that an open-market increase in the money stock has a stimulative effect on aggregate demand, a conclusion that in turn implies that a money-financed increase in government expenditures (or reduction in taxes) is more stimulative than it would be if bond financed.This conclusion is based on empirical results obtained from St. Louis-type estimates and large scale economebic models and is supported by theoretical analysis involving both Ricardian and non-Ricardian assumptions. In the case of pure fiscal policy actions -- i.e.,bond-financed tax cutsor bond-financed expenditure increases --theory suggests that the latter should be at least as stimulative as the former and probably to a positive extent; evidence is mixed but not obviously inconsistent with this prediction.With respect to the textbook issue concerning the relative effects of pure monetary and fiscal actions, the evidence seems to support the notion that a sequence of $k open-market purchases, one each period, will be much more stimulative than a single but unreversed $k/period bond-financed increase in expenditures. The importance of this last issue is debatable.
Handle: RePEc:nbr:nberwo:1556
Template-Type: ReDIF-Paper 1.0
Title: The Competitive Position of U.S. Manufacturing Firms
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Irving B. Kravis
Note: ITI IFM
Number: 1557
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1557
File-URL: http://www.nber.org/papers/w1557.pdf
File-Format: application/pdf
Publication-Status: published as Lipsey, Robert E. and Irving B. Kravis. "The Competitive Position of U.S. Manufacturing Firms." Banca Nazionale del Lavoro Quarterly Review, No. 153,(June 1985), pp. 127-154.
Abstract: This paper distinguishes between the competitive position of U.S. firms and that of the U.S. and other countries as geographical locations for production. While the share of the U.S. in world exports of manufactures fellmore than 40 per cent between 1957 and 1977, the share of all U.S. firms from all locations declined much less and the share of U.S. multinational enterprises increased.The comparative advantage of U.S. multinational firms, as measured by the industry distribution of their exports from all locations, changed very little between 1966 and 1977. At the same time, there were large shifts in the comparative advantage of the parent firms in the U.S., their overseas affiliates, and foreign firms. The changes for the U.S. parents and their affiliates reflected differences among industries in the extent to which export production shares moved from the U.S. to the affiliates' host countries. The shift took place in all the industry groups but was largest for metals and chemicals and smallest for transport equipment. The rise in the share of world exports accounted for by U.S.multinational firms and the decline in the share of the U.S. as a geographical location suggests that the search for causes of the changed position of the U.S. should be directed not to deficiencies in American industrial or technological leadership but to other price and cost determining influences, such as productivity, wage setting, taxation, domestic inflation, and exchange rates.
Handle: RePEc:nbr:nberwo:1557
Template-Type: ReDIF-Paper 1.0
Title: Unemployment-Rate Dynamics and Persistent Unemployment Under Rational Expectations
Author-Name: Michael R. Darby
Author-Name: John C. Haltiwanger
Author-Person: pha231
Author-Name: Mark W. Plant
Note: LS
Number: 1558
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1558
File-URL: http://www.nber.org/papers/w1558.pdf
File-Format: application/pdf
Publication-Status: published as Darby, Michael R., John C. Haltiwanger and Mark W. Plan. "Unemployment-Rate Dynamics and Persistent Unemployment Under Rational Expectations." American Economic Review, Vol. 75, No. 4, (September 1985), pp. 614-637.
Abstract: This paper develops a model of unemployment rate dynamics that provides an explanation of persistent cyclical unemployment that does not involve persistent expectational errors or other nonoptimizing behavior. Our results are based on the interaction of search dynamics and inventory adjustments. An important element in these dynamics appears to be heterogeneity in the labor force which can be characterized as consisting of a relatively small group of high turnover individuals who comprise the bulk of normal unemployment and a larger group of low turnover individuals who dominate movements in cyclical unemployment. Our empirical results provide support for this theory as we demonstrate that the appropriately measured probability of becoming employed during a recovery falls relative to normal because of the unusually high proportion of low turnover individuals who have lost "permanent" jobs. As aresult, recovery is much slower than is indicated by normal relationships although each individual is searching optimally.
Handle: RePEc:nbr:nberwo:1558
Template-Type: ReDIF-Paper 1.0
Title: The Usefulness of the Wind-Up Measure of Pension Liabilities: A LabourMarket Perspective
Author-Name: James E. Pesando
Author-Person: ppe278
Note: PE LS
Number: 1559
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1559
File-URL: http://www.nber.org/papers/w1559.pdf
File-Format: application/pdf
Publication-Status: published as Pesando, James E. "The Usefulness of the Wind-Up Measure of Pension Liabilities: A Labour Market Perspective," Journal of Finance, Vol. 40, No.3, ( July 1985), pp. 927-940.
Abstract: Financial economists have long favoured the use of a wind-up measure of the firm's pension liabilities. Yet the pension liabilities of the firm also represent the pension wealth of its workers. It is reasonable to presume that workers and shareholders have a common view of the pension contract. If the wind-up measure depicts the true pension liabilities of the firm, then the wage concession granted by its workers must reflect the fact that the firm may choose to terminate the plan at any time. Data on the wage-service characteristics of the membership of a sample of final earnings plans in Canada suggest,contrary to the implications of the wind-up measure, that workers' wages do not internalize accruing pension benefits on a year-to-year basis. Instead, the data suggest that pension plans may be a vehicle through which a significant portion of the total compensation of individual employees is deferred until their later work years, and that the wind-up measure may well understate the pension liabilities of an on-going firm.
Handle: RePEc:nbr:nberwo:1559
Template-Type: ReDIF-Paper 1.0
Title: Monitoring Costs and Occupational Segregation by Sex: An Historical Analysis
Author-Name: Claudia Goldin
Author-Person: pgo601
Note: DAE LS
Number: 1560
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1560
File-URL: http://www.nber.org/papers/w1560.pdf
File-Format: application/pdf
Publication-Status: published as Goldin, Claudia. "Monitoring Costs and Occupational Segregation by Sex: An Historical Analysis," Journal of Labor Economics, Vol. 4, (January 1986), pp. 1-27.
Abstract: Supervisory and monitoring costs are explored to understand aspects of occupational segregation by sex. Around the turn of this century 47 percent of all female manufacturing operatives were paid by the piece, but only 13 percent of the males were. There were very few males and females employed by the same firm in the same occupation, and when they were, they were invariably paid by the piece. The group of industries that hired two-thirds of all male operatives, hired virtually no females. Males, but not females, were employed in teams across a variety of industries, and there was segregation by sex across various jobs requiring similar training and ability. Occupations in the clerical sector were rapidly "feminized" from 1900 to 1920 and an organization of work was employed resembling that used earlier in manufacturing. These findings can be understood by considering a model of occupational segregation in which monitoringis costly and males and females have different turnover rates. Employers adopt one of two solutions to avoid shirking -- piece rates and deferred payment. Because females are only employed in one period, piece rates are used for them; males, however, might prefer deferred payment which causes their earnings profile to be steeper than otherwise. Occupational segregation by sex results even if workers are homogeneous with regard to ability and there are nocosts of job investment. Males can also receive higher average wages per period than females. Under a reasonable set of assumptions, females would want to be employed in the male sector,but would be barred from doing so. Establishment-level and more aggregated data for manufacturing around 1890 are examined with regard to the costs of supervising and monitoring male and female workers in time and piece-rate positions.The findings tend to support the assumptions of the model concerning the relative costs of monitoring workers of different sexes paid by different methods.
Handle: RePEc:nbr:nberwo:1560
Template-Type: ReDIF-Paper 1.0
Title: Productivity Measurement with Nonstatic Expectations and Varying Capacity Utilization: An Integrated Approach
Author-Name: Catherine J. Morrison
Note: PR
Number: 1561
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1561
File-URL: http://www.nber.org/papers/w1561.pdf
File-Format: application/pdf
Publication-Status: published as Morrison, Catherine J. "Productivity Measurement with Nonstatic Expectations and Varying Capacity Utilization: An Integrated Approach," Journal of Econometrics, Vol. 33, No. 1/2. Oct/Nov, 1986.
Abstract: Typically measures of multifactor productivity growth have been based on a production and optimization framework that assumes all inputs are instantaneously adjustable, thus ignoring the important impacts of short run fixity of certain inputs. This paper focuses on the distinction between short and long run production behavior represented by economic capacity utilization indexes, and on the adjustment of observed productivity measures for the effects of short run fixity characterized by these indexes. A dynamic optimization model based on adjustment costs for quasi-fixed inputs is developed to calculate capacity utilization adjustments for productivity growth measures. The resulting framework is then used to identify empirically the effects of capacity utilization, nonstatic expectations,nonconstant returns to scale and adjustment costs for both capital and labor on productivity growth in the U.S. manufacturing sector, 1947-1979.
Handle: RePEc:nbr:nberwo:1561
Template-Type: ReDIF-Paper 1.0
Title: Education, Welfare, and the "New" Federalism: State Budgeting in a Federalist Public Economy
Author-Name: Steven G. Craig
Author-Person: pcr122
Author-Name: Robert P. Inman
Note: PE
Number: 1562
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1562
File-URL: http://www.nber.org/papers/w1562.pdf
File-Format: application/pdf
Publication-Status: published as Craig, Steven G. and Robert P. Inman. "Education, Welfare, and the "New" Federalism: State Budgeting in a Federalist Public Economy." State and Local Public Finance, edited by Harvey S. Rosen. Chicago: UCP, 1986, pp. 187-222.
Publication-Status: published as Education, Welfare and the "New" Federalism: State Budgeting in a Federalist Public Economy, Steven Craig, Robert P. Inman. in Studies in State and Local Public Finance, Rosen. 1986
Abstract: President Reagan's proposal for a "New Federalism" raises a fundamental challenge to our current structure of Federal-state-local fiscal relations.This research examInes the lIkely consequences of the New Federalism for fiscal allocations by state governments, and attempts to model the impact on both the size of state budgets and on the sectors on which that budget is spent. A political economy model of state budgeting is specified and estimated for a sample of forty-four states for the years 1966-1980.The analysis focuses on the two most visible sectors of state government expenditure, welfare and education, while accounting for the remaining end uses of state funds, other expenditure and taxes. Two general conclusions emerge from the analysis. First, current fiscal allocations by states are significantly influenced by the structure of Federal aid; without Federal matching rules and spending requirements states would choose to spend less on education and welfare services and more on tax relief and the numerous other state activities. Second, the New Federalism, as it relaxes the spending rules and reduces the level of Federal aid, both reduces state education and welfare spending and decreases the aggregate level of state expenditure. We conclude the New Federalism will succeed in reaching its objectives; the government sector will be more decentralized, with the additional consequence of reduced government budgets.
Handle: RePEc:nbr:nberwo:1562
Template-Type: ReDIF-Paper 1.0
Title: Inventories, Stock-Outs, and Production Smoothing
Author-Name: Andrew B. Abel
Author-Person: pab10
Note: EFG
Number: 1563
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1563
File-URL: http://www.nber.org/papers/w1563.pdf
File-Format: application/pdf
Publication-Status: published as Abel, Andrew B. "Inventories, Stock-Outs, and Production Smoothing." Review of Economic Studies, Vol. 52, (1985), pp. 283-293.
Abstract: If stock-outs are ignored and if demand shocks are additive, then optimal behavior requires that the marginal cost of production (MC) be equated with the expected marginal revenue of increasing expected sales by one unit (EMR). However,with more general demand shocks (and still ignoring stock-outs), the excess of MC over EMP has the same signas the covariance of the slope of the demand curve and the marginal valuation of inventory. The equality of EMR and MC is also broken by taking account of stock-outs, even if demand shocks are additive. If there is a production lag, then taking account of stock-outs implies that optimal behavior will be characterized by production smoothing even if the cost of production is linear. Two alternative definitions of production smoothing are presented and optimal behavior in the presence of stock-outs displays each type of smoothing.
Handle: RePEc:nbr:nberwo:1563
Template-Type: ReDIF-Paper 1.0
Title: Adjusting Output and Productivity Indexes for Changes in the Terms of Trade
Author-Name: W. Erwin Diewert
Author-Person: pdi117
Author-Name: Catherine J. Morrison
Note: PR
Number: 1564
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1564
File-URL: http://www.nber.org/papers/w1564.pdf
File-Format: application/pdf
Publication-Status: published as Diewert, W. Erwin and Catherine J. Morrison. "Adjusting Output and Productivity Indexes for Changes in the Terms of Trade," Economic Journal, Vol. 94, No. 3, Sept. 1986, pp. 659-679.
Abstract: In this paper we employ index number theory in addressing the problem of adjusting real national income and real domestic product for changes in a country's terms of trade. More specifically, using recent developments in the theory of production, we address the problems related to measuring: (i) real output produced and real input utilized by the private business sector;(ii) productivity growth or technical change; (iii) the effects on domestic real output of changes in the terms of trade; and (iv) the impact on final sales to domestic purchasers of changes in the balance of payments deficit, in a consistent accounting framework.This treatment of international trade allows us to undertake comparative statics analyses using only production theory, whereas in the traditional paradigm which treats traded goods as perfectly substitutable with a class of domestic goods, a general equilibrium framework is required. We illustrate our suggested solutions using U.S. data for the years 1968-82.
Handle: RePEc:nbr:nberwo:1564
Template-Type: ReDIF-Paper 1.0
Title: Crowding Out or Crowding In? Evidence on Debt-Equity Substitutability
Author-Name: Benjamin M. Friedman
Note: ME
Number: 1565
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1565
File-URL: http://www.nber.org/papers/w1565.pdf
File-Format: application/pdf
Publication-Status: Published as "Crowding Out or Crowding In? Economic Consequences of Financing Government Deficits", BP, Vol. 9, no. 3 (1977): 593-641.
Abstract: When the composition of assets outstanding in the market changes, the pattern of expected asset returns also changes, shifting to whatever return structure will induce investors to hold just the new composition of exisiting assets. The object of this paper is to determine, on the basis of the respective risks associated with the returns to broad classes of financial assets in the United States, and hence on the basis of the implied portfolio substitutabilities among these assets, how government deficit financing affects the structure of market-clearing expected returns on debt and equity securities traded in U.S. markets.The empirical results indicate that government deficit financing raises expected debt returns relative to expected equity returns, regardless of the maturity of the government's financing. More specifically, financing a single $100 billion government deficit by issuing short-term debt lowers the expected return on long-term debt by .06%, and lowers the expected return on equity by .33%, relative to the return on short-term debt. Financing a $100 billion deficit by issuing long-term debt raises the expected return on long-term debt by .10%, but lowers the expected return on equity by .24%,again in comparison to the return on short-term debt. These per-unit magnitudes are not huge, but in the current U.S. context of government deficits approximating $200 billion -- year after year -- they are not trivially small either.These results have immediate implications for the composition of private financing. In addition, in conjunction with some assumption (for example, about monetary policy) to anchor the overall return structure,they bear implications for the total volume of private financing, as wellas for capital formation and other interest sensitive elements of aggregate demand.
Handle: RePEc:nbr:nberwo:1565
Template-Type: ReDIF-Paper 1.0
Title: Economics of Information and the Theory of Economic Development
Author-Name: Joseph E. Stiglitz
Note: ITI LS IFM
Number: 1566
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1566
File-URL: http://www.nber.org/papers/w1566.pdf
File-Format: application/pdf
Publication-Status: published as Stiglitz, J.E., 1985. "Economics of information and the theory of economic development," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 5(1), April.
Abstract: This paper shows how recent developments in the Economics of Information can provide insights into economic relations in less developed countries, and how they can provide explanations for institutions which, in neoclassical theory, appear anomalous and/or inefficient. Sharecropping and other tenancy relationships in the rural sector and wage determination and urban unemployment are both investigated within this perspective.
Handle: RePEc:nbr:nberwo:1566
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomics, Income Distribution, and Poverty
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 1567
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1567
File-URL: http://www.nber.org/papers/w1567.pdf
File-Format: application/pdf
Publication-Status: published as Blank, Rebecca M. and Alan S. Blinder. "Macroeconomics, Income Distribution, and Poverty," Fighting Poverty: What Works and What Does Not, Sdon Danziger (ed.) Cambridge: Harvard University Press, 1986.
Abstract: This paper investigates the impacts of macroeconomic activity and policy on the poverty population. It is shown that both the poverty count and the income share of the lowest quintile of income recipients move significantly with the business cycle. The differential impact of inflation versus unemployment on low income groups is analyzed at length.The evidence indicates that unemployment has very large and negative effects on the poor, while inflation appears to have few effects at all. In addition, changes in tax policy since 1950 have led to decreasing progressivity in the overall tax structure. Special attention is given to changes in the poverty rate over the past decade and to prospective changes in the remainder of the 1980s.
Handle: RePEc:nbr:nberwo:1567
Template-Type: ReDIF-Paper 1.0
Title: Notes on the Effect of Capital Gains Taxation on Non-Austrian Assets
Author-Name: Daniel J. Kovenock
Author-Name: Michael Rothschild
Author-Person: pro48
Note: PE
Number: 1568
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1568
File-URL: http://www.nber.org/papers/w1568.pdf
File-Format: application/pdf
Publication-Status: published as Kovenock, Daniel J. and Michael Rothschild. "Notes on the Effect of Capital Gain Taxation on Non-Austrian Assets," Economic Policy in Theory and Practice, ed. by Assaf Razin and Efraim Sadka. Hong Kong: Macmillan Press Ltd. , 1987, pp. 309-339.
Abstract: This paper is an attempt to assess the effect of capital gains taxation on non-Austrian assets, such as claims to profits of continuing enterprises. As compared to taxation on an accrual basis, the capital gains tax discourages sales of appreciated assets. This is the "lock-in" effect. Because assets subject to capital gains taxation are generally held a long time, conventional estimates suggest that the effective rate of capital gains taxation is low. We contend that conventional estimates could seriously underestimate the effective rate of capital gains taxation because they ignore uncertainty. We construct a model which allows us to calculate the value of being able to actively manage a portfolio and use this model to calculate the effective rate of capital gains taxation. For several plausible parameter values the effective rate is significantly higher than estimates under certainty. We also discuss some of the ways in which the lock-in effect may distort the allocation of investment funds and the efficient workings of the capital market.
Handle: RePEc:nbr:nberwo:1568
Template-Type: ReDIF-Paper 1.0
Title: Market, Government, and Israel's Muted Baby Boom
Author-Name: Yoram Ben-Porath
Note: LS
Number: 1569
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1569
File-URL: http://www.nber.org/papers/w1569.pdf
File-Format: application/pdf
Publication-Status: published as Lee, Ronald D., W. Brian Arthur, and Gerry Rodgers (eds.) Economics of changing age distributions in developed countries. International Studies in Demography series. Oxford; New York; Toronto and Melbourne: Oxford University Press, Clarendon Press, 1988.
Abstract: Cohorts born in Israel since the late 1910s were approximately 70 percent larger than earlier cohorts. This brought about changes in the age structure that are even more dramatic than the American baby boom.This paper follows the impact of the large cohorts on the school system and on the labor market, emphasizing the role played by the public sector. In terms of the number of teaching posts the school system demonstrated on the whole a very prompt ability to adjust to the pressure of high number of pupils. However,as rates of growth of pupils decelerated, inputs in the school system failed to adujst down. As a result, when the larger cohorts moved up the educational scale,the combination of rapid adjustment where they arrived and sluggish adjustment imparted an upward pressure to the aggregate expenditure on education. When the large cohorts arrived at the age of entry into the labor force the impact was delayed and muted by a rapid expansion of the army and of the universities. Relative earnings cfthe young men 18-24 declined sharply during the decade. The earnings of the very young seem to be responsive to the relative size of a broader age group(18-34), as well as to the size elderly (65 plus).
Handle: RePEc:nbr:nberwo:1569
Template-Type: ReDIF-Paper 1.0
Title: Commodity Export Prices and the Real Exchange Rate in Developing Countries: Coffee in Colombia
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 1570
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1570
File-URL: http://www.nber.org/papers/w1570.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian. "Commodity Export Prices and the Real Exchange Rate in Developing Countries: Coffee in Columbia," Economic Adjustment and Real Exchange Rates in Developing Countries, edited by S. Edwards and Liquat Ahamed. Chicago: UCP, 1986.
Publication-Status: published as Commodity Export Prices and the Real Exchange Rate in Developing Countries: Coffee in Colombia , Sebastian Edwards. in Economic Adjustment and Exchange Rates in Developing Countries, Edwards and Ahamed. 1986
Abstract: In this paper a model that analyzes the interaction between changes in commodity export prices, money creation, inflation, and the real exchange rate in a developing country is developed. The model is then tested using data for Colombia. A number of experts have argued that the fluctuations of Colombia's real exchange rate have been mainly determined by world coffee price changes, with more observers emphasizing the consequences of coffee price changes on money creation and inflation. The results obtained indicate that coffee price changes have indeed been closely related to money creation and inflation. Also, coffee price changes have been negatively related to the rate of devaluation of the crawling peg. These results indicate that in Colombia, the real appreciation resulting from coffee price increases has been accommodated, partially by money creation and partially by an adjustment in the nominal exchange rate.
Handle: RePEc:nbr:nberwo:1570
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Policy Under Currency Inconvertibility
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Note: ITI IFM
Number: 1571
Creation-Date: 1985-02
Order-URL: http://www.nber.org/papers/w1571
File-URL: http://www.nber.org/papers/w1571.pdf
File-Format: application/pdf
Publication-Status: published as Braga de Macedo, Jorge."Macroeconomic Policy Under Currency Incontrovertibility," The Economics of the Caribbean Basin, Michael B. Connolly and John McDermott (eds.) New York: Praeger Publishers, 1985.
Abstract: This paper analyzes the macroeconomics of currency inconvertibility, building on the role of relative prices in a portfolio balance model. The relationship between black markets for foreign exchange and smuggling is first analyzed from the perspective of an individual importer. According to the portfolio view, the black market rate behaves like the financial rate in a dual market. The premium of the black marlet rate over the official rate is thus related to the probability of success in smuggling and the tariff. Then the black market is analyzed using a simple three-good,two-asset general equilibrium model. Under the assumption of regressive exchange rate expectations, the portfolio view is contrasted with a monetary approach to the black market. The short-run and long-run effects of monetary and exchange rate policies on relative prices are assessed. Different assumptions about expected returns are contrasted, but emphasis is placed on the perfect foresight case. Unless expectations are static, official exchange rate policy has to adjust to the private valuation of foreign exchange, as stressed in the conclusion.
Handle: RePEc:nbr:nberwo:1571
Template-Type: ReDIF-Paper 1.0
Title: Bank Deregulation, Accounting Systems of Exchange, and the Unit of Account: A Critical Review
Author-Name: Bennett T. McCallum
Note: ME
Number: 1572
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1572
File-URL: http://www.nber.org/papers/w1572.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "Bank Deregulation, Accounting Systems of Exchange, and the Unit of Account: A Critical Review." Carnegie-Rochester Conference Series on Public Policy, Vol. 23, (1985), pp. 13-45.
Abstract: This paper reviews a specific group of recent publications by Black, Fama, Hall, and Greenfield and Yeager that (i) encourage the relaxation of government controls on the banking industry, (ii) emphasize the possibility of an economy in which most transactions are carried out through an accounting system rather than any tangible medium of exchange, and (iii)suggest that improved monetary performance could be induced by separating the unit of account from the medium of exchange.The main substantive conclusions are as follows. First, a system with an unregulated banking sector and a government-issued currency would be viable and might reduce inefficiencies resulting from reserve requirements, a point that has been recognized by neoclassical monetary economists.The second main class of systems discussed in the reviewed papers -- one with a composite-commodity medium of account and no convertibility provision -- is quite different. If there were literally no medium of exchange, the non-coercive government designation of the unit of account would encounter no inconsistency but would be extremely fragile. More realistically, with some circulating private currency the latter would tend to become the medium of account as well as the medium of exchange and would tend to be issued in excess, thereby separating the unit of account from the officially-designated bundle of commodities. Several conclusions regarding analytical approach are also developed.
Handle: RePEc:nbr:nberwo:1572
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Flexibility and the Transmission of Business Cycles
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Author-Name: David M. Meerschwam
Note: ITI IFM
Number: 1573
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1573
File-URL: http://www.nber.org/papers/w1573.pdf
File-Format: application/pdf
Abstract: This paper presents a very simple model of the effects of flexible exchange rates in the transmission of business cycles. The starting point is the traditional "locomotive" effect, through exports and imports. Aside from this horizontal transmission, the intertemporal exchange rate model presented here allows for the effect of future internal shocks on home income (horizontal transmission) as well as for the effect of future external shocks on home income (diagonal transmission). These channels highlight the role of flexible rates and follow from an intertemporal constraint on the trade balance. In the presence of foreign-held debt, furthermore, the locomotive effect can be reversed, so that a foreign boom can cause a recession at home. The determinants of the debt ceiling are derived. The model is simulated in the case of two symmetric countries with constant values for the policy variables and the interest rates at home and abroad.
Handle: RePEc:nbr:nberwo:1573
Template-Type: ReDIF-Paper 1.0
Title: Collective Pegging to a Single Currency: The West African Monetary Union
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Note: ITI IFM
Number: 1574
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1574
File-URL: http://www.nber.org/papers/w1574.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian and Liquat Ahamed (eds.) Economic Adjustment and Exchange Rates in Developing Countries. Chicago: University of Chicago Press, 1986.
Publication-Status: published as Collective Pegging to a Single Currency: The West African Monetary Union, Jorge Braga de Macedo. in Economic Adjustment and Exchange Rates in Developing Countries, Edwards and Ahamed. 1986
Abstract: The paper presents a model of a monetary union designed to illuminate monetary and exchange rate policy in the West African Monetary Union (UMOA). Emphasis is placed on the interaction of the members of UMOA with each other, through the common central bank, and on their interaction with France and the rest of the world. As a consequence, the structure of the national economies depends essentially on their size.The relative size of the partners is reflected in the source and type of disturbances as well as in the trade pattern: large countries are not affected by disturbances originating in small countries. Small countries are affected by all external disturbances. The collective nature of the pegging becomes important because the small countries are taken to be of equal size.Using a four-country, two-tier macroeconomic model, it is shown that the pseudo-exchange rate union with the large partner has no effect on the real exchange rates of the small countries but affect their price levels, whereas a full monetary union requires in principle a transfer whose allocation between the two small countries by their common central bank may have real effects. This transfer is precisely provided by the large country, as guarantor of the fixed exchange rate arrangement. When both small countries are in surplus, there is a reverse transfer to the large country, with no monetary consequences. In line with the findings of the model, evidence is provided on monetary allocations in UMOA and on the real exchange rates of its major members, as compared to ot her African countries.
Handle: RePEc:nbr:nberwo:1574
Template-Type: ReDIF-Paper 1.0
Title: Real Interest Rate, Credit Markets, and Economic Stabilization
Author-Name: Paul Jenkins
Author-Name: Carl E. Walsh
Author-Person: pwa23
Note: ME
Number: 1575
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1575
File-URL: http://www.nber.org/papers/w1575.pdf
File-Format: application/pdf
Publication-Status: published as Jenkins, Paul and Carl E. Walsh. "Real Interest Rate, Credit Markets, and Economic Stabilization," Journal of Macroeconomics, Vol. 9, No. 1, Winter 1987, pp. 95-108.
Abstract: The role of a real interest rate and a credit aggregate as intermediate monetary policy targets are investigated under the assumption of rational expectations. The analysis expands a standard aggregate model to include a credit market and a market determined interest rate on bank deposits. This allows the implications for output stabilization of real interest rate policy to be examined for a wider variety of shocks than normally considered in the literature, as well as allowing a credit aggregate policy to be studied.
Handle: RePEc:nbr:nberwo:1575
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate and Current Account Dynamics Under Rational Expectations: An Econometric Analysis
Author-Name: David H. Papell
Author-Person: ppa73
Note: ITI IFM
Number: 1576
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1576
File-URL: http://www.nber.org/papers/w1576.pdf
File-Format: application/pdf
Publication-Status: Published as "Anticipated and Unanticipated Disturbances: The Dynamics of the Exchange Rate and the Current Account", Journal of International Money and Finance, Vol. 3, no. 2 (1984): 179-193.
Publication-Status: published as "Exchange Rate and Current Account Dynamics Under Rational Expectations: An Economic Analysis", International Economic Review, Vol. 27no. 3 (1986): 583-600.
Abstract: An econometric portfolio balance model of an open economy, incorporating exchange rate, price, and current account dynamics, is derived and estimated.The usual stability conditions do not guarantee a unique rational expectations solution, and several proposals for resolving this situation are considered. Using constrained maximum likelihood methods, the model is estimated for Japan.The estimation results indicate that the model is quite successful in explaining the patterns found in the data. The model is estimated using several methods of resolving the question of non-uniqueness, and the results are compared.
Handle: RePEc:nbr:nberwo:1576
Template-Type: ReDIF-Paper 1.0
Title: The Real Exchange Rate as a Tool of Commercial Policy
Author-Name: Michael Mussa
Note: ITI IFM
Number: 1577
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1577
File-URL: http://www.nber.org/papers/w1577.pdf
File-Format: application/pdf
Publication-Status: published as Mussa, Michael. "The Effects of Commercial, Fiscal, Monetary and Exchange Rate Policies on the Real Exchange Rate,"Economic Adjustment and Exchange Rates in Developing Countries, edited by S. Edwards and Liquat Ahamed. Chicago: UCP (1986)
Abstract: This paper develops a dynamic, rational expectations model that generalizes both the standard, two-country, two-commodity model of real trade theory and the "dependent economy" model of open economy macroeconomics. This model is used to show how a variety of government policies can affect the real exchange rate (defined as the relative price of domestic goods in terms of foreign goods) and thereby replicate some of the effects of commercial policy. The policies considered include temporary and expected future shifts in the distribution of government spending, temporary general tax reductions financed by the issuance of government debt, controls on international capital movements, and policies that combine a fixed path of the nominal exchange rate and a fixed path of the nominal money supply (supported by sterilized official intervention in the foreign exchange market).
Handle: RePEc:nbr:nberwo:1577
Template-Type: ReDIF-Paper 1.0
Title: Collective Bargaining Laws and Threat Effects of Unionism in the Determination of Police Compenstation
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Casey Ichniowski
Author-Name: Harrison Lauer
Note: LS
Number: 1578
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1578
File-URL: http://www.nber.org/papers/w1578.pdf
File-Format: application/pdf
Publication-Status: published as "Collective Bargaining Laws, Threat Effects, and the Determination of Police Compensation" From Journal of Labor Economics, Vol. 7, No. 2,pp. 191-209, (April 1989).
Abstract: This study examines the effect of public sector unions on compensation packages. The model of the compensation determination process incorporates distinctive institutional aspects of public sector labor relations, particularly the differences in collective bargaining laws across states. The model is estimated using data on over 800 municipal police departments. Our results indicate that the effect of public sector unions depend critically on these institutional features of the public sector. First, unionism thrives only in those states with protective legislation. Second, in states where unionism has flourished,unionism exerts a strong upward pressure on both union and nonunion compensation packages. Cross section estimates for 1978 indicate that salaries of union and nonunion departments in highly unionized states are some 30% higher than are the salaries in states with low levels of unionism. However, no significant difference between union and nonunion salaries within states is observed. Before-after estimates of the "state-wide union effect" are more modest (9.9% to 18.1%). Finally, this "state-wide union effect" on union and nonunion departments appears to 'be even more pronounced on fringe benefits than it is on salaries. The net result is that in highly unionized states, a greater proportion of the larger compensation packages is paid in fringe benefits.
Handle: RePEc:nbr:nberwo:1578
Template-Type: ReDIF-Paper 1.0
Title: Firm-Level Policy Toward Older Workers
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Author-Name: Rebecca A. Luzadis
Note: LS PE
Number: 1579
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1579
File-URL: http://www.nber.org/papers/w1579.pdf
File-Format: application/pdf
Publication-Status: published as Mitchell, Olivia and Rebecca Luzadis. "Changes in Pension Incentives Through Time," Industrial and Labor Relations Review, vol. 12, pp. 100-108, October 1988
Abstract: This paper focuses on one aspect of long-term labor contracts -- employer-provided pensions -- in order to develop a better understanding of how such contracts affect employment patterns of older workers. Pensions are one of the few elements of the employment package which explicitly describe long term agreements between workers and their employers; consequently they offer a unique opportunity to study these agreements. The present paper combines labor supply and contract theory to examine pension responses to changes in taxes, Social Security benefits, and the federal government's recent decision to lift the age of mandatory retirement. Evidence on a longitudinal sample of pension plans from 1960 to the present suggests:(1) During the 1960-70 period, Social Security increases generated changes in pensions favoring early retirement; and (2) During the 1970-80 period, some plans reduced private pension benefits in response to the raising of the mandatory retirement age.
Handle: RePEc:nbr:nberwo:1579
Template-Type: ReDIF-Paper 1.0
Title: Money Demand Predictability
Author-Name: V. Vance Roley
Note: ME
Number: 1580
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1580
File-URL: http://www.nber.org/papers/w1580.pdf
File-Format: application/pdf
Publication-Status: published as Roley, V. Vance. Journal of Money, Credit, and Banking, Vol. XVII, No. 4, Part 2, (November 1985), pp. 611-641.
Abstract: The performance of empirical money demand equations over the past decade raises serious questions about money demand predictability. A variety of specifications were presented to explain past episodes of apparent money demand instability, but their success in predicting future money demand is limited in most instances. In particular, the unprecedented decline in the velocity of Ml during 1982 and 1983 was not captured fullyby any of the previously-modified conventional specifications. This paper evaluates a variety of the approaches and specifications proposed inprevious money demand studies to explain the behavior of the narrowly defined money stock from the mid 1970's through 1983. The empirical results cast doubt on the appropriateness of the conventional money demand specification in both the pre- and post- 1974 periods.
Handle: RePEc:nbr:nberwo:1580
Template-Type: ReDIF-Paper 1.0
Title: A Variance Bounds Test of the Linear Quardractic Inventory Model
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: EFG
Number: 1581
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1581
File-URL: http://www.nber.org/papers/w1581.pdf
File-Format: application/pdf
Publication-Status: published as West, Kenneth D. "A Variance Bounds Test of the Linear Quadratic Inventory Model," Journal of Political Economy, Vol. 94, No. 2, pp. 374-401, April 1986.
Abstract: This paper develops and applies a novel test of the Holt, et al.(1961) linear quadratic inventory model. It is shown that a central property of the model is that a certain weighted sum of variances and covariances of production, sales and inventories must be nonnegative. The weights are the basic structural parameters of the model. The model may be tested by seeing whether this sum in fact is nonnegative. When the test is applied to some non-durables data aggregated to the two-digit SIC code level, it almost always rejects the model, even though the model does well by traditional criteria.
Handle: RePEc:nbr:nberwo:1581
Template-Type: ReDIF-Paper 1.0
Title: Labor Relations, Wages and Nonwage Compensation in Municipal Employment
Author-Name: Jeffrey S. Zax
Note: LS
Number: 1582
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1582
File-URL: http://www.nber.org/papers/w1582.pdf
File-Format: application/pdf
Publication-Status: published as "Wages, Non Wage Compensation and Municipal Unions", Industrial Relations,vol.27, no.3, pp 301-317, Fall 1988.
Abstract: In the private sector, "unionization" typically refers to employees who are organized, recognized, and covered by contracts, according to the procedures established by the National Labor Relations Board. The municipal sector provides an instructive contrast. There, "unionization" encompasses five mutually exclusive combinations of organizational structure and labor relations practice. These "modes" form a hierarchy of employee power, from strongest to weakest: recognized bargaining units, unrecognized unions in cities which contain other recognized unions, unorganized employees in cities which contain recognized unions,unrecognized unions in cities which contain no recognized unions, and unorganized employees in cities which contain no recognized unions. Differences in the effects of each mode on compensation for municipal employees demonstrate differences in the intrinsic strength of different union institutions. Municipal compensation levels are dramatically higher for employees represented by more powerful modes of unionization, regardless of other conditions in factor and output markets. Union effects on total compensation, in comparison to its mean, range from 3.8% for unrecognized unions in cities which contain no recognized bargaining units, to 11.8% for recognized bargaining units, themselves. In addition, union effects on total compensation are reater than union effects an wages in all modes. Relative union effects on expenditures for paid time not worked and pension benefits are usually more than twice wage effects. Union effects on medical benefits are nearly twice wage effects.
Handle: RePEc:nbr:nberwo:1582
Template-Type: ReDIF-Paper 1.0
Title: On the Complementarity of Commercial Policy, Capital Controls and Inflation Tax
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 1583
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1583
File-URL: http://www.nber.org/papers/w1583.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, Vol. 19, No. 1, pp. 114-133, (February 1986)
Abstract: This paper studies the optimal use of distortive policies aimed at raising a given real revenue, in a general equilibrium framework in which lump-sum taxes are absent. The policies analyzed are an inflation tax,commercial policy, and an implicit tax on capital inflows implemented by capital controls. It is shown that we would tend to avoid activating an inflation tax for small revenue needs. Furthermore, if the policy target were allocative, we would tend to use only one policy instrument.Thus, each policy has its own comparative advantage, and their combined use is justified when the target is raising government revenue. As a by-product of the paper,we study the determinants of exchange rates, prices, and quantities in an economy subject to capital controls and commercial policy.
Handle: RePEc:nbr:nberwo:1583
Template-Type: ReDIF-Paper 1.0
Title: International Monetary Policy to Promote Economic Recovery
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ITI IFM
Number: 1584
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1584
File-URL: http://www.nber.org/papers/w1584.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. "International Monetary Policy to Promote Economic Recovery," Monetary Conditions for Economic Recovery, ed. C. Van Ewijk and J.J. Klant, Financial and Monetary Policy Studies, Vol. II, 1985, Dordrecht/Boston/London: Martinus Nijhoff Publishers, pp. 129-160.
Abstract: The paper studies the design of efficient anti-inflationary policies in a two-country interdependent economic system. A number of alternative specifications of the price formation process are considered, incorporating successively higher degrees of price level and inflation inertia.Only in the classical flexible price level model with forward-looking rational expectations is credibility of current announcements of future monetary policy necessary and sufficient for costless, irmnediate disinflation. If price level inertia prevails, deceleration of the money growth rate must be accompanied by nominal money "jumps" or cost-reducing tax cuts in order to accommodate the fall in velocity that accompanies successful disinflation, if the transition is to be costless (and immediate). With a sluggish price level and sluggish core inflation, tax cuts (or incomes policy) are necessary for costless disinflation. In general, the elimination of inflation can only be gradual. With real balance effects on demand, unilateral disinflationary policy always "spills over" through real interest rates and the real exchange rate. They are necessary for the presence of spillovers only in the classical model. Cooperative policy design effectively leaves the national authorities with the same scope for influencing domestic target variables that they would have had in a closed economy.
Handle: RePEc:nbr:nberwo:1584
Template-Type: ReDIF-Paper 1.0
Title: A Disaggregated, Structural Analysis of Retirement by Race, Difficulty of Work and Health
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 1585
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1585
File-URL: http://www.nber.org/papers/w1585.pdf
File-Format: application/pdf
Publication-Status: published as Gustman, Alan and Thomas Steinmeier, "A Disaggregated, Structural Analysisof Retirement by Race, Difficulty of Work and Health," Review of Economics and Statistics, Vol. 68, No. 3, August 1986, pp. 509-513.
Abstract: Intergroup differences in retirement rates by race, major occupation and health status are examined and allocated to differences in budget sets and indifference curve parameters. In addition, comparisons indicate that average retirement rates for groups may, at times, be misleading indicators of marginal responses to incentives. It is predicted that all groups will respond to the work incentives in the 1983 Social Security Amendments, even those ill health and difficult jobs, and the resulting increases in earnings are predicted to amount to from one sixth to over one half of the reductionin lifetime benefits created by the amendments.
Handle: RePEc:nbr:nberwo:1585
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Stabilization Through Taxation and Indexation: The use ofFirm-Specific Information
Author-Name: Richard C. Marston
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: EFG
Number: 1586
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1586
File-URL: http://www.nber.org/papers/w1586.pdf
File-Format: application/pdf
Publication-Status: published as Marston, Richard C. and Stephen J. Turnovsky. "Macroeconomic Stabilization Through Taxation and Indexation: The Use of Firm-Specific Information," Journal of Monetary Economics, Vol. 16, No. 3, Nov. 1985, pp. 375-395.
Abstract: This paper considers two alternative approaches to stabilizing an economy with firm-specific productivity disturbances. The first uses wage contracts tying wages in each firm to these disturbances as well as the price level. The second uses a tax on firms which modifies their supply behavior together with a simple waqe indexation rule tying wages to prices alone. Both these schemes are viable as long as the firm-specific disturbance is known to all agents. If the firm alone observes the productivity disturbance, under either scheme it has an incentive to misrepresent current conditions. However, a combination of these two schemes is both welfare maximizing and incentive compatible.
Handle: RePEc:nbr:nberwo:1586
Template-Type: ReDIF-Paper 1.0
Title: Shifts in the Nineteenth-Century Phillips Curve Relationship
Author-Name: John A. James
Author-Person: pja276
Note: DAE
Number: 1587
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1587
File-URL: http://www.nber.org/papers/w1587.pdf
File-Format: application/pdf
Publication-Status: Published as "The Stability of the 19th Century Phillips Curve Relationship", EEH, Vol. 26, no. 2 (1989): 117-134.
Abstract: This paper examines shifts in the output effects of unanticipated inflation in the nineteenth-century United States by estimatinga Lucas-type aggregate supply function over the 1840-1900 period. It is shown that, in contrast to the twentieth-century experience in which there has been a pronounced movement toward greater cyclical price rigidity, the nineteenth-century output response to unanticipated price changes was roughly stable over the period. Such stability is also particularly interesting in view of the dramatic changes in communications and transportation technology, particularly the telegraph and the railroad, which greatly facilitated information flows and thereby should have forced the price-surprise coefficient downward. Other factors which may have offset the influence of these improvements in information technology on the price-surprise coefficient include the reduced general price level variability due to the gold standard in the postbellum period and the possibility that the net effects of such improvements may in fact have been small because shocks were able to spread more rapidly aswell. Finally, the perceived increase in cyclical price rigidity over the nineteenth century in the raw data is shown to have resulted not from a change in price-surprise coefficient hut rather from an increased degree of persistence or inertia in the economy.
Handle: RePEc:nbr:nberwo:1587
Template-Type: ReDIF-Paper 1.0
Title: Game Modelling the Tokyo Round of Tariff Negotiations
Author-Name: Robert E. Baldwin
Author-Name: Richard N. Clarke
Note: ITI IFM
Number: 1588
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1588
File-URL: http://www.nber.org/papers/w1588.pdf
File-Format: application/pdf
Publication-Status: published as "Game-Modeling Multilateral Trade Negotiations." From Journal of Policy Modeling, Vol. 9, No. 2, pp. 257-284, (1987).
Abstract: Using actual trade and tariff data for the United States and the European Community, this paper demonstrates how a trade negotiation such as the Tokyo Round, can be modelled as a game among countries attempting to minimize individual welfare loss functions. Once welfare functions are constructed, we compute both noncooperative and cooperative Nash equilibria. These welfare outcomes are then compared with those arising from the initial tariff structure, as well as the structure actually determined by the negotiation. We find that while the game model may track closely the decisions of the negotiators in the Tokyo Round, later unilateral political decisions resulted in less "optimal" tariffs.
Handle: RePEc:nbr:nberwo:1588
Template-Type: ReDIF-Paper 1.0
Title: Monetary Information and Interest Rates
Author-Name: Carl E. Walsh
Author-Person: pwa23
Note: ME
Number: 1589
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1589
File-URL: http://www.nber.org/papers/w1589.pdf
File-Format: application/pdf
Abstract: A model of interest rate movements in response to new information on the money stock is developed.The model, which incorporates several earlier approaches as special cases, makes explicit the manner in which estimated interest rate responses to money surprises depend on the relative variances of nominal and real disturbances, as well as on the monetary authority's policy and the credibility of that policy.
Handle: RePEc:nbr:nberwo:1589
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Management: Intertemporal Tradoffs
Author-Name: Elhanan Helpman
Author-Person: phe205
Author-Name: Assaf Razin
Author-Person: pra388
Note: ITI IFM
Number: 1590
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1590
File-URL: http://www.nber.org/papers/w1590.pdf
File-Format: application/pdf
Publication-Status: published as Helpman, Elhanan and Assaf Razin. "Exchange Rate Management: Intertempora Tradeoffs," American Economic Review, Vol. 77, No. 1, (March 1987), pp. 10 7-123.
Abstract: The management of the exchange rate is possible only if the government pursues a monetary-fiscal policy mix which is consistent with its exchange rate targets. In this paper with uncertainty concerning the length of individual life the real consequences of exchange rate management depend on the precise time pattern of the accompanying policies. We look at a stylized example of disinflation by means of exchange rate targetting with an initial overvalued currency and a delayed accompanying absorbtion policy. The result will be an intergenerational redistribution of welfare whereby spending rises during the initial period and falls during later periods, while the external debt rises in all periods.
Handle: RePEc:nbr:nberwo:1590
Template-Type: ReDIF-Paper 1.0
Title: Purchasing Power Parity
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 1591
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1591
File-URL: http://www.nber.org/papers/w1591.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "Purchasing Power Parity," The New Palgrave Dictionaryof Economics, Macmillan, 1986.
Abstract: The paper is a survey of PPP theory and evidence prepared for the New Palgrave dictionary of economics. Following a statement of the absolute and relative versions of the theory, there is a brief sketch of the history of thought with emphasis on Cassel and the monetary approach. A theoretical part distinguishes structural and transitory deviations from PPP. The main basis for structural deviations is the Ricardo-Harrod-Balassa-Samuelson model of productivity differentials that affect the real prices of home goods and hence real price levels. Transitory deviations emerge from differential speeds of goods and assets markets. In particular sticky wages combined with imperfect competition or spatial discrimination in pricing give rise to sometimes persistent movements in real exchange rates. After an overview of empirical evidence the paper concludes with a review of implications of PPP disparities. Applications to international real income comparisons, interest rate linkages and exchange rate policy receive attention.
Handle: RePEc:nbr:nberwo:1591
Template-Type: ReDIF-Paper 1.0
Title: The Effect of the Treasury Proposal on Charitable Giving: A Comparison of Constant and Variable Elasticity Models
Author-Name: Lawrence B. Lindsey
Note: PE
Number: 1592
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1592
File-URL: http://www.nber.org/papers/w1592.pdf
File-Format: application/pdf
Publication-Status: Published as "The Effect of the President's Tax Reform on Charitable Giving", National Tax Journal, Vol. 39, no. 1 (1986): 1-12.
Abstract: The recent proposal for tax reform developed by the Department of the Treasury suggests dramatic changes in the structure of the personal income tax. One likely side effect of the changes will be a significant adverse impact on the level of charitable contributions by individuals.This paper evaluates the marginal effect on giving of various parts of the Treasury reform plan using the existing literature on the price and income elasticities of charitable behavior. Two explicit models are simulated for 1985 using the NBER TAXSIM model: one with constant price and income elasticities and one with the price and income elasticities varying with income.
Handle: RePEc:nbr:nberwo:1592
Template-Type: ReDIF-Paper 1.0
Title: Optimal Time-Consistent Fiscal Policy with Uncertain Lifetimes
Author-Name: Guillermo A. Calvo
Author-Person: pca694
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: EFG
Number: 1593
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1593
File-URL: http://www.nber.org/papers/w1593.pdf
File-Format: application/pdf
Publication-Status: published as "Optimal Time-Consistent Fiscal Policy with Finite Lifetimes: Analysis and Extensions." From Economic Effectts of the Government Budget, edited by Elhanan Helpman, Assaf Razin, and Efraim Sadka, pp. 163-198. Cambridge, MA: MIT Press, 1988.
Abstract: This paper studies optimal fiscal policy in an economy where heterogeneous agents with uncertain lifetimes coexist. We show that some plausible social welfare functions lead to time-inconsistent optimal plans, and we suggest restrictions on social preferences that avoid the problem. The normative prescriptions of a time-consistent utilitarian planner generalize the 'two-part Golden Rule" suggested by Samuelson, and imply aggregate dynamics similar to those arisingin the Cass-Koopmans-Ramsey optimal growth framework. We characterize lump-sum transfer schemes that allow the optimal allocation to be decentralized as the competitive equilibrium of an economy with actuarially fair annuities. The lump-sum transfers that accomplish this decentralization are age dependent in general.
Handle: RePEc:nbr:nberwo:1593
Template-Type: ReDIF-Paper 1.0
Title: Parsimoneous Modeling of Yield Curves for U.S. Treasury Bills
Author-Name: Charles R. Nelson
Author-Person: pne247
Author-Name: Andrew F. Siegel
Note: ME
Number: 1594
Creation-Date: 1985-03
Order-URL: http://www.nber.org/papers/w1594
File-URL: http://www.nber.org/papers/w1594.pdf
File-Format: application/pdf
Publication-Status: published as Nelson, Charles R. and Andrew F. Seigel. "Parsimonious Modeling of Yield Curves," Journal of Business, Vol. 60, No. 3, pp. 473-489, (October 1987).
Abstract: A new model is proposed for representinq the term to maturity structure of interest rates at a point in time.The model produces humped, monotonic and S-shaped yield curves using four parameters. Conditional on a time decay parameter, estimates of the other three are obtained by least squares. Yield curves for thirty-seven sets of U.S. Treasury bill yields with maturities up to one year are presented. The median standard deviation of fit is just over seven basis points and the corresponding median R-squared is .96. Study of residuals suggests the existence of specific maturity effects not previously identified. Using the models to predict the price of a long term bond provides a diagnostic check and suggests directions for further research.
Handle: RePEc:nbr:nberwo:1594
Template-Type: ReDIF-Paper 1.0
Title: High School Graduation, Performance and Earnings
Author-Name: Andrew Weiss
Note: LS
Number: 1595
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1595
File-URL: http://www.nber.org/papers/w1595.pdf
File-Format: application/pdf
Publication-Status: published as Weiss, Andrew. "High School Graduation Performance and Wages," from Journal of Political Economy, Vol. 96, No. 4, August 1988, pp. 785-820.
Abstract: Using data from the Panel Study of Income Dynamics and a proprietary sample of semi-skilled production workers, this paper investigates the reasons for the discontinuous increase in wages associated with graduation from high school. Associated with graduation from high school, we find a discontinuous decrease in a worker's propensities to quit or be absent. However, we do not find that high school graduates have a comparative advantage on production jobs requiring more training, nor, in the PSID sample, are high school graduates assigned to jobs requiring more training. Finally, we find that the wage premium associated with graduation from high school vanishes during severe slumps, periods in which employers are likely to be hoarding labor and in which quits and absences are least important to firms. We conclude from this evidence that the sorting model of education provides a better explanation for the higher wages of high school graduates than does the human capital model.
Handle: RePEc:nbr:nberwo:1595
Template-Type: ReDIF-Paper 1.0
Title: On Consequences and Criticisms of Monetary Targeting
Author-Name: Bennett T. McCallum
Note: ME
Number: 1596
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1596
File-URL: http://www.nber.org/papers/w1596.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "On Consequences and Criticisms of Monetary Targeting," Journal of Money, Credit and Banking, Vol. 17, No. 4, Part 2, Nov. 1985,pp. 570-597.
Abstract: The purpose of this paper is to review and evaluate the most important existing criticisms of policy strategies that feature adherence to money stock targets. Four main categories of criticism (and counterargumerits) are analyzed. The first of these involves the claim that accurate money stock control is infeasible while the second contends that such control can only be obtained along with extreme volatility of interest rates. The third emphasizes difficulties resulting from technical change and deregulation, and the fourth concerns strategic issues of rules vs. discretion, activist vs. non-activist policy, and the logical function of intermediate targets.
Handle: RePEc:nbr:nberwo:1596
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Job Complexity on Job Satisfaction: Evidence From Turnover and Absenteeism
Author-Name: Andrew Weiss
Note: LS
Number: 1597
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1597
File-URL: http://www.nber.org/papers/w1597.pdf
File-Format: application/pdf
Abstract: Usinga detailed sample of semi-skilled production workers we find that holding a wide range of personal and job-related characteristics constant, workers assigned to more complex jobs seem to be more likely to quit than are workers assigned to simpler jobs. Job complexity has no discernible effect on absenteeism. Matching better educated workers to more complex jobs affects neither absenteeism nor quit propensity. Thus it appears that experimental evidence suggesting that job enlargement increases worker satisfaction is likely to stem from the experimental design: asking for volunteers to be assigned more complex jobs, and improving the quality of supervision for workers assigned to more complex jobs.
Handle: RePEc:nbr:nberwo:1597
Template-Type: ReDIF-Paper 1.0
Title: Capital Flows, Investment, and Exchange Rates
Author-Name: Alan C. Stockman
Author-Person: pst94
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 1598
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1598
File-URL: http://www.nber.org/papers/w1598.pdf
File-Format: application/pdf
Publication-Status: published as Stockman, Alan C. and Lars E.O. Svensson. "Capital Flows, Investment, and Exchange Rates," Journal of Monetary Economics, Vol. 19, (1987), pp. 171-201 .
Abstract: This paper incorporates international capital flows into a two-country, monetary-general-equilibrium model of asset prices with investment and production. We use the model to calculate theoretical covariances between investment, the current account, the exchange rate, and the terms of trade.These covariances depend upon the coefficient of relative risk-aversion, the magnitude and sign of a country's net international indebtedness, other properties of tastes and technologies, and the stochastic processes on disturbances to productivity and monetary growth rates. International capital flows arise from changes in world wealth and its relative composition in foreign and domestic assets. The dynamic, stochastic relations between capital flows, exchange rates, investment, and the terms of trade are critically dependent on optimal portfolio allocations and the stochastic behavior of asset prices on international financial markets.
Handle: RePEc:nbr:nberwo:1598
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Examination of Municipal Financial Policy
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 1599
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1599
File-URL: http://www.nber.org/papers/w1599.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Roger H. and Joel Slemrod. "An Empirical Examination of Municipal Financial Policy." State and Local Public Finance, edited by Harvey S. Rosen. Chicago: UCP, 1986, pp. 53-78.
Publication-Status: published as An Empirical Examination of Municipal Financial Policy, Roger H. Gordon, Joel B. Slemrod. in Studies in State and Local Public Finance, Rosen. 1986
Abstract: Current U.S. tax law creates a variety of incentives affecting municipal financial policy. Under current law,municipalities can borrow at a tax-exempt interest rate yet can earn the full market rate of return on any assets held. Residents, in contrast, if they borrow or lend as individuals,pay or earn the market rate of return but after personal income taxes. These differences in rates of return create a variety of arbitrage opportunities, allowing communities/residents to borrow at low rates and invest at higher rates.The purpose of this paper is to examine empirically the financial policy of municipalities in four states (Connecticut, Maine, Massachusetts and Rhode Island) to see to what degree these municipalities attempt to take advantage of each of the available opportunities to engage in tax arbitrage. Our datacomes from the 1980 U.S. Census of Population and Housing, and the 1977 U.S.Census of Governments. We find clear evidence that communities do actively engage in such tax arbitrage.
Handle: RePEc:nbr:nberwo:1599
Template-Type: ReDIF-Paper 1.0
Title: Does the Tax System Favor Investment in High-Tech or Smoke-Stack Industries?
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Andrew B. Lyon
Author-Person: ply2
Note: PE
Number: 1600
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1600
File-URL: http://www.nber.org/papers/w1600.pdf
File-Format: application/pdf
Publication-Status: published as Fullerton, Don and Andrew B. Lyon. "Does the Tax System Favor Investment in High-Tech or Smoke-Stack Industries?" Economic Inquiry, Vol. 24, No. 3, (July 1986), pp. 403-416.
Abstract: When tax rates vary by asset, a "hidden" industrial policy may aid industries that invest in a certain mix of assets. In this paper, we examine whether differential use of depreciable assets gives rise to differential tax treatment of high technology industries relative to other industries. First, we calculate the total effective tax rate on a marginal investment in each of 34 assets. Next, using these asset-specific tax rates and weighting by the use of these assets in each of 73 different industries, we calculate total effective tax rates at the industry level. We find considerable variation within the high-tech sector and within the more traditional sector, but for the case of a taxable firm with a given debt/equity ratio, we do not find any systematic differences between overall rates in the two sectors.
Handle: RePEc:nbr:nberwo:1600
Template-Type: ReDIF-Paper 1.0
Title: Ruling Out Nonstationary Speculative Bubbles
Author-Name: Maurice Obstfeld
Author-Person: pob13
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: EFG
Number: 1601
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1601
File-URL: http://www.nber.org/papers/w1601.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice. "Ruling Out Divergent Speculative Bubbles," Journal of Monetary Economics, Vol. 17, (1986), pp. 349-362.
Abstract: There is a large and growing empirical literature that tests forthe existence of asset-price bubbles or "sunspot" equilibria -- equilibria unrelated to market fundamentals. Our view is that even tests for non-stationary asset-price bubbles should not be interpreted as such. In the present paper we extend earlier work of ours which provided a strong case for ruling out nonstationary speculative price bubbles in models based on individual maximizing behavior. In the first part of the paper we study the possibility of stochastic exploding price-level bubbles of the kind proposed by Blanchard (1979). As in our previous work, a scheme of fractionally backing the currency with real outputis sufficient to preclude such bubbles. In the second part of the paper we examine conditions for ruling out implosive price-level bubbles, equilibrium paths along which the price level asymptotes to zero even though the monetary growth rate is constant. A condition on preference simplied by any reasonable monetary transactions technology is sufficient to prevent such bubbles from emerging. Given that anticipated future disturbances can lead to price paths which are qualitatively indistinguishable from bubble paths, and given the strong theoretical basis for ruling out nonstatioflary bubbles, our conclusion is that any "positive" evidence of bubbles should be regarded only as evidence of omitted variables.
Handle: RePEc:nbr:nberwo:1601
Template-Type: ReDIF-Paper 1.0
Title: How Does the Market Value Unfunded Pension Liabilities?
Author-Name: Jeremy I. Bulow
Author-Name: Randall Morck
Author-Person: pmo146
Author-Name: Lawrence H. Summers
Author-Person: psu137
Number: 1602
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1602
File-URL: http://www.nber.org/papers/w1602.pdf
File-Format: application/pdf
Publication-Status: published as Bulow, Jeremy, Randall Morck and Lawrence H. Summers. "How does the Market Value Unfunded Pension Liabilities?" Issues in Pension Eocnomics, edited by Z. Bodie, J. Shoven and D. Wise, Chicago: UCP, 1987.
Publication-Status: published as How Does the Market Value Unfunded Pension Liabilities?, Jeremy I. Bulow, Randall Morck, Lawrence H. Summers. in Issues in Pension Economics, Bodie, Shoven, and Wise. 1987
Abstract: We lead off by discussing a number of theoretical reasons for expecting various relationships between a firm's unfunded pension liability and its market value. We then discuss our doubts about the methodology of earlier papers which studied the empirical relation between funding and market value using standard cross sectional techniques. A modified cross sectional approach which alleviates some of these doubts, and a variable effect event study methodology which alleviates most of them are both employed to investigate the issues raised in the first part of the paper. Our conclusion confirms those of earlier studies that unfunded pension liabilities are accurately reflected in lower share prices.
Handle: RePEc:nbr:nberwo:1602
Template-Type: ReDIF-Paper 1.0
Title: Real Aspects of Exchange Rate Regime Choice with Collapsing Fixed Rates
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Robert J. Hodrick
Author-Person: pho115
Note: ITI IFM
Number: 1603
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1603
File-URL: http://www.nber.org/papers/w1603.pdf
File-Format: application/pdf
Publication-Status: published as Flood, Robert P. and Robert J. Hodrick. "Real Aspects of Exchange Rate Regime Choice with Collapsing Fixed Rates," Journal of International Economics, Vol. 21, (1986), No. 3/4, pp. 215-232.
Abstract: Typical evaluations of the choice of exchange rate regime employ a criterion function that depends on the real performance of the economy, and they focus on regimes that are expected to last indefinitely. This latter feature is strongly contradicted by the transitory nature of actual regimes.This paper extends the recent literature on collapses of fixed exchange rate regimes with exogenous real sectors to examine how the predictions of two popular models for the determination of some real economic variables must be modified when agents rationally perceive that the fixed rate regime will be transitory. The models studied are simple stochastic versions of the models in Dornbusch (1976) and Flood and Marion (1982).
Handle: RePEc:nbr:nberwo:1603
Template-Type: ReDIF-Paper 1.0
Title: Does a Flexible Industry Wage Structure Increase Employment?: The U.S. Experience
Author-Name: Linda A. Bell
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 1604
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1604
File-URL: http://www.nber.org/papers/w1604.pdf
File-Format: application/pdf
Publication-Status: Published as "Wage Rigidity in West Germany: A Comparison with the U.S. Experience", FRBNY, Vol. 11, no. 3 (1986): 11-21.
Abstract: This paper examines the flexibility of wages across industries inthe U.S. and seeks to determine the potential impact which changes in the industrial wage structure may have for employment. With regard to the flexibility of wages across industries, we find that the U.S., alone among the major OECD countries, has experienced substantial changes in the industry wage structure since 1970, with the variation of log wages among industries increasing dramatically, particularly in the 1970s. This represents a widening of the gap between wages in the high and low wage sectors. In order to evaluate these changes, we estimate equations linking changes in industry wages over an extended period of time to a variety of potential wage determining characteristics. We find that industrial wages are positively correlated with value productivity per worker, even after controlling for institutional and supply side factors which may have contributed to the increased dispersion of wages in the 1970s. Our results are not consistent with the standard competitive model of industry labor markets, in which wages and productivity are uncorrelated across sectors and wages depend on aggregate, rather than sectoral conditions.With regard to the impact of a flexible industry wage structure on employment, we evaluate the circumstances under which flexible wages among industries may be employment enhancing, and the set of circumstances under which flexible wages are likely to be employment reducing. For the U.S.economy in the 1970s we find that the data support the latter set of circumstances. The bottom line of the U.S. experience is that flexible wages by industry have not contributed to employment growth.
Handle: RePEc:nbr:nberwo:1604
Template-Type: ReDIF-Paper 1.0
Title: Paying the Piper, Calling the Tune: Implications of Changes in Reimbursement
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: EH
Number: 1605
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1605
File-URL: http://www.nber.org/papers/w1605.pdf
File-Format: application/pdf
Publication-Status: published as Frontiers of Health Services Management, Vol. 2, No. 3, pp. 4-27, (February 1986).
Abstract: The United States is in the midst of a revolution in health care finance, the third since the end of World War II. Medicare's prospective payment system (PPS) based on diagnosis-related groups (DRGs), the State of California's hospital-specific contracts for Medi-Cal patients, deductibles and coinsurance, health maintenance organizations (HMOs), and preferred provider organizations (PPOs) are among the best known symbols of the new era in health care finance. This paper analyzes the economic factors responsible for innovations in reimbursement, discusses the distinguishing characteristics of the new methods, and examines their potential impact on hospitals, physicians, nurses, and patients. The paper concludes by considering some fundamental problems of public policy with respect to health care.
Handle: RePEc:nbr:nberwo:1605
Template-Type: ReDIF-Paper 1.0
Title: Some Historical Evidence 1870-1933 on the Impact and International Transmission of Financial Crises
Author-Name: Michael D. Bordo
Author-Person: pbo243
Note: EFG
Number: 1606
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1606
File-URL: http://www.nber.org/papers/w1606.pdf
File-Format: application/pdf
Publication-Status: published as Bordo, Michael D. "The Impact and Internationa Transmission of Financial Crises: Some Historical Evidence, 1870-1933," Revista Di Storia Economica, Second Series, Vol. 2, International Issue, (1985), pp. 41-78.
Abstract: This study presents historical evidence for six countries (the U.S., U.K., Germany, France, Canada, Sweden) in the period 1870-1933 on the impactof financial crises on economic activity and on the international transmission of financial crises. The paper examines two approaches in the literature to the role and importance of financial crises as disturbances to domestic and international economic activity, that of the monetarists--Friedman and Schwartz and Cagan, and that of Fisher-Minsky and Kindleberger. In a comparison of reference cycle contractions for the six countries over the period 1870-1933 severe contractions in economic activity were in all cases accompanied by monetary contraction, in most cases with stock market crashes, but not with the exception of the U.S., by banking crises. The unique performance of the U.S. can be attributed to the absence of a nationwide branch banking system compared to the five other countries examined, and the less effective role played by the U.S. monetary authorities in acting as a lender of last resort. Our principal findings on the international transmission of financial crises are two. First, consistent with the monetarist approach, that under the Classical gold standard, in periods containing financial crises, nations' money supplies were linked by gold flows and changes in high powered money, while under periods of flexible exchange rates there is evidence of insulation of domestic monetary and real variables from foreign shocks. Second, in sympathy with the Kindleberger-Minsky approach, the similarity between countries of turning points in stock market prices, the common incidence of stock market crises, and the similar importance of the deposit reserve ratio as the key determinant of monetary contraction in all countries (except the u.s.) suggests that arbitrage in stock prices was a channel for the international transmission of crises.
Handle: RePEc:nbr:nberwo:1606
Template-Type: ReDIF-Paper 1.0
Title: Estimating the Effects of R&D on Bell System Productivity: A Model of Embodied Technical Change
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Mark Schankerman
Author-Name: Richard H. Spady
Note: PR
Number: 1607
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1607
File-URL: http://www.nber.org/papers/w1607.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Roger H., Mark Schankerman and Richard H. Spady. "Estimating the Effects of R&D on Bell System Productivity: A Model of Embodied Technical Change," Festschift in honor of William Baumol, edited by Maurice Peston and Richard Quandt. Oxford: Philip Allan Publishers, NY: Barnes & Noble, 1986.
Abstract: This paper develops an econometric model of the effects of R&D effort on the magnitude and characteristics of technical change in the Bell system. We estimate simultaneously a vintage capital production function, embodying several distinct types of capital, and various factor demand functions for the Bell system during the post-war period. Each vintage of capital is assumed to differ in productivity according to a parametric function of R&D effort embodied in that vintage of capital. Allowance is also made for augmenting technical change in the non-capital inputs. The model is estimated on a new, extensive data set which contains detailed information on the vintage structure of investment indifferent types of capital in the Bell system. Most previous papers in the field have assumed that technical changeis disembodied. However, we find that a model assuming capital-embodied technical change fits the data much better than one making the traditional assumption that technical change is disembodied. We use the parameter estimates to calculate the ex post rate of return earned on R&D expenditures at Bell Laboratories and the improvements in the productivity of specific capital inputs which are due to those R&D expenditures. The results suggest not only that the return to R&D expenditures has been very high, but also that it has been growing over time. In addition,the rate of increase in the productivity of capital inputs has risen over time. The model fails to produce a plausible estimate for the degree of returns to scale, but the results on the return to R&D effort are reasonably insensitive to what we assume about the degree of economies of scale.
Handle: RePEc:nbr:nberwo:1607
Template-Type: ReDIF-Paper 1.0
Title: Part-Time Work vs. Full-Time Work of Married Women in Japan
Author-Name: Tadashi Yamada
Author-Name: Tetsuji Yamada
Note: LS
Number: 1608
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1608
File-URL: http://www.nber.org/papers/w1608.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Review of Economics and Business, Vol. 27, No. 1 pp. 41-50, Spring 1987.
Publication-Status: published as Yamada, Tadashi and Tetsuji Yamada. "Labor Employment of Married Women in Japan: Part-Time Work vs. Full-Time Work." Eastern Economic Journal, Vol. 13 , No.1, January-April 1987, pp.41-48.
Abstract: In this paper, we attempt to resolve the drawbacks in previous studies of the labor supply of women in Japan. We hypothesize here that the response to the socioeconomic factors that influence the decision to work varies among different groups of women, and we estimate separately the labor supply of part-time employed, and that of full-time employed, married women by using the 1980 Population Census data for Japan.The major finding is that there is a clear difference in the labor supply behavior of women who are employed part time and those who are employed full time. For example, the estimated elasticities are noticeably different for the following factors: women's wages, men's wages, the unemployment rate, the industry-mix variable, andthe provision of day-care centers and nursery schools. Our empirical results suggest that, in public policy implementation, giving special attention to the specific characteristics of the labor market of women in Japan would be useful and important in understanding the different responses to the factors influencing the decision to work among the different socioeconomic groups.
Handle: RePEc:nbr:nberwo:1608
Template-Type: ReDIF-Paper 1.0
Title: Supply Shocks, Wage Indexation and Monetary Accommodation
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Jacob A. Frenkel
Note: ITI EFG IFM
Number: 1609
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1609
File-URL: http://www.nber.org/papers/w1609.pdf
File-Format: application/pdf
Publication-Status: published as Aizenman, Joshua and Jacob A. Frenkel. "Wage Indexation, Supply Shocks and Monetary Policy for a Sa mall Open Economy," Economic Adjustment and Exchange Rates in Developing Countries, edited by S. Edwards and Liquat Ahamed. Chicago: UCP, 1986.
Publication-Status: published as Aizenman, Joshua and Jacob A. Frenkel. "Supply Shocks, Wage Indexation and Monetary Accomodation,"Journal of Money, Credit, and Banking, Vol. 18, No. 3, pp. 304-322, August 1986.
Abstract: This paper develops a unified framework for the analysis of wage indexation and monetary policy in the presence of supply shocks. We first present simple formulae for the optimal wage indexation rule and for the optimal money supply rule. In order to set the stage for an evaluation of departures from the optimal policy rules we first analyse two extreme cases -- a rule that stabilizes employment and a rule that stabilizes the real wage. The analysis of these two extreme cases provides the ingredients for the evaluation of various rules for wage indexation and for monetary targeting. We examine the implications of indexing wages to (i) nominal GNP, (ii) the CPI and (iii) the value-added price index, as well as the implications of targeting the money supply to these alternative three indicators. It is shown that, the various indexation rules bear a dual relation to the various monetary targeting rules. The welfare ranking of the various rules depends on whether the elasticity of the demand for labor exceeds or falls short of the elasticity of labor supply. If the demand for labor is more elastic than the supply, then policy rules that stabilize employment produce a smaller welfare cost than policy rules that stabilize the real wage. In that case, indexing wages to nominal GNP results in a smaller welfare cost than indexing to value-added price index which, in turn, produces a smaller cost than indexation to the CPI. Because of the dual relation between monetary policy and wage indexation, it follows that under the same circumstances, monetary policy that targets nominal GNP produces a smaller welfare cost than policy that targets the value-added price index which, in turn, results in a smaller cost than the policy that targets the CPI. This ranking is reversed when the elasticity of the supply of labor exceeds the elasticity of demand.
Handle: RePEc:nbr:nberwo:1609
Template-Type: ReDIF-Paper 1.0
Title: Conventional Valuation and the Term Structure of Interest Rates
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 1610
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1610
File-URL: http://www.nber.org/papers/w1610.pdf
File-Format: application/pdf
Publication-Status: published as Rudiger Dornbusch et. al. eds., Macroeconomics and Finance: Essays in Honor of Franco Modigliani, Cambridge, MIT Press, 1987
Abstract: There does not appear to be a general tendency for long-term interest rates either to overreact or to underreact to short-term interest rates relative to a rational expectations model of the term structure. Rather, there appears to be some tendency for markets to set long-term interest rates in terms of a convention or rule of thumb that makes long rates behave as a distributed lag, with gradually declining coefficients, of short-term interest rates. People seem to remember the recent past but blur the mare distant. In some monetary policy regimes this convention implies overreaction, in others underreaction.
Handle: RePEc:nbr:nberwo:1610
Template-Type: ReDIF-Paper 1.0
Title: Aspects of Investor Behavior Under Risk
Author-Name: Benjamin M. Friedman
Author-Name: V. Vance Roley
Note: ME
Number: 1611
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1611
File-URL: http://www.nber.org/papers/w1611.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. and V. Vance Roley. "Aspects of Investor Behavior Under Risk," Arrow and the Ascent of Modern Economic Theory, ed. by George R. Feiwel. London: MacMillan Press, 1987, pp. 626-653.
Abstract: The three sections of this paper support three related conclusions. First, asset demands with the familiar properties of wealth homogeneity and linearity in expected returns follow as close approximations from expected utility maximizing behavior under the assumptions of constant relative risk aversion and joint normally distributed asset returns. Second, although such asset demands exhibit a symmetric coefficient matrix with respect to the relevant vector of expected asset returns, symmetry is not a general property, and the available empirical evidence warrants rejecting it for both institutional and individual investors in the United States. Finally, in a manner analogous to the finite maximum exhibited by quadratic utility, a broad class of mean-variance utility functions also exhibits a form of wealth satiation which necessarily restricts it range of applicability.
Handle: RePEc:nbr:nberwo:1611
Template-Type: ReDIF-Paper 1.0
Title: Asset Pricing Model Specification and the Term Structure Evidence
Author-Name: Terry A. Marsh
Note: ME
Number: 1612
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1612
File-URL: http://www.nber.org/papers/w1612.pdf
File-Format: application/pdf
Abstract: In this paper, a set of tests of models of relative capital asset pricesis developed. The tests are used to examine how well the models explain maturity premiums on Government bonds, though they are perfectly general and hence could be applied to stocks or other assets. Allowance is made in the tests for the nonobservability of investors' optimal per capita consumption (or expected marginal utility). It is found that the returns on Government bonds bear a systematic risk which is better measured by their covariability with aggregate per capita consumption than with the returns on the NYSE stock market index, the latter being the surrogate-wealth portfolio typically used to measure risk in the traditional Sharpe-Lintner-Mossin CAPM.
Handle: RePEc:nbr:nberwo:1612
Template-Type: ReDIF-Paper 1.0
Title: On the Negative Correlation Between Performance and Experience and Education
Author-Name: Andrew Weiss
Author-Name: Henry Landau
Note: LS
Number: 1613
Creation-Date: 1985-04
Order-URL: http://www.nber.org/papers/w1613
File-URL: http://www.nber.org/papers/w1613.pdf
File-Format: application/pdf
Abstract: We consider a model where a worker's productivity must exceed some lower bound for himto satisfy the minimum qualifications for a particular job. If the worker's productivity exceeds some upper bound he is promoted. We assume the productivity of every worker increases with experience, tenure and education. This relationship differs across workers. We present distributions of workers with the property that, among workers on a particular job, education, experience, or tenure is negatively correlated with productivity; even though for any single worker on that job those demographic characteristics have strongly positive effects on productivity. The result is due to the effect of the job assignment rule on the distribution of workers on the job.
Handle: RePEc:nbr:nberwo:1613
Template-Type: ReDIF-Paper 1.0
Title: Valuation and Optimal Exercise of the Wild Card Option in the Treasury Bond Futures Market
Author-Name: Alex Kane
Author-Person: pka501
Author-Name: Alan J. Marcus
Author-Person: pma1156
Note: ME
Number: 1614
Creation-Date: 1985-05
Order-URL: http://www.nber.org/papers/w1614
File-URL: http://www.nber.org/papers/w1614.pdf
File-Format: application/pdf
Publication-Status: published as Kane, Alex and Alan J. Marcus. "Valuation and Optimal Exercise of the Wild Card Option in the Treasury Bond Futures Market." Journal of Finance, Vol. 41, No. 1, (march 1986), pp. 195-207.
Abstract: The Chicago Board of Trade Treasury Bond Futures Contract allows the short position several delivery options as to when and with which bond the contract will be settled. The timing option allows the short position to choose any business day in the delivery month to make delivery. In addition, the contract settlement price is locked in at 2:00 p.m. when the futures market closes, despite the facts that the short position need not declare an intent to settle the contract until 8:00 p.m. and that trading in Treasury bonds car, occur all day in dealer markets. If bond prices change significantly between 2:00 and 8:00 p.m., the short has the option of settling the contract at a favorable 2:00 p.m. price. This phenomenon, which recurs on every trading day of the delivery month, creates a sequence of 6-hour put options for the short position which has been dubbed the "wild card option." This paper presents avaluation model for the wild card option and computes estimates of the value of that option, as well as rules for its optimal exercise.
Handle: RePEc:nbr:nberwo:1614
Template-Type: ReDIF-Paper 1.0
Title: The Impossibility of Rational Bubbles
Author-Name: Behzad T. Diba
Author-Person: pdi273
Author-Name: Herschel I. Grossman
Note: ME EFG
Number: 1615
Creation-Date: 1985-05
Order-URL: http://www.nber.org/papers/w1615
File-URL: http://www.nber.org/papers/w1615.pdf
File-Format: application/pdf
Publication-Status: published as Diba, Behzad T. and Herschel I. Grossman. "On the Inception of Rational Bubbles," Quarterly Journal of Economics, Vol. 102, No. 409, August 1987.
Abstract: A rational bubble would involve a self-confirming belief that an asset price depends on information that includes variables or parameters that are not part of market fundamentals. The existing literature shows that, if market fundamentals are economically interesting, i.e., forward looking, any rational bubbles would be either explosive or implosive. Further arguments based on the existing literature show that utility maximizing behavior implies finite bounds on asset prices and, accordingly, precludes both explosive and implosive rational price expectations, except for the possible case of an implosion in the value of fiat money. These arguments rule out both positive and negative rational bubbles, except for the poissibility of rational inflationary bubbles.This paper extends the theoretical analysis of rational bubbles in two ways. First, it shows that, although a supply response of the current asset stock to the current asset price dampens fluctuations in market fundamentals, such a response would cause a rational bubble to explode or to implode even faster.Thus, the explosiveness or implosiveness of rational bubbles isnot an artifact of assuming that the asset stock evolves autonomously. Second, and more importantly, the present analysis considers the inception of rational bubbles and shows that, for anegative rational bubble -- such as a rational inflationary bubble -- to get started, a positive rational bubble also would have to have positive probability. Specifically, the expected initial absolute value of a potential negative rational bubble cannot exceed the expected, initial value of a potential positive rational bubble.This result dramatically expands the theoretical basis for precluding rational bubbles. Specifically, because utility maximization directly rules out rational deflationary bubbles, the inception of a rational inflationary bubbles is also precluded.
Handle: RePEc:nbr:nberwo:1615
Template-Type: ReDIF-Paper 1.0
Title: Do Wages Rise With Job Seniority?
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: Robert A. Shakotko
Note: LS
Number: 1616
Creation-Date: 1985-05
Order-URL: http://www.nber.org/papers/w1616
File-URL: http://www.nber.org/papers/w1616.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 54, no. 3, pp. 437-460, July 1987
Abstract: The extent to which wages rise with the accumulation of seniority(tenure) in a firm after one controls for total labor market experience is a fundamental question about the structure of earnings. A variety of studies have found a large, positive partial effect of tenure on wages. This paper re-examines the evidence using a simple instrumental variables scheme to deal with well known estimation biases which arise from the fact that tenure is likely to be related to unobserved individual and job characteristics affecting the wage. We use the variation of tenure over a given job match as the principal instrumental variable for tenure. The variation intenure over the job, in contrast to variation in tenure across individuals and jobs, is uncorrelated by construction with the fixed individual specific and job match specific components of the error term of the wage equation. Our main findingis that the partial effect of tenure on wages is small, and that general labor market experience and job shopping in the labor market account for most wage growth over a career. The strong cross section relationship between tenure and wages is due primarily to heterogeneity bias.
Handle: RePEc:nbr:nberwo:1616
Template-Type: ReDIF-Paper 1.0
Title: The Implications of Mean-Variance Optimization for Four Questions in International Macroeconomics
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 1617
Creation-Date: 1985-05
Order-URL: http://www.nber.org/papers/w1617
File-URL: http://www.nber.org/papers/w1617.pdf
File-Format: application/pdf
Publication-Status: published as Frankel, Jeffrey A. "The Implications of Mean-Variance Optimization for Four Questions in International Macroeconomics," Journal of International Money and Finance, Vol. 5, Supplement, (March 1986), pp. S53-S75.
Abstract: The hypothesis that investors optimize with respect to the mean and variance of their end-of-period wealth has powerful implications for some standard questions of interest to international macroeconomists. The implications transcend the particular econometric technique used to estimate the return variance-covarjance matrix. (1) For conventional estimates of risk-aversion, substitutability between domestic and foreign securities is close to perfect in the sense that risk premiums are small in magnitude (a few basis points), and thus cannot explain much bias in forward rates. (2) Nevertheless, as long as risk-aversion is not zero, foreign exchange intervention still affects the level of the exchange rate. If interest rates are held constant, the effect is proportionate to the contemporaneous change in asset supplies, and is more-than-proportionate if the expectations of future asset supplies also change. (3) Current account deficits have effects that are comparable to, though smaller in magnitude than,the effects of equal-sized changes in asset supplies through intervention or government borrowing. (4) The perceived tendency for dollar depreciation to be associated with appreciation of the mark against the franc is not consistent with the implication of mean-variance optimization that the franc should bea closer substitute for the dollar than is the mark.
Handle: RePEc:nbr:nberwo:1617
Template-Type: ReDIF-Paper 1.0
Title: Money and Interest in a Cash-in-Advance Economy
Author-Name: Robert E. Lucas, Jr.
Author-Name: Nancy L. Stokey
Note: EFG
Number: 1618
Creation-Date: 1985-05
Order-URL: http://www.nber.org/papers/w1618
File-URL: http://www.nber.org/papers/w1618.pdf
File-Format: application/pdf
Publication-Status: published as From Econometrica, Vol. 55, No. 3, pp. 491-513, (May 1987).
Abstract: In this paper we analyze an aggregative general equilibrimi model in which the use of money is motivated by a cash-in-advance constraint, applied to purchases of a subset of consumption goods. The system is subject to both real and monetary shocks, which are economy-wide and observed by all. We develop methods for verifying the existence of, characterizing, and explicitly calculating equilibria. A main result of the analysis is that current money growth affects the current real allocation only insofar as it affects expectations about future money growth, i.e., only through its value as a signal.
Handle: RePEc:nbr:nberwo:1618
Template-Type: ReDIF-Paper 1.0
Title: Credit Rationing and Effective Supply Failures
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 1619
Creation-Date: 1985-05
Order-URL: http://www.nber.org/papers/w1619
File-URL: http://www.nber.org/papers/w1619.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. "Credit Rationing and Effective Supply Failures," from The Economic Journal, Vol. 97, No. 386, June 1987, pp. 327-352.
Abstract: This paper presents two macro models in which central bank policy has real effects on the supply side of the economy due to credit rationing. In each model, there are two possible regimes, depending on whether credit is or is not rationed. Starting from an unrationed equilibrium, either a large enough contraction of bank reserves or a large enough rise in aggregate demand can lead to rationing. Monetary (fiscal) policy is shown to be more (less) powerful when there is rationing than when there is not. In the first model, credit rationing reduces working capital. There is a failure of effective supply in that credit-starved firms must reduce production below national supply. The resulting excess demand in the goods market may in turn drive prices up and reduce the real supply of credit further, leading to further reductions in supply and a stagflationary spiral. In the second model, credit rationing reduces investment, which cuts into both aggregate demand and supply. Despite the effect on demand, stagflationary instability is still possible. A rise in government spending crowds out investment in the rationed regime but crowds in investment in the unrationed regime.
Handle: RePEc:nbr:nberwo:1619
Template-Type: ReDIF-Paper 1.0
Title: Education Achievement in Segregated School Systems: The Effects of "Separate-But-Equal"
Author-Name: Robert A. Margo
Author-Person: pma319
Note: DAE
Number: 1620
Creation-Date: 1985-05
Order-URL: http://www.nber.org/papers/w1620
File-URL: http://www.nber.org/papers/w1620.pdf
File-Format: application/pdf
Publication-Status: published as Margo, Robert A. "Education Achievement in Segregated Schoo Systems: The Effects of 'Separate-But-Equal'" American Economic Review, Vol. 76, No. 4, September 1986, pp. 794-801.
Abstract: Educational achievement in segregated school systems was considerably lower in the black schools than in the white schools. Economic historians have argued that the racial achievement gap reflected the discriminatory funding of the black schools. This paper assesses counterfactually the historical effects of a "separate-but-equal" policy of educational finance. Using cross-sectional data from 1930 and 1940, I estimate race-specific educational production functions. Eliminating race differences in inputs supplied by school boards explains 40-50 percent of the racial achievement gap, depending on how achievement is measured.The remainder appears to reflect the impact of family background on achievement, of which the most important effect was adult black illiteracy, a legacy of slavery and educational backwardness in the late 19th century. The paper also shows how school boards' marginal valuation of black achievement can be recovered from the production function estimates. Compared to preferences that would have led them to voluntarily practice equality,Southern school boards judged black achievement to be worth roughly half the value they placed on white achievement.
Handle: RePEc:nbr:nberwo:1620
Template-Type: ReDIF-Paper 1.0
Title: A Model for Analyzing Youth Labor Market Policies
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 1621
Creation-Date: 1985-05
Order-URL: http://www.nber.org/papers/w1621
File-URL: http://www.nber.org/papers/w1621.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 6, No. 3, pp. 376-396, (July 1988).
Abstract: This paper formulates a model of the youth labor market. At the heart of the model is a minimum wage restriction which causes some youths to become unemployed and prevents others from training. Labor is assumed to be heterogeneous in performance on skilled iobs and is less productive as youths than as adults simply because of immaturity. The model is applied to analyze the effects of three representative policies: a youth subminimum wage, subsidies paid to firms that hire youths, and training subsidies that offset the costs of on-the-job training.
Handle: RePEc:nbr:nberwo:1621
Template-Type: ReDIF-Paper 1.0
Title: Pension Funding and Saving
Author-Name: B. Douglas Bernheim
Author-Person: pbe81
Author-Name: John B. Shoven
Note: PE
Number: 1622
Creation-Date: 1985-05
Order-URL: http://www.nber.org/papers/w1622
File-URL: http://www.nber.org/papers/w1622.pdf
File-Format: application/pdf
Publication-Status: published as Bernheim, B. Douglas and John B. Shoven. "Pension Funding and Saving," Pensions in the U.S. Economy, ed. Z. Bodie, J. Shoven, D. Wise. Chicago: UCP, 1988.
Publication-Status: published as Pension Funding and Saving, B. Douglas Bernheim, John B. Shoven. in Pensions in the U.S. Economy, Bodie, Shoven, and Wise. 1988
Abstract: This paper suggests that the nature of the funding of defined benefit pension plans may be an important reason why personal saving has not responded positively to the high real interest rites and tax incentives to encourage saving and investment of the last few years. From a firm's standpoint, funding the promised pension is a target, and higher rates of return permit reaching that target with lower contributions. According to the Flow of Funds Accounts of the Federal Reserve System between 1982 and 1984, net pension contributions declined from 6.02 percent of disposable personal income to 4.02 percent.The paper presents empirical information regarding pension contributions, unfunded liabilities, interest rates, and recent developments in pension funding. It specifies the target saving model of pension funding and derives the theoretical elasticity of pension contributions to changes in interestrates. It then investigates this elasticity with aggregate time series econometrics. In general, the estimated elasticities are consistent with the theory and indicate that one percentage point rise in real interest rates would, in the long run, reduce pension contributions between 20 and 30 percent. Such a large negative elasticity for such an important source of loanable funds in the economy suggests that the pensions funding mechanism should be taken into account in designing policies to increase the economy's saving and investment.
Handle: RePEc:nbr:nberwo:1622
Template-Type: ReDIF-Paper 1.0
Title: Aggregate Output with Operating Rates and Inventories as Buffers BetweenVariable Final Demand and Quasi-Fixed Factors
Author-Name: John F. Helliwell
Author-Person: phe368
Author-Name: Alan Chung
Note: ITI IFM
Number: 1623
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1623
File-URL: http://www.nber.org/papers/w1623.pdf
File-Format: application/pdf
Publication-Status: published as Chung, Alan and John F. Helliwell. "Aggregate Output with Variable Rates of Utilization of Employed Factors." Journal of Econometrics, Vol. 33, (1986) .
Abstract: Empirical evidence has long shown that output varies more in the short-run than do all factor inputs, including employment and hours worked. There is also evidence that all factors, including capital, start adjusting within a few months, suggesting that production models should treat all measured factor inputs as quasi-fixed. In such a context, long-run equilibrium involves the choice of average factor proportions, including an average operating rate, that minimize total costs of producing the desired level of output. In response to unexpected or temporary changes in demand or cost conditions, optimal temporary equilibrium involves some changes in factor demands coupled with the joint use of pricing and production decisions to make best use of the buffering capacity provided by inventories and operating rates. Applying this framework to aggregate annual data, this paper concentrates on the econometrics of the production or operating rate decision, since the operating rate is the key adjusting variable in the short-run. The operating rate decision also reveals most clearly the important consequences of quasi-fixity, and shows how our model contrasts with more conventional treatments. Other models of temporary equilibrium of production usually assume either the strict applicability of the underlying production function (requiring the assumption of either completely flexible product prices or at least one fully variable factor if quantity rationing is not to take place) or that current output is determined by aggregate demand without reference to the production function constraint. The assumed long-run production structure is two-level CES, with the inner function's vintage bundle of capital and energy combining with efficiency units of labour in the outer function. Long-run average cost minimization assumptions are used to derive the parameters of the production function, assuming constant returns to scale and constant growth of labour efficiency. These assumptions about the functional form and properties of the long-run production function are tested against various alternatives in the context of the derived temporary equilibrium output decision.
Handle: RePEc:nbr:nberwo:1623
Template-Type: ReDIF-Paper 1.0
Title: The Sensitivity of Labor Demand Functions to Choice of Dependent Variable
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 1624
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1624
File-URL: http://www.nber.org/papers/w1624.pdf
File-Format: application/pdf
Publication-Status: published as Borjas, George. "The Sensitivity of Labor Demand Functions to Choice of Dependent Variable," Review of Economics and Statistics, Vol. LXVIII, No. 1, pp. 58-66, February 1986.
Abstract: This paper investigates whether the parameters of labor demand functions are sensitive to alternative methods of estimation. The assumption that the production technology is of the Generalized Leontief type implies that the demand system can be estimated by analyzing cross-section differences in earnings across labor markets, by studying longitudinal changes in earnings within a labor market, or by investigating cross-section differences in labor force participation rates across labor markets. The estimation of these models on the 1970 and 1980 Public Use Samples from the U.S. Census reveals that the estimates of labor demand functions are indeed quite robust to major specification changes.
Handle: RePEc:nbr:nberwo:1624
Template-Type: ReDIF-Paper 1.0
Title: Serial Correlation of Asset Returns and Optimal Portfolios for the Long and Short Term
Author-Name: Stanley Fischer
Author-Name: George Pennacchi
Author-Person: ppe479
Note: ME
Number: 1625
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1625
File-URL: http://www.nber.org/papers/w1625.pdf
File-Format: application/pdf
Abstract: Optimal portfolios differ according to the length of time they are held without being rebalanced. For the case in which asset returns are identically and independently distributed, it has been shown that optimal portfolios become less diversified as the holding period lengthens.We show that the anti-diversification result does not obtain when asset returns are serially correlated, and examine properties of asymptotic portfolios for the case where the short term interest rate, although known at each moment of time, may change unpredictably over time. The theoretical results provide no presumption about the effects of the length of the holding period on the optimal portfolio. Using estimated processes for stock and bill returns, we show that calculated optimal portfolios are virtually invariant to the length of the holding period. The estimated processes for asset returns also imply very little difference between portfolios calculated ignoring changes in the investment opportunity set and those obtained when the investment opportunity set changes over time.
Handle: RePEc:nbr:nberwo:1625
Template-Type: ReDIF-Paper 1.0
Title: Stock Returns and the Term Structure
Author-Name: John Y. Campbell
Author-Person: pca54
Note: ME
Number: 1626
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1626
File-URL: http://www.nber.org/papers/w1626.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, John. "Stock Returns and the Term Structure," Journal of Financial Economics, Vol. 18, No. 2, June 1987, pp. 373-399.
Abstract: It is well known that in the postwar period stockreturns have tended to be low when the short term nominal interest rate is high. In this paper I show that more generally the state of the term structure of interest rates predicts stock returns. Risk premia on stocks appear to move closely together with those on 20-year Treasury bonds, while risk premia on Treasury bills move somewhat independently. Average returns on 20-year bonds have been very low relative to average returns on stocks. I use these observations to test some simple asset pricing models. First I consider latent variable models in which betas are constant and risk premia vary with expected returns on a small number of unobservable hedge portfolios. The data strongly reject a single-latent-variable model.The last part of the paper examines the relationship between conditional means and variances of returns on bills, bonds and stocks. Bill returns tend to be high when their conditional variance is high, but there is a perverse negative relationship between stock returns and their conditional variance. A model is estimated which assumes that asset returns are determined by their time-varying betas with a fixed-weight "benchmark" portfolio of bills, bonds and stocks, whose return is proportional to its conditional variance. This portfolio is estimated to place almost all its weight on bills, indicating that uncertainty about nominal interest rates is important in pricing both short- and long-term assets.
Handle: RePEc:nbr:nberwo:1626
Template-Type: ReDIF-Paper 1.0
Title: A Tax-Based Test for Nominal Rigidities
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG PE
Number: 1627
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1627
File-URL: http://www.nber.org/papers/w1627.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James M., Julio J. Rotemberg and Lawrence H. Summers."A Tax-Based Test for Nominal Rigidities," American Economic Review, Vol. 76, No. 4, (September 1986), pp. 659-675.
Abstract: In classical macroeconomic models with flexible wages and prices,whether a tax is levied on producers or consumers does not affect its incidence. However, if wages or prices are rigid in the short run, as they are in Keynesian macroeconomic models, then shifting a tax from one side ofthe market to the other may have real effects. Tax changes therefore provide potential tests for the presence of nominal rigidities. This paper examines the price and output effects of revenue-neutral shifts between direct and indirect taxation. The results, based on post-war data from both Great Britain and the United States, reject the view that wages and prices are completely flexible in the short run.
Handle: RePEc:nbr:nberwo:1627
Template-Type: ReDIF-Paper 1.0
Title: Estimating Neonatal Mortality Rates from the Heights of Children: The Case of American Slaves
Author-Name: Richard H. Steckel
Author-Person: pst352
Note: DAE
Number: 1628
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1628
File-URL: http://www.nber.org/papers/w1628.pdf
File-Format: application/pdf
Publication-Status: published as Steckel, Richard H. "Birth Weights and Infant Mortality Among American Slaves." Explorations in Economic History, Vol. 23, No. 2, (April 1986), pp. 17 3-198.
Abstract: Underenumeration of vital events is a problem familiar topeople who work with historical demographic records. This paper proposes a method for recovering information about neonatal mortality.The approach utilizes average heights of young children to predict the birth weight of American slaves. The results suggest that slave newborns weighed on average about 5.1 pounds, which places them among the poorest populations of developing countries in the mid-twentieth century. The birth weight distribution and a schedule of mortality by birth weight suggest that previous estimates of slave infant mortality are too low. The poor health and stature of children and the relatively large size of slave adults is a pattern of growth and development that is unobserved among poor populations of the twentieth century. Thus slavery may have created an unusual pattern of nutritional resource allocation across ages.
Handle: RePEc:nbr:nberwo:1628
Template-Type: ReDIF-Paper 1.0
Title: Borrowing Restrictions and Wealth Constraints: Implications for Aggregate Consumption
Author-Name: Carl E. Walsh
Author-Person: pwa23
Note: ME
Number: 1629
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1629
File-URL: http://www.nber.org/papers/w1629.pdf
File-Format: application/pdf
Abstract: Recent empirical studies have found that consumption is more sensitive to current income than the life-cycle, permanent income hypothesis would predict.The present paper studies a model in which the fraction of consumers exhibiting excess sensitivity is endogenously determined. The presence of income uncertainty and restrictions on borrowing are shown to generate adistribution of consumption across individuals which is consistent with the recent empirical evidence. The aggregate marginal propensity to consume out of transitory income is directly related to the fraction of constrained consumers and exhibits positive serial correlation in the face of serially uncorrelated income shocks.
Handle: RePEc:nbr:nberwo:1629
Template-Type: ReDIF-Paper 1.0
Title: Pure Price Effects of Nonwage Compensation
Author-Name: Jeffrey S. Zax
Note: LS
Number: 1630
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1630
File-URL: http://www.nber.org/papers/w1630.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol 37, no.2 pp171-183, November 1988.
Abstract: This paper discusses the pure static price effects which are engendered by tax preferences for nonwage compensation. Section II demonstrates that, because of these price effects, optimal consumption bundles will contain larger quantities of the goods included in nonwage compensation, and smaller quantities of other goods, than they would in the absence of tax preferences. In the presence of preferences, the cost of a compensation package to an employer usually differs from its value to an employee. Under proportional taxation, compensation packages which contain optimal quantities of nonwage compensation may be between 4% and 13% less expensive than cash compensation sufficient to purchase, at retail, consumption bundles providing similar utility. This difference represents a substantial savings to employers. It is largely attributable to reductions in tax payments, and may represent substantial foregone tax revenues. Optimal provision of nonwage compensation confers greater advantages under progressive taxation, advantages which increase with the degree of progressivity.These considerations are important in the analysis of any issue to which employee 'income' or employer costs are relevant. As examples, Section III demonstrates that conventional definitions of income unavoidably generate incorrect conclusions with regard to evaluations of welfare distribution, tax progressivity, and returns to human capital.
Handle: RePEc:nbr:nberwo:1630
Template-Type: ReDIF-Paper 1.0
Title: State Personal Income and Sales Taxes: 1977-1983
Author-Name: Daniel R. Feenberg
Author-Person: pfe56
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 1631
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1631
File-URL: http://www.nber.org/papers/w1631.pdf
File-Format: application/pdf
Publication-Status: published as Rosen, Harvey (ed.) Studies in State and Local Public Finance. Chicago: University of Chicago Press, 1985.
Publication-Status: published as State Personal Income and Sales Taxes, 1977–1983 , Daniel R. Feenberg, Harvey S. Rosen. in Studies in State and Local Public Finance, Rosen. 1986
Abstract: The two main workhorses of state tax systems are levies on sales and individual incomes. In this paper we develop and implement a coherent methodology for characterizing these systems. The measures thus generated are used to show how the various systems differ across states, and how they evolved over the seven year period 1977-1983. We consider the systems' revenue elasticities with respect to income, average and marginal tax rates at various income levels, and several other issues as well.
Handle: RePEc:nbr:nberwo:1631
Template-Type: ReDIF-Paper 1.0
Title: On the Limitations of Government Borrowing: A Framework for Empirical Testing
Author-Name: James D. Hamilton
Author-Person: pha60
Author-Name: Marjorie A. Flavin
Note: EFG
Number: 1632
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1632
File-URL: http://www.nber.org/papers/w1632.pdf
File-Format: application/pdf
Publication-Status: published as Hamilton, James D. and Marjorie Flavin,"On the Limitations of Governemnt Borrowing: A Framework for Empirical Testing,"American Economic Review, Vol. 76, No. 4, September 1986.
Abstract: This paper seeks to distinguish empirically between two views on the limitations of government borrowing. According to one view, nothing precludes the government from running a permanent budget deficit, paying interest due on the growing debt load simply by issuing new debt, An alternative perspective holds that creditors would be unwilling to purchase government debt unless the government made a credible commitment to balance its budget in present value terms. We show that distinguishing between these possibilities is mathematically equivalent to testing whether a continuing currency inflation might be fueled by speculation alone or is instead driven solely by economic fundamentals. Empirical tests which have been developed for this economic question lead us to conclude that postwar U.S. deficits are largely consistent with the proposition that the government budget must be balanced in present-value terms.
Handle: RePEc:nbr:nberwo:1632
Template-Type: ReDIF-Paper 1.0
Title: Hospital Cost and Efficiency Under Per Service and Per Case Payment in Maryland: A Tale of the Carrot and the Stick
Author-Name: David S. Salkever
Author-Person: psa1313
Author-Name: Donald M. Steinwachs
Author-Name: Agnes Rupp
Note: EH
Number: 1633
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1633
File-URL: http://www.nber.org/papers/w1633.pdf
File-Format: application/pdf
Publication-Status: published as Salkever, David S., Donald M. Steinwachs, and Agnes Rupp."Hospital Cost and Efficiency Under Per Service and Per Case Payment in Maryland: A Tale ofthe Carrot and the Stick." Inquiry, Vol. 23, (Spring 1986), pp. 56-66.
Abstract: The simultaneous operation of per case and per servicepayment systems in Maryland, and the varying levels of stringency used in setting per case rates allows comparison of effects of differing incentive structures on hospital costs. This paper presents such a comparison with 1977-1981 data. Cost per case and total cost regressions show evidence of lower costs only when per case payment limits are very stringent. Positive net revenue incentives appear insufficient to induce reductions in length of stay and in ancillary services use. Our results suggest these changes in medical practice patterns are more likely under the threat of financial losses.
Handle: RePEc:nbr:nberwo:1633
Template-Type: ReDIF-Paper 1.0
Title: Small Countries in Monetary Unions: A Two-Tier Model
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Note: ITI IFM
Number: 1634
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1634
File-URL: http://www.nber.org/papers/w1634.pdf
File-Format: application/pdf
Publication-Status: published as Macedo, Jorge Braga de. "Small Countries in Monetary Unions: A Two-Tier Model," Journal of Economic Dynamics and Control, February 1987.
Abstract: In a previous analysis of the West African Monetary Union, Macedo(1985a), size is taken to be a major structural characteristic of a country in the sense that large countries are not affected by disturbances originating in small countries but small countries are affected by large countries' domestic disturbances. In this paper, we generalize some of the results and present the structure of the model in moredetail. Using a four-country, two-tier macroeconomic model, it is shown that the pseudo-exchange rate union of the two small countries with the large partner has no effect on their real exchange rates but affects their price levels, whereas a full monetary union requires in principle a transfer from the large partner in the union. The allocation of this transfer between the two small countries by their common central bank will have real effects when the allocation rule differs from the steady-state monetary distribution.
Handle: RePEc:nbr:nberwo:1634
Template-Type: ReDIF-Paper 1.0
Title: Implicit Contracts: A Survey
Author-Name: Sherwin Rosen
Note: LS EFG
Number: 1635
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1635
File-URL: http://www.nber.org/papers/w1635.pdf
File-Format: application/pdf
Publication-Status: published as Rosen, Sherwin. "Implicits Contracts: A Survey," Journal of Economic Literature, Vol. 23, No. 3, (Sept. 1985), pp. 1144-1175.
Abstract: 7mplicit contracts resolve the distribution of uncertainty and utilization of specific human capital between risk averse workers and less risk averse firms. Incomplete contracts are required to yield involuntary layoffs in contract markets: otherwise, contracts are efficient and pareto optimal by construction. There is a close relation between contract theory and neoclassical labor market theory. Contracts smooth consumption, but increase the volatility of labor supply and labor utilization to demand disturbances, because contractural insurance eliminates the income effects of socially diversifiable risks. This result is similar to the intertemporal substitution hypothesis. However, the price mechanism in a contract is substantially different. Contracts embody a nonlinear two-part pricing scheme. The lump sum part allocates the income-consumption consequences of risks and the marginal pricing part allocates production and labor utilization. This implicit pricing mechanism is in all respects "flexible," though the observed average hourly wage combines both parts and may give the outward appearanceof rigidity. Furthermore, the observed average wage rate in a contract does not reflect marginal conditions necessary for structural econometric estimation. Indivisibilities appear necessary to account for the split between work-sharing and layoffs. Contracts with private information are also considered in the nonlinear pricing context.
Handle: RePEc:nbr:nberwo:1635
Template-Type: ReDIF-Paper 1.0
Title: The Dollar and the Policy Mix: 1985
Author-Name: Jeffrey Sachs
Note: EFG ITI IFM
Number: 1636
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1636
File-URL: http://www.nber.org/papers/w1636.pdf
File-Format: application/pdf
Publication-Status: published as Jeffrey D. Sachs & Stanley Fischer & Maurice Obstfeld, 1985. "The Dollar and the Policy Mix: 1985," Brookings Papers on Economic Activity, vol 1985(1).
Publication-Status: published as Phelps, Edmund (ed.) Recent Developments in Macroeconomics. Glasgow: Edward Elgar Publishing, 1991.
Abstract: In 1971, Robert Mundell proposed a stunning solution to the three problems then affecting the U.S. economy: high inflation and unemployment, and a weak currency. Mundell suggested that the policy mix of fiscal expansion and monetary contraction could work to raise output, reduce inflation, and strengthen the currency at the same time. This policy mix has been pursued under the Reagan administration since 1981. The paper investigates the contributions of this policy mix to disinflation and output growth. It finds that the policy mix has contributed as much as three percentage points of the reduction in inflation during 1981-84, but that the gains against inflation due to the mix will likely be lost, or more than lost, in the future.
Handle: RePEc:nbr:nberwo:1636
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Interdependence of Japan and the United States: Some Simulation Results
Author-Name: Naoko Ishii
Author-Name: Warwick J. McKibbin
Author-Person: pmc14
Author-Name: Jeffrey Sachs
Note: EFG ITI IFM
Number: 1637
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1637
File-URL: http://www.nber.org/papers/w1637.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Policy Modelling, Winter 1985, 533-572
Abstract: In this paper we examine the macroeconomic interdependence of Japan and the U.S. using a medium-scale simulation model of the world economy. Our goal is to determine how shifts in macroeconomic policies in the U.S. or Japan affectthe other country as well as the rest of the world. In particular we examine the following three issues: (1) the likely macroeconomic ramifications for the U.S., Europe and Japan of significant budget cuts in the U.S.; (2) the macroeconomic implications of a protectionist tariff imposed by the U.S.; and (3) the scope for policy coordination among the U.S., Japan and Europe.
Handle: RePEc:nbr:nberwo:1637
Template-Type: ReDIF-Paper 1.0
Title: Hours Restrictions and Labor Supply
Author-Name: William T. Dickens
Author-Name: Shelly J. Lundberg
Author-Person: plu82
Note: LS
Number: 1638
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1638
File-URL: http://www.nber.org/papers/w1638.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, "Labor Supply with Hours Restrictions."vol 34, no. 1, Feb 1993, pp 169-192
Abstract: This study presents a model of labor supply in which individuals may face constraints on their choice of work hours, and analyzes the sensitivity of parameter estimates and policy conclusions to the usual assumption of unrestricted choice. We set up the labor supply decision asa discrete choice problem, where each worker faces a finite number of employment opportunities, each offering fixed hours of work.The distribution from which these are drawn, as well as the number of draws, is estimated along with the behavioral parameters of individual labor supply.The standard model with unconstrained hours appears as a special case where the number of draws approaches infinity. We estimate the mean absolute difference between desired and actual work hours to be about ten hours perweek. The results strongly support the notion that hours choices are constrained, and suggest that models which ignore restrictions on hours worked may yield biased estimates of the wage elasticity of desired hours. Further, we suggest that analysis of policies such as income transfers and the flat rate tax which do not consider their effects on the distribution of hours offered may be very misleading.
Handle: RePEc:nbr:nberwo:1638
Template-Type: ReDIF-Paper 1.0
Title: A Vintage Model of Supply Applied to French Manufacturing
Author-Name: Pentti J.K. Kouri
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Author-Name: Albert J. Viscio
Note: ITI IFM
Number: 1639
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1639
File-URL: http://www.nber.org/papers/w1639.pdf
File-Format: application/pdf
Publication-Status: published as Kouri, Pentti J.K., Jorge Braga de Macedo, and Albert J. Viscio. "A Vintage Model of Supply Applied to French Manufacturing." Economia, Vol. 9, No.1(January 1985) pp. 159-193.
Abstract: In Kouri, Macedo and Viscio (1982), we applied a vintage model of supply to data from the French manufacturing sector. The model was,however, solved with a particular parametrization (Cobb Douglas production function and a quadratic adjustment function). Also, no fixed factors were allowed for in the theoretical treatment, even though fixed labor was found to be significant in the application to France. The treatment of technological progress was equally restrictive. Here we solve in Section I the general case of N variable factorsand N fixed factors with embodied and disembodied technological progress. It turns out to be simpler than the combination of a Cobb-Douglas production function with a quadratic adjustment function, thus suggesting a manageable framework for the analysis of profitability and employment inindustrial countries. The model is simulated in Section II using previously unavailable data on a subsector of French manufacturing froci 1959 to 1980. The empirical results confirm the importance of vintage effects.
Handle: RePEc:nbr:nberwo:1639
Template-Type: ReDIF-Paper 1.0
Title: Are Imports to Blame?: Attribution of Injury Under the 1974 Trade Act
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Note: ITI IFM
Number: 1640
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1640
File-URL: http://www.nber.org/papers/w1640.pdf
File-Format: application/pdf
Publication-Status: published as Pindyck, Robert S. and Julio J. Rotemberg. "Are Imports to Blame?: Attribution of Injury Under the 1974 Trade Act," Journal of Law and Economics, April 1987.
Abstract: Under Section 201 of the 1974 Trade Act, a domestic industry can obtain temporary protection against imports by demonstrating before the International Trade Commission that it has been injured, and that imports have been the"substantial cause" of injury --i.e.,"a cause which is important and not less than any other cause." To date, the ITC lacks a coherent framework for selecting a menu of other factors which might be considered as causes of injury, and for weighing the effects of these other factors against those of imports.This paper sets forth a straightforward economic and statistical framework for use in Section 201 cases. This framework is based on the fact that if the domestic industry is competitive, injury can arise from one or more of three broad sources: adverse shifts in market demand, adverse shifts in domestic supply, or increased imports. We show how these sources of injury can be distinguished in theory, and statistically evaluated in practice. As an illustrative example, we apply the framework to the case of the copper industry, which petitioned the ITC for relief in 1984. Although that industry has indeed suffered injury, we show that the "substantial cause" was not imports, but instead increasing costs and decreasing demand.
Handle: RePEc:nbr:nberwo:1640
Template-Type: ReDIF-Paper 1.0
Title: Wages in the Federal and Private Sectors
Author-Name: Steven F. Venti
Note: LS
Number: 1641
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1641
File-URL: http://www.nber.org/papers/w1641.pdf
File-Format: application/pdf
Publication-Status: published as Wise, David (ed.) Public Sector Payrolls. Chicago: University of Chicago Press, 1987.
Publication-Status: published as Wages in the Federal and Private Sectors, Steven F. Venti. in Public Sector Payrolls, Wise. 1987
Abstract: This study addresses the legal principle of "comparability" that ties federal sector wages to wages in the private sector. We first examine comparability by determining if workers with similar observed and unobserved characteristics receive the same wages in each sector. Estimates based on data from the 1982 CPS indicate males may have a slight wage advantage in the federal sector. Female workers earn substantially more in the federal sector than inthe private sector. We then develop a choice-theoretic approach to the issue of comparability by applying a simple supply argument: a cost-minimizing federal employer would pay wages no higher than necessary to attract employees and eliminate queues for federal jobs. If the market pays equalizing differences for unique attributes of each sector, then this approach is not consistent with wage equality between the sectors. A model jointly determining sectoral attachment and wage offers is estimated by maximum likelihood. Results suggest the elimination of queues will require substantial wage reductions for both male and female federal employees.
Handle: RePEc:nbr:nberwo:1641
Template-Type: ReDIF-Paper 1.0
Title: Employment, Hours, and Earnings in the Depression: An Analysis of EightManufacturing Industries
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Note: EFG
Number: 1642
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1642
File-URL: http://www.nber.org/papers/w1642.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben S."Employment, Hours, and Earnings in the Drpression: An Analysis of Eight Manufacturing Industries," American Economic Review, Vol. 76 , No. 1, pp. 82-109, March 1986.
Abstract: This paper employs monthly, industry-level data in a study of Depression-era labor markets. The underlying analytical framework is one in which, as in Lucas (1970), employers can vary total labor input not only by changing the number of workers but also by varying the length of the work-week. This framework appears to be particularly relevant to the 1930s, a period in which both employment and hours of work fluctuated sharply. With aggregate demand treated as exogenous, it is shown that an econometric model based on this framework, in conjunction with some additional elements (notably, the adjustment of workers' pay to permanent but not transitory variations in the cost of living, and the effects of New Deal legislation) can provide a good explanation of the behavior of the keytime series. In particular, the empirical model is able to explain the puzzle of increasing real wages during a period of high unemployment.
Handle: RePEc:nbr:nberwo:1642
Template-Type: ReDIF-Paper 1.0
Title: Estimating the Continuous Time Consumption Based Asset Pricing Model
Author-Name: Sanford J. Grossman
Author-Person: pgr108
Author-Name: Angelo Melino
Author-Person: pme69
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 1643
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1643
File-URL: http://www.nber.org/papers/w1643.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Sanford J., Angelo Melino and Robert J. Shiller. "Estimating the Continuous-Time Consumption-Based Asset Pricing Model," Journal of Business and Economic Statistics, Vol. 5, No. 3, July 1987, pp. 315-327.
Abstract: The consumption based asset pricing model predicts that excess yields are determined in a fairly simple way by the market's degree of relative risk aversion and by the pattern of covariances between percapita consumption growth and asset returns. Estimation and testingis complicated by the fact that the model's predictions relate to the instantaneous flow of consumption and point-in-time asset values, but only data on the integral or unit average of the consumption flow is available. In our paper, we show how to estimate the parameters of interest consistently from the available data by maximum likelihood. We estimate the market's degree of relative risk aversion and the instantaneous covariances of asset yields and consumption using six different data sets. We also test the model's overidentifying restrictions.
Handle: RePEc:nbr:nberwo:1643
Template-Type: ReDIF-Paper 1.0
Title: Is the Strong Dollar Sustainable?
Author-Name: Paul R. Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 1644
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1644
File-URL: http://www.nber.org/papers/w1644.pdf
File-Format: application/pdf
Publication-Status: published as Krugman, Paul R. "Is the Strong Dollar Sustainable?" The U.S. Dollar--Recent Developments, Outlook, and Policy Options, pp. 103-132. Kansas City: The Federal Reserve Bank of Kansas City, 1985.
Publication-Status: published as Paul R. Krugman, 1985. "Is the strong dollar sustainable?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 103-155.
Abstract: This paper presents evidence strongly suggesting that the current strength of the dollar reflects myopic behavior by international investors; that is, that part of the dollar's strength can be viewed as a speculative bubble. At some point this bubble will burst, leading to a sharp fall in the dollar's value.The essential argument is that given the modest real interest differentials between the U.S. and its trading partners, the dollar'sstrength amounts to an implicit forecast on the part of the market that with high probability the dollar will remain very strong for an extended period. The paper shows that such sustained dollar strength would lead the U.S. to Latin American levels of debt relative to GNP, which is presumably not feasible. Allowing for the possibility that something will be done to bring the dollar down before this happens actually reinforces the argument that the current value of the dollar is unreasonable.
Handle: RePEc:nbr:nberwo:1644
Template-Type: ReDIF-Paper 1.0
Title: The Efficiency Gains from Social Security Benefit - Tax Linkage
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 1645
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1645
File-URL: http://www.nber.org/papers/w1645.pdf
File-Format: application/pdf
Publication-Status: published as (With Jonathan Skinner) Published as "The Efficiency Gains From Dynamic Tax Reform", International Economic Review, Vol. 24, no. 1 (1983): 81-100.
Abstract: This paper examines the efficiency gains from linking marginal Social Security benefits to marginal Social Security payroll taxes. In the U.S. the current combined employer-employee OASI payroll tax rate is 10.4 percent. Recent estimates suggest that the average marginal income tax rate is roughly 27 percent (Barro and Sahaskul (1983)). If marginal OASI payroll taxes provided no marginal Social Security benefits or were incorrectly perceived to provide nomarginal benefits, the effective marginal federal government taxation of labor supply would average roughly 38 percent. Since the efficiency costs of distortionary taxation rise as roughly the square of the tax rate, the Social Security payroll tax may be more than doubling the dead weight loss of labor income taxation.The findings of this paper suggest that there may be very significant efficiency gains available from tightening the connection between marginal Social Security taxes paid and marginal Social Security benefits received. Indeed,the simulated efficiency gains are very large in comparison with those obtained from analyses of the gains from structural tax reform. Restructuring Social Security to greatly enhance marginal benefit-tax linkage may be infeasible, at least in the short run. However, simply providing annual Social Security reports indicating how a worker's projected benefits are affected by his or her tax contributions could provide substantial increases in economic efficiency. Such efficiency gains are potentially as large as increasing GNP by 1 percent this year and every year in the future.
Handle: RePEc:nbr:nberwo:1645
Template-Type: ReDIF-Paper 1.0
Title: Pubic Debt and U.S. Saving: A New Test of the Neutrality Hypothesis
Author-Name: Michael J. Boskin
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE EFG
Number: 1646
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1646
File-URL: http://www.nber.org/papers/w1646.pdf
File-Format: application/pdf
Publication-Status: published as Boskin, Michael J. and Laurence J. Kotlikoff. "Public Debt and United States Saving: A New Test of the Neutrality Hypothesis." Carnegie-Rochester Conference Series on Public Policy, Vol. 23, (1985), pp. 55-86.
Abstract: The substantial post war decline in the U.S. saving rate has added great impetus to the debate over whether public debt policy crowds out saving. Rather than attempting to reject specific saving models, empirical research on debt policy and savings has primarily focused on the impact of particular policy variables on savings. In this paper we examine Barro's infinite horizon, intergenerationally altruistic model. A distinguishing feature of this modelis that aggregate consumption depends only on collective resources and not the age distribution of resources.To test this proposition we specify the Barro model under earnings uncertainty, rate of return uncertainty, and demographic change and test whether, given the level of consumption predicted by this model, variables measuring the age distribution of resources influence actual consumption. Data on the age distribution of resources are primarily obtained from the annual Current Population Surveys. Our results imply a rejection of the hypothesis that aggregate consumption is independent of the age distribution of resources.They therefore cast doubt on the contention that government debt policy does not affect consumption and saving.
Handle: RePEc:nbr:nberwo:1646
Template-Type: ReDIF-Paper 1.0
Title: Banking in General Equilibrium
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Author-Name: Mark L. Gertler
Author-Person: pge11
Note: EFG
Number: 1647
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1647
File-URL: http://www.nber.org/papers/w1647.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben and Mark Gertler. "Banking and Macroeconomic Equilibrium," New Approaches to Monetary Economics, ed. W. Barnett and K. Singleton, New York: Cambridge University Press, 1987. with Mark Gertler
Abstract: This paper attempts to provide a step towards understanding the role of financial intermediaries ("banks") in aggregate economic activity. We first develop a model of the intermediary sector which is highly simplified, but rich enough to motivate several special features of bauks. Of particular importance in our model is the assumption that banks are more efficient than the public in evaluating and auditing certain information --intensive loan projects. Banks are also assumed to have private information about their investments, which motivates the heavy reliance of banks on debt rather than equity finance and their need for buffer stock capital. We embed this intermediary sector in a general equilibrium framework, which includes consumers and a non-banking investment sector. Mainly because banks have superior access to some investments, factors affecting the size or efficiency of banking will also have an impact on the aggregate economy. Among the factors affecting intermediation, we show, are the adequacy of bank capital, the riskiness of bank investments, and the costs of bank monitoring. We also show that our model is potentially useful for understanding the macroeconomic effects of phenomena such as financial crises, disintermediation, banking regulation, and certain types of monetary policy.
Handle: RePEc:nbr:nberwo:1647
Template-Type: ReDIF-Paper 1.0
Title: Unemployment, Disequilibrium, and the Short Run Phillips Curve: An Econometric Approach
Author-Name: Richard E. Quandt
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: LS
Number: 1648
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1648
File-URL: http://www.nber.org/papers/w1648.pdf
File-Format: application/pdf
Publication-Status: published as Quandt, Richard E. and Harvey S. Rosen. "Unemployment, Disequilibrium and the Short Run Phillips Curve: An Econometric Approach." Journal of Applied Econometrics, Vol. 1, (1986), pp. 235-253.(With Donald M. Waldman) Published as "Quality-Adjusted Cost Functions and
Publication-Status: published as Policy Evaluation in the Nursing Home Industry", JPE, Vol. 100, no. 6(1992): 1232-1256.
Abstract: The paper specifies a disequilibrium model for the aggregate labor market consisting of demand and supply functions for labor, an adjustment equation for wages as well as for prices, a transactions equation and, finally, an equation that relates measured unemployment to vacancies and to excess demand. The model has a more sophisticated treatment of dynamics than earlier disequilibrium models, and uses measured unemployment as an endogenous variable. Two of the error terms are assumed to be serially correlated and the coefficients are estimated by maximum likelihood. The parameter estimates and the goodness-of-fit are satisfactory and the model's implications for the behavior of several important variables are sensible. Excess demand estimates computed in various ways are reasonable. The model is used to estimate the natural rate of unemployment as well as a short run Phillips curve. Finally, the stability properties ofthe model are analyzed by considering the eigenvalues of the system; they are found to have moduli less than one.
Handle: RePEc:nbr:nberwo:1648
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Unionism on Productivity in Privately and Publicly Owned Hospitals and Nursing Homes
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 1649
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1649
File-URL: http://www.nber.org/papers/w1649.pdf
File-Format: application/pdf
Publication-Status: published as Allen, Steven G. "The Effect of Unionism on Productivity in Privately and Publicly Owned Hospitals and Nursing Homes," Journal of Labor Research, Vo. VII, No. 1, (Winter 1986), pp. 59-68.
Abstract: This paper examines the effect of unions on productivity within a sample of publicly and privately owned hospitals and nursing homes to determine whether public ownership influences union behavior. The results show that the productivity of union contractors is much greater in private than in public projects. Within the sample of private projects, the estimates of the union-nonunion productivity difference are generally positive but very imprecise.
Handle: RePEc:nbr:nberwo:1649
Template-Type: ReDIF-Paper 1.0
Title: Estimates of the Value of Patent Rights in European Countries During thePost-1950 Period
Author-Name: Mark Schankerman
Author-Name: Ariel Pakes
Author-Person: ppa20
Note: PR
Number: 1650
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1650
File-URL: http://www.nber.org/papers/w1650.pdf
File-Format: application/pdf
Publication-Status: published as Schankerman, Mark and Ariel Pakes. "Estimates of the Value of Patent Rightsin European Countries During the Post-1950 Period," Economic Journal, Vol. 96, (December 1986), pp. 1052-1076.
Abstract: This paper examines the distribution of the values of patent rights in the United Kingdom, France, and Germany during the post-1950 period. These values are inferred from the behavior of patentees with respect to payment of renewal fees on their patents. A simple economic model of renewal decisions is combined with data on the proportion of patents renewed at alternative ages and the renewal fee schedules to produce estimates of the distribution (and the total) value of patent rights in these countries. Moreover, the data indicate that there have been changes in the value distribution, and we follow these changes over the period. The empirical results of particular interest concern: the total value of patent rights and the relationship between changes in it and changes in the quantity of patents, the skew in the distribution of patent values, and the rate of obsolescence on the returns to patents.
Handle: RePEc:nbr:nberwo:1650
Template-Type: ReDIF-Paper 1.0
Title: Country Risk, Foreign Borrowing and the Social Discount Rate in an Open Developing Economy
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 1651
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1651
File-URL: http://www.nber.org/papers/w1651.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian. "Country Risk, Foreign Borrowing and the Social Discount Rate in and Open Developing Economy," Journal of International Money and Finance, Vol. 5, Supplement, March 1986, pp. S79-S96.
Abstract: Most discussions on the social rate of discount have assumed that the economy under consideration is isolated from the rest of the world, and that there are no capital movements. This paper explicitly analyzes the determination of the social rate of discount in a small open developing economy. It is shown that under general conditions, the discount rate will bea weighted average of the marginal return to capital in the private sector(p), the rate of time preference (r), and the marginal cost of foreign indebtedness (n).It is also shown that unless the country faces an upward-sloping supply curve for foreign funds the weights of p and r will be zero. Finally, it is shown that if the country in question faces a foreign borrowing constraint imposed from abroad, the social rate of discount becomes equal to a weighted average of the domestic marginal return to capital and the rate of time preferences. Data for a group of LDCs is then used to show that financial markets have indeed attached a default country risk premium to LDCs. This provides some evidence in favor of the hypothesis that developing countries face an upward-sloping supply curve of foreign funds, and that, in general, the social rate of discount should be a weighted average of p, r and n. Finally,some numerical examples are used to show that ignoring the open economy aspects can result in a substantial overstatement of the social rate of discount.
Handle: RePEc:nbr:nberwo:1651
Template-Type: ReDIF-Paper 1.0
Title: Union Maids: Unions and the Female Workforce
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Jonathan S. Leonard
Author-Person: ple190
Note: LS
Number: 1652
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1652
File-URL: http://www.nber.org/papers/w1652.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B. and Jonathan S. Leonard. "Union Maids: Unions and the Female Workforce," Gender in the Workplace, C. Brown and J. Peckman (eds), Washington, DC: Brookings Institution, 1987, pp. 189-212.
Abstract: How have women fared in unions in recent years? The major findings of this paper are that unions have been more beneficial for women in the public sector than in the private sector, and that unionism for women is primarily a public sector wriite collar phenomenon distinguished from that of males. According to our analysis:(1) Women have come to be an increasingly large proportion of the unionized work force, and are critical in the one area in which unions have recently succeeded --the public sector.(2) In the public sector and in white collar occupations where women unionists are concentrated, unions raise women's wages more than they raise the wages of men.(3) In the private sector unions have essentially the same effect on women in wages, turnover, employment and so forth, and do not deter affirmative action programs to raise female employment. (4) Comparable worth presents a rare confluence of interests of unions in search of members, particularly in the public sector,and women in search of higher wages, and will likely continue to be used by both especially within the confines of collective bargaining.
Handle: RePEc:nbr:nberwo:1652
Template-Type: ReDIF-Paper 1.0
Title: How do Public Sector Wages and Employment Respond to Economic Conditions
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 1653
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1653
File-URL: http://www.nber.org/papers/w1653.pdf
File-Format: application/pdf
Publication-Status: published as How Do Public Sector Wages and Employment Respond to Economic Conditions?, Richard B. Freeman. in Public Sector Payrolls, Wise. 1987
Abstract: This paper examines the changes over time in public sector wages and employment relative to private sector wages and employment using data from surveys of establishments and individuals. The paper finds that:(1) The pay of public sector workers relative to private sector workers varies greatly over time. Contrary to the view that public sector payis inflexible, variations in relative pay are due as much to fluctuations in public pay as to fluctuations in private pay.(2) The relatively high paid public sector worker of the early 1970s has within the span of a decade lost much of his or her advantage over otherwise comparable private sector workers, seriously denting if not destroying the picture of the 'overpaid' public employee which developed in the early 1970s.The group of public sector workers who tend to be most highly paid in the U.S. relative to private sector workers are blacks and women, suggesting that the public sector discriminates less than does the private sector.(3) Differentials in public and private sector pay vary greatly depending on the nature of comparisons, with for example Current Populations Survey comparisons of individuals with similar broad human capital showing federal employees to be higher paid than private employees and Bureau of Labor Statistics surveys of wage rates in particular occupations showing federal workers to be lower paid.(4) Public sector employment follows a very different pattern of change than private sector employment. It has smaller annual variation, and moves counter cyclically rather than cyclically. In terms of demographic composition the public sector employs relatively more blacks and women than the private sector.
Handle: RePEc:nbr:nberwo:1653
Template-Type: ReDIF-Paper 1.0
Title: Time to Build, Option Value, and Investment Decisions
Author-Name: Saman Majd
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Note: ME
Number: 1654
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1654
File-URL: http://www.nber.org/papers/w1654.pdf
File-Format: application/pdf
Publication-Status: published as Majd, Saman and Robert S. Pindyck. "Time to Build, Option Value, and Investment Decisions." Journal of Financial Economics, Vol. 18, (March 1987), pp. 7-27.
Abstract: Many investment projects have the following characteristics: (i) spending decisions and cash outlays occur sequentially over time, (ii) there is a maximum rate at which outlays and construction can proceed -- it takes "time to build," and (iii) the project yields no cash return until it is actually completed. Furthermore, the pattern of investment outlays is usually flexible,and can be adjusted as new information arrives. For such projects traditional discounted cash flow criteria, which treat the spending pattern as fixed, are inadequate as a guide for project evaluation. This paper develops an explicit model of investment projects with these characteristics, and uses option pricing methods to derive optimal decision rules for investment outlays over the entire construction program. Numerical solutions are used to demonstrate how time to build, opportunity cost, and uncertainty interact in affecting the investment decision. We show that with moderate levels of uncertainty over the future value of the completed project, a simple NPV rule could lead to gross over-investment. Also, we show how the contingent nature of the investment program magnifies the depressive effect of increased uncertainty on investment spending.
Handle: RePEc:nbr:nberwo:1654
Template-Type: ReDIF-Paper 1.0
Title: The Indexation of Interest, Depreciation, and Capital Gains: A Model ofInvestment Incentives
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 1655
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1655
File-URL: http://www.nber.org/papers/w1655.pdf
File-Format: application/pdf
Publication-Status: published as Fullerton, Don. "The Indexation of Interest, Depreciation, and Capital Gains and Tax Reform in the United States," Journal of Public Economics, Vol. 3 2, No. 1, February 1987, pp. 25-51.
Abstract: Despite much recent interest in a consumption tax, the Treasury Department's November 1984 tax plan proposes to adopt carefully coordinated features of a more comprehensive income tax, including the indexation of interest, depreciation, and capital gains.The May 1985 White House proposal would retain some of these indexing provisions.This paper looks at the incentives under alternative tax regimes to make marginal investments in the corporate sector, noncorporate sector, and in owner-occupied housing. It finds that the current system is characterized by effective tax rates that increase with inflation for some assets and decrease with inflation for other assets. Overall rates fall with inflation, and the corporate tax is completely offset by credits, allowances, and deductions. Under the Treasury or White House plans, the corporate tax re-emerges, effective tax rates are considerably more uniform, and the interference of inflation is virtually eliminated.
Handle: RePEc:nbr:nberwo:1655
Template-Type: ReDIF-Paper 1.0
Title: Who Escapes? The Relation of Church-Going & Other Background Factors to the Socio-Economic Performance of Blk. Male Yths. from Inner-City Pvrty Tracts
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 1656
Creation-Date: 1985-06
Order-URL: http://www.nber.org/papers/w1656
File-URL: http://www.nber.org/papers/w1656.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B. "Who Escapes?: The Relation of Churchgoing and Other Background Factors to the Socioeconomic Performance of Black Male Youths from Inner-City Poverty Tracts," The Black Youth Employment Crisis, eds. Richard B. Freeman and Harry J. Holzer, pp. 353-376, Chicago: UCP, 1986.
Abstract: Using data from the NBER survey of Inner City youth and the National longitudinal survey of young men this paper examines the effect of church-going and other aspects of the background of youth their allocation of time, socially deviant behavior, and labor force behavior. 1)Church-going is associated with substantial differences in the behavior of youths, and thus in their chances to 'escape' from innercity poverty. It affects allocation of time, school-going, work activity, and the frequency of socially deviant activity.2)The diverse background factors examined in this study have different effects on various outcomes. Their differential effects suggest true causal impacts, with for example, the proportion of a youth's family working having positive effects on his labor market activity but not on other activities. 3) In addition to church going, the background factors that most influence'who escapes' are whether other members of the family work and whether the family is on welfare.4)The allocation of time and activities by youth is significantly influenced by market opportunities (or perceptions thereof). Those youths who believe it is easy to find a job are more likely to engage in socially productive activities than others. Youths who see many opportunities to make money illegally are less likely to engage in socially productive activities than other youths.
Handle: RePEc:nbr:nberwo:1656
Template-Type: ReDIF-Paper 1.0
Title: Economic Effects of Municipal Government Institutions
Author-Name: Jeffrey S. Zax
Note: PE
Number: 1657
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1657
File-URL: http://www.nber.org/papers/w1657.pdf
File-Format: application/pdf
Publication-Status: published as "Reform City Councils and Municipal Employees," Public Choice, Vol. 64, pp. 167-177, 1990.
Abstract: This paper presents an analysis of employment and compensation practices under alternative institutions of municipal government which demonstrates that institutional variations have significant, important, and predictable effects upon outcomes in municipal labor markets. Municipal institutions in which a single official is responsible for office performance provide that official with incentives to emphasize efficiency in the production of municipal services. Institutions in which responsibility is shared provide individual officials with incentives to emphasize the allocation of municipal resources to their particular constituencies, among whom municipal employees may be prominent. Independently, city managers and mayors chosen through direct election reduce levels of employment and increase employee compensation. Managers offer compensation packages which emphasize nonwage components. In cities which have both institutions, competition between the two nullifies employment reductions and exacerbates compensation increases. Employment increases with the age of the manager's office. City council members chosen through at-large or nonpartisan elections increase levels of both employment and compensation. Compensation packages under both emphasize current components. With both reforms, employment and compensation increases are compounded.
Handle: RePEc:nbr:nberwo:1657
Template-Type: ReDIF-Paper 1.0
Title: Optimal Dynamic R&D Programs
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Carl Shapiro
Author-Person: psh275
Note: PR
Number: 1658
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1658
File-URL: http://www.nber.org/papers/w1658.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Gene M. and Carl Shapiro. "Optimal Dynamic R&D Programs," Rand Journal of Economics, Vol. 17, No. 4, Winter 1986, pp. 581-593.
Abstract: We study the optimal pattern of outlays for a single firm pursuing an R&D program over time. In the deterministic case, (a) the amount of progress required to complete the project is known, and (b) the relationship between outlays and progress is known. In this case, it is optimal to increase effort over time as the project nears completion. Relaxing (a), we find in general a simple, positive relationship between the optimal expenditure rate at any point in time and the (expected) value at that time of the research program. We also show that, for a given level ofexpected difficulty, a riskier project is always preferred to a safe project. Relaxing (b), we find again that research outlays increase as further progressis made.
Handle: RePEc:nbr:nberwo:1658
Template-Type: ReDIF-Paper 1.0
Title: Special Exchange Rates for Capital Account Transactions
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 1659
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1659
File-URL: http://www.nber.org/papers/w1659.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "Special Exchange Rates for Capital Account Transactions," The World Bank Economic Review, Vol. 1, No. 1, (September 1986), pp. 3- 33.
Publication-Status: published as Special Exchange Rates for Capital Account Transactions, Rudiger Dornbusch.
Publication-Status: published as Multiple Exchange Rates for Commercial Transactions, Rudiger Dornbusch. in Economic Adjustment and Exchange Rates in Developing Countries, Edwards and Ahamed. 1986
Abstract: The exchange rate consistent with high employment and a balanced current account are rarely the same as the rates consistent with asset market equilibrium at interest rates policy makers wish to prevail. Whenever rates are freely determined the assets markets prevail and the results may be hard to live with, or at least harder than would appear to be the case of special exchange rates and capital controls which are used to isolate home assets markets from the world capital market. This paper investigates the motive for choosing capital controls and special exchange rates, the principal forms and some of the experience. We look in particular at three institutional arrangements:(1) dual exchange rates separating current and capital account transactions,(2) black or parallel markets for foreign exchange,(3) exchange rate guarantees, dollar deposits and dollar-linked domestic debt.
Handle: RePEc:nbr:nberwo:1659
Template-Type: ReDIF-Paper 1.0
Title: Predation through Regulation: The Wage and Profit Impacts of OSHA and EPA
Author-Name: Ann P. Bartel
Author-Name: Lacy Glenn Thomas
Note: LS
Number: 1660
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1660
File-URL: http://www.nber.org/papers/w1660.pdf
File-Format: application/pdf
Publication-Status: published as Bartel, Ann P. and L. G. Thomas. "Predation through Regulation: The Wage and Profit Impacts of OSHA and EPA," Journal of Law and Economics, Vol.30,no 2, pp.239-264, October 1987.
Abstract: This paper documents the importance of studying the indirect effects of OSHA and EPA regulations -- the competitive advantages which arise from the asymmetrical distributions of regulatory impact among different types of firms. We argue that if the competitive advantage gained through indirect effects is sufficiently large, it can more than offset any direct costs producing a net benefit for the regulated firm and its workers. The indirect effects of OSHA and EPA regulations arise in two ways. The first source is compliance asymmetries, whereby one firm suffers a greater cost burden even when regulations are evenly enforced across firms. The second source is enforcement asymmetry, whereby regulations are more vigorously enforced against certain firms. Earlier research shows that these asymmetries do exist and are based on firm size, unionization, and regional location. In this paper we empirically document that the indirect effects produced by these asymmetries mitigate the direct costs of regulations for manyfirms. Large, unionized firms in the Frostbelt are clearly gaining wealth at the expense of small, nonunionized firms in the Sunbelt.
Handle: RePEc:nbr:nberwo:1660
Template-Type: ReDIF-Paper 1.0
Title: The Physical State of the British Working Class, 1870-1914: Evidence from Army Recruits
Author-Name: Roderick Floud
Author-Name: Kenneth W. Wachter
Author-Name: Annabel Gregory
Note: DAE
Number: 1661
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1661
File-URL: http://www.nber.org/papers/w1661.pdf
File-Format: application/pdf
Publication-Status: published as Roderick Floud, Kenneth Wachter and Annabel Gregory, editors. Height, health, and history: Nutritional status in the United Kingdon, 1750-1980. Cambridge: Cambridge University Press, 1990.
Abstract: It is easier to discover why people died in the past than how healthy they were during their lives. However, in both Europe and North America, much evidence survives about the health of young males from the medical examination of recruits to the armed forces. The paper discusses the possibility of generalizing from one such source, that of British volunteer recruits, to the health of the male working class. It concludes that the source is not seriously biassed and that, after some statistical correction, the data suggest a gradual improvement in the nutritional status, measured by average height, of the British working class.This finding contradicts much contemporary opinion that the British were physically deteriorating in the late nineteenth century.
Handle: RePEc:nbr:nberwo:1661
Template-Type: ReDIF-Paper 1.0
Title: Dimensions and Determinants of Early Childhood Health and Mortality Among American Slaves
Author-Name: Richard H. Steckel
Author-Person: pst352
Note: DAE
Number: 1662
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1662
File-URL: http://www.nber.org/papers/w1662.pdf
File-Format: application/pdf
Publication-Status: published as "A Dreadful Childhood: The Excess Mortality of American Slaves", Social Science History, vol. 10, no. 4, pp427-465, Winter 1986.
Abstract: This paper relies on birth and death lists from plantation records to investigate the causes of low birth weight and poor health of young slave children. The sources of deprivation can be traced to the fetal period. The slave work routine was arduous overall and particularily intense during planting, hoeing, and harvesting. These demands combined with seasonal fluctuations in disease and in the quality of the diet implied that few newborns had escaped stress on intrauterine growth. Starchy food supplements given soon after birth and poor sanitation surrounding feeding provided a poor environment for growth during the first year of life.
Handle: RePEc:nbr:nberwo:1662
Template-Type: ReDIF-Paper 1.0
Title: Monetary Dynamics with Proportional Transaction Costs and Fixed Payment Periods
Author-Name: Sanford J. Grossman
Author-Person: pgr108
Note: EFG ME
Number: 1663
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1663
File-URL: http://www.nber.org/papers/w1663.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Sanford J. "Monetary Dynamics with Proportional Transaction Costsand Fixed Payment Periods," From New Approaches to Monetary Economics,edited by William A. Barnett and Kenneth J. Singleton, pp. 3-40. Cambridge: Cambridge University Press, 1987.
Abstract: A general equilibrium model of an economy is presented where people hold money rather than bonds in order to economize on transaction costs. In any such model it is not optimal for individuals to instantaneously adjust their money holdings when new information arrives. The (endogenous) delayed response to new information generates a response to a new monetary policy which is quite different from that of standard flexible price models of monetary equilibrium. Though all goods markets instantaneously clear, the monetary transaction cost causes delayed responses in nominal variables to a change in monetary policy. This in turn causes real variables to respond to the new monetary policy.The two classes of monetary policies analyzed here are price level policies and interest rate policies. Price level policies are monetary policies which in general equilibrium keep the nominal rate constant, but change the long run price level . We show that the money supply must rise gradually to its new steady level if the price level is to be raised without causing nominal interest rates to fall. When interest rate policies are analyzed, it becomes clear that aggregate money demand at time t depends on the path of interest rates, not just the instantaneous interest rate at time t. This is because the aggregate money holding at time t is composed of the money holdings of various consumers,each of whom has a different but overlapping holding period. The staggering of money holding periods is a necessary condition for general equilibrium; general equilibrium requires that some consumers must be incrementing their cash when other consumers are decrementing their cash via spending. Some results of our analysis include the fact that high frequency movements of the interest rate cause a much smaller change in money demand than low frequency movements, since it is the integral of the interest rateover a holding period which determines money demand. Further, at high frequencies, the rate of inflation is not the difference between the nominal interest rate and the rate of time preference.
Handle: RePEc:nbr:nberwo:1663
Template-Type: ReDIF-Paper 1.0
Title: Capital Accumulation and Uncertain Lifetimes with Adverse Selection
Author-Name: Andrew B. Abel
Author-Person: pab10
Note: EFG PE
Number: 1664
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1664
File-URL: http://www.nber.org/papers/w1664.pdf
File-Format: application/pdf
Publication-Status: published as Abel, Andrew B. "Capital Accumulation and Uncertain Lifetimes with Adverse Selection." Econometrica, Vol. 54, No. 5, (September 1986), pp. 1079-1097.
Abstract: This paper examines the implications of adverse selection in the private annuity market for the pricing of private annuities and the consequent effects on constrption and bequest behavior. With privately known heterogeneous mortality probabilities, adverse selection causes the rate of return on private annuities to be less than the actuarially fair rate based on population average mortality. However, a fully funded social security system with compulsory participation can offer an implied rate of return equal to the actuarially fair rate based on population average mortality. Thus, since social security offers a higher rate of return than private annuities, consumers cannot completely offset the effects of social security by transacting in the private annuity market. Using an overlapping generations model with uncertain lifetimes, we demonstrate that the introduction of actuarially fair social security reduces the steady state rate of return on annuities and raises the steady state levels of average bequests and average consumption of the young. The steady state national capital stock rises or falls according to the strength of the bequest motive.
Handle: RePEc:nbr:nberwo:1664
Template-Type: ReDIF-Paper 1.0
Title: Domestic Violence: A Non-random Affair
Author-Name: Helen V. Tauchen
Author-Name: Ann Dryden Witte
Author-Name: Sharon K. Long
Note: LS
Number: 1665
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1665
File-URL: http://www.nber.org/papers/w1665.pdf
File-Format: application/pdf
Publication-Status: published as "Domestic Violence: A Nonrandom Affair." International Economic Review, Vol. 32, No. 2, pp. 491-511, (May 1991).
Abstract: In this paper, we develop and estimate a model of violence between romantically linked men and women. Physical violence is viewed as both a source of direct gratification and as an instrument for controlling the victim's behavior. Our model is a Stackleberg type model in which the assailant maximizes expected utility subject to the stochastic reaction function of the victim. Our model is estimated by a bounded-?influence regression technique because the process generating violence appears to lead to a heavy-tailed error distribution. Our empirical results suggest that increases in the assailants(i.e. the male's) income serve to increase violence, while increases in the proportion of the year that he is employed serve to decrease violence. Further, the employment effect is larger than the income effect. By way of contrast, our results suggest that the effect of a change in the female's employment or income depends heavily onher economic status relative to the male's. Finally, we find that improvements in the female's opportunites outside the relationship significantly reduce the level of violence.
Handle: RePEc:nbr:nberwo:1665
Template-Type: ReDIF-Paper 1.0
Title: A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination and Keynesian Unemployment
Author-Name: Jeremy I. Bulow
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: LS EFG
Number: 1666
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1666
File-URL: http://www.nber.org/papers/w1666.pdf
File-Format: application/pdf
Publication-Status: published as Bulow, Jeremy I. and Lawrence H. Summers. "A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination, and Keynesian Unemployment." Journal of Labor Economics, Vol. 4, No. 3, Part 1, (July 1986), pp. 376-414.
Abstract: This paper develops a model of dual labor markets based on employers' need to motivate workers. In order to elicit effort from their workers, employers may find it optimal to pay more than the going wage. This changes fundamentally the character of labor markets. The modelis applied to a wide range of labormarket phenomena. It provides a coherent framework for understanding the claims of industrial policy advocates. It also can provide the basis for a theory of occupational segregation and discrimination which will not be eroded by market forces. Finally, the model provides the basis for a theory of involuntary unemployment.
Handle: RePEc:nbr:nberwo:1666
Template-Type: ReDIF-Paper 1.0
Title: Regulated Price Discrimination and Quality: The Implications of Medicaid Reimbursement Policy for the Nursing Home Industry
Author-Name: Paul J. Gertler
Author-Person: pge194
Note: EH
Number: 1667
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1667
File-URL: http://www.nber.org/papers/w1667.pdf
File-Format: application/pdf
Abstract: Nursing homes participate simultaneously in a regulated and an unregulated market, and are required to supply the same quality of service to both markets. Specifically, nursing homes compete for patients who finance their care privately, and patients whose care is financed by the government's Medicaid program. The government reimburses nursing homes a set fee for the care of Medicaid patients, whereas nursing homes charge "private pay" patients what the market will bear. Quality is determined by competition in the"private pay" patient market. The greater the size of the "private pay" market relative to the Medicaid market, the higher is quality. We find that Medicaid policy makers face a trade-off between the access of Medicaid patients to care and quality. Specifically, an increase in the Medicaid reimbursement rate causes nursing homes to reduce quality, increase"private pay" price, and to admit more Medicaid patients and fewer "private pay" patients. Hence, in the nursing home industry, higher prices are associated with lower levels of quality. In addition, nursing homes set quality higher if the remibursement rate is set via "cost plus" pricing than if it is set via "flat rate" pricing. Moreover, consumers in both markets are better off under "cost plus" pricing, nursing homes earn higher profits under "flat rate" pricing, and total governmental Medicaid expenditures are the same under both reimbursement methods.
Handle: RePEc:nbr:nberwo:1667
Template-Type: ReDIF-Paper 1.0
Title: Prizes and Incentives in Elimination Tournaments
Author-Name: Sherwin Rosen
Note: LS
Number: 1668
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1668
File-URL: http://www.nber.org/papers/w1668.pdf
File-Format: application/pdf
Publication-Status: published as Rosen, Sherwin. "Prizes and Incentives in Elimination Tournaments," American Economic Review, Vol. 76, No. 4, (Sept. 1986). pp. 701-715.
Abstract: The role of rewards for maintaining performance incentives in multistage, sequential games of survival is studied. The sequential structure is a statistical design-of-experiments for selecting and ranking contestants. It promotes survival of the fittest and saves sampling costs by early elimination of weaker contenders. Analysis begins with the case where competitors' talents are common knowledge and is extended to cases where talents are unknown. It is shown that extra weight must be placed on top ranking prizes to maintain performance incentives of survivors at all stages of the game. The extra weight at the top induces competitors to aspire to higher goals independent of past achievements. In career games workers have many rungs in the hierarchical ladder to aspire to in the early stages of their careers, and this plays an important role in maintaining their enthusiasm for continuing. But the further one has climbed, the fewer the rungs left to attain. If top prizes are not large enough, those who have succeeded in attaining higher ranks rest on their laurels and slack off in their attempts to climb higher. Elevating the top prizes makes the ladder appear longer for higher ranking contestants, and in the limit makes it appear of unbounded length: no matter how far one has climbed, it looks as if there is always the same length to go. Concentrating prize money on the top ranks eliminates the no-tomorrow aspects of competition in the final stages.
Handle: RePEc:nbr:nberwo:1668
Template-Type: ReDIF-Paper 1.0
Title: The Changing Behavior of the Term Structure of Interest Rates
Author-Name: N. Gregory Mankiw
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Note: EFG ME
Number: 1669
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1669
File-URL: http://www.nber.org/papers/w1669.pdf
File-Format: application/pdf
Publication-Status: published as Mankiw, N. Gregory and Jeffrey Miron. "The Changing Behavior of the Term Structure of Interest Rates." Quarterly Journal of Economics, Vol. CI, No. 2 , (May 1986), pp. 211-228.
Abstract: We reexamine the expectations theory of the term structure using data at the short end of the maturity spectrum. We find that prior to the founding ofthe Federal Reserve System in 1915, the spread between long rates and short rates has substantial predictive power for the path of interest rates; after 1915, however, the spread contains much less predictive power. We then show that the short rate is approximately a random walk after the founding of the Fed but not before. This latter fact, coupled with even slight variation inthe term premium, can explain the observed change in 1915 in the performance of the expectations theory. We suggest that the random walk character of the short rate may be attributable to the Federal Reserve's commitment to stabilizing interest rates.
Handle: RePEc:nbr:nberwo:1669
Template-Type: ReDIF-Paper 1.0
Title: Testing Dual Labor Market Theory: A Reconsideration of the Evidence
Author-Name: William T. Dickens
Author-Name: Kevin Lang
Author-Person: pla83
Note: LS
Number: 1670
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1670
File-URL: http://www.nber.org/papers/w1670.pdf
File-Format: application/pdf
Publication-Status: published as Dickens, William T. and Kevin Lang. "A Test Of Dual Labor Market Theory," American Economic Review, 1985, v75(4), 792-805.
Abstract: This paper replicates and extends our earlier analysis of dual market theory. We use a technique which estimates for each worker a probability of being in the primary sector on the basis of his characteristics. We use this information to determine the occupational and industrial composition of the sectors. We continue to produce results which are very supportive of the theory. In studies by other authors, workers were "assigned" to the primary or secondary sector on the basis of the industry or occupation in which they are employed and educated guesses about the industries or occupations which make up the two sectors. We find that previous studies, which produced mixed and inconclusive results, had serious misclassification problems. In the cases examined, at least half of all full time prime age male workers identified as being in the secondary sector by these classification schemes are found to have a high probability of primary sector attachment. Past studies which were most supportive of dual market theory are found to have had the least severe misclassification problems.
Handle: RePEc:nbr:nberwo:1670
Template-Type: ReDIF-Paper 1.0
Title: Bargaining Unit, Union, Industry, and Locational Correlates of Union Support in Certification and Decertification
Author-Name: William T. Dickens
Author-Name: Douglas R. Wholey
Author-Name: James C. Robinson
Author-Person: pro179
Note: LS
Number: 1671
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1671
File-URL: http://www.nber.org/papers/w1671.pdf
File-Format: application/pdf
Publication-Status: published as Dickens, William T., Douglas R. Wholey adn James C. Robinson. "Bargaining Unit, Unio, Industry, and Locational Correlates of Union Support in Certification and Decertification," Industrial Relations, Fall 1987.
Abstract: This paper investigates the correlates of union success in NLRB certification and decertification elections. The analysis includes a wide variety of bargaining unit, union, industry, and geographic attributes, many of which have not been considered in previous studies. Variables having a statistically significant relation with voting incertification elections are the size of the unit, employer consent to the definition of the bargaining unit, the length of campaigns, union organizing effort, union dues, union wages, non-union wage variance, the industry unemployment rate and percentage of black workers and the concentration of jobs among a few employers in a geographic area. The same specification was estimated for decertification elections. Variables having a statistically significant association with voting are unitsize, length of campaign, and the non-union wage variance. Examination of the magnitude of the estimated coefficient ssuggests that,only unit size and union organizing effort might affect outcomes in more than a small percent of all certification elections. Estimated correlations for voting in decertification elections are not accurate enough to allow such ajudgment. Finally, comparison of the regression results for certifications and decertifications shows that the process determining how workers vote is very different in the two types of elections.
Handle: RePEc:nbr:nberwo:1671
Template-Type: ReDIF-Paper 1.0
Title: Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Note: ITI IFM
Number: 1672
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1672
File-URL: http://www.nber.org/papers/w1672.pdf
File-Format: application/pdf
Publication-Status: published as Frankel, Jeffrey A. and Kenneth A. Froot. "Using Standard Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," American Economic Review, Vol. 77, No. 1, (March 1987), pp. 133-153.
Publication-Status: published as Reprinted in On Exchange Rates, J. Frankel, MIT Press, Cambridge, 1993
Abstract: Survey data provide a measure of exchange rate expectations that is superior to the commonly-used forward exchange rate in the respect that it does notinclude a risk premium. We use survey data and the technique of bootstrapping to test a number of propositions of interest. We are able to reject static or "randomwalk" expectations for both nominal and real exchange rates. Expected depreciation is large in magnitude. There is even statistically significant unconditional bias: during the 1981-85 "strong dollar period" the market persistently over estimated depreciation of the dollar. Expected depreciation is also variable, contrary to some recent claims. The expected future spot rate can be viewed as inelastic with respect to the contemporaneous spot rate, in that it also puts weight on other variables: the lagged expected spot rate (as in adaptive expectations), the lagged actual spot rate (distributed lag expectations), or a long-run equilibrium rate (regressive expectations). In one irnportant case, the relatively low weight that investors' expectations put on the contemporaneous spot rate constitutes a statistical rejection of rational expectations: we find that prediction errors are correlated with expected depreciation, so that investors would do better if they always reduced fractionally the magnitude of expected depreciation. This is the same result found by Bilson, Fama, and many others, except that it can no longer be attributed to a risk premium.
Handle: RePEc:nbr:nberwo:1672
Template-Type: ReDIF-Paper 1.0
Title: Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation
Author-Name: Herschel I. Grossman
Author-Name: John B. Van Huyck
Note: ME EFG
Number: 1673
Creation-Date: 1985-07
Order-URL: http://www.nber.org/papers/w1673
File-URL: http://www.nber.org/papers/w1673.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 78, No. 5, pp. 1088-1097, (December 1988).
Abstract: History suggests the following stylized facts about default on sovereign debt:(1) Defaults are associated with identifiably bad states of the world. (2) Defaults are usually partial, rather than complete.(3) Sovereign states usually are able to borrow again soon after a default. Motivated by these facts, this paper analyses a reputational equilibrium in a model that interprets sovereign debts as contingent claims that both finance investments and facilitate risk shifting. Loans are a useful device to facilitate risk shifting because they permit the prepayment of indemnities. Nevertheless, because the power to abrogate commitments without having to answer to a higher enforcement authority is an essential aspect of sovereignty, a decision by a sovereign to validate lender expectations about debt servicing depends on the sovereign's concern for its trust worthy reputation. A trustworthy reputationis valuable because it provides continued access to loans. A key aspect of the analysis is that lenders differentiate excusable default, which is associated with implicitly understood contingencies, from unjustifiable repudiation. In the reputational equilibrium, the short-run benefits from repudiation are smaller than the long-run costs from loss of a trustworthy reputation. Thus, although sovereigns sometimes excusably default, they never repudiate their debts. The reputational equilibrium can involve efficient risk shifting and efficient investment or it can involve a binding lending ceiling that limits risk shifting and can also restrict investment. The factors that tend to produce a binding lending ceiling include a high time discount rate for the sovereign, low-risk aversion forthe sovereign, and a low net return from the sovereign's investments.
Handle: RePEc:nbr:nberwo:1673
Template-Type: ReDIF-Paper 1.0
Title: Dynamic R&D Competition
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Carl Shapiro
Author-Person: psh275
Note: PR
Number: 1674
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1674
File-URL: http://www.nber.org/papers/w1674.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Gene M. and Carl Shapiro. "Dynamic R&D Competition," Economic Journal, Vol. 97, No. 386, June 1987.
Abstract: We study a simple, two-stage, stochastic patent race involving two firms. We examine the behavior of the participants as they gain the lead or fall behind in the race. We find that the leader engages in R&D more intensively than does the follower, and that both firms intensify their efforts if the follower does catch up with the leader. We also analyze (1) the attractiveness of licensing, whereby the leader shares his results with the follower,(2) a policy of issuing patents for intermediate research results, and (3) the effects of research joint ventures, whereby the firms coordinate their initial research efforts and share their results.
Handle: RePEc:nbr:nberwo:1674
Template-Type: ReDIF-Paper 1.0
Title: Stopping Hyperinflation: Lessons from the German Inflation Experience of the 1920s
Author-Name: Rudiger Dornbusch
Note: ITI DAE IFM
Number: 1675
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1675
File-URL: http://www.nber.org/papers/w1675.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "Stopping Hyperinflation" Lessons from the German Inflation Experience of the 1920s," Essays in Honor of Franco Modigliani, Cambridge, MA: MIT Press, pp. 337-366.
Abstract: The special role of money in the hyper inflation process, and particularly in the stabilization phase, has now been reconsidered in a bestselling essay by Sargent. The message is that credible fiscal stabilizationis the sine qua non of stopping inflation. This is definitely not viewed as being in conflict with the monetary hypothesis, but it does represent a shift of emphasis. We draw attention to a third aspect of the hyperinflation process, and the stablization, namely exchange rate and interest rate policy. Even though a government may accomplish all the right measures in terms of budget stablization or control of money creation, there remains the problem of making these measures credible and hence being able to actually achieve them. We argue that exchange rate and interest rate policy in the transition have traditionally formed the vehicle for establishing that credibility by a de facto stablization. We make that point by discussing the events of the German hyperinflation. In that case the stablization was a much more diffuse, accidental matter than a reading of the classics reveals with exchange rate policy playing a key role. Immensely high interest rates in the face of a sharply appreciating free market exchange rate wiped out adverse speculation thus helping to establish stablization. The real exchange rate sharply appreciated in the final stage and persisted at an appreciated level well into the post-stabilization phase. It reflects the reverse of the coin of real depreciation in the capital flight phase.
Handle: RePEc:nbr:nberwo:1675
Template-Type: ReDIF-Paper 1.0
Title: Are Devaluations Contractionary?
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 1676
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1676
File-URL: http://www.nber.org/papers/w1676.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian. "Are Devaluations Contractionary?" Review of Economics and Statistics, Vol. 68, No. 3, (August 1986), pp. 501-508.
Abstract: Recently a number of authors have criticized the role of devaluations in traditional stabilization programs. It has been argued that, contrary to the traditional view, devaluations are contractionary, and generate a decline in aggregate output. In spite of the renewed theoretical interest in the possible contractionary effects of devaluations, the empirical evidence on the subject has been quite sketchy. In this paper the Khan and Knight (1981)model is extended to empirically address the issue of contractionary devaluations. The extended model considers the effect of money surprises, fiscal factors, terms of trade changes and devaluations on the level of real output. The results obtained, using a variance components procedure on data for 12 developing countries, provide some support to the short-run contractionary devaluation hypothesis; the results obtained indicate that in the short-run a devaluation will generate a decline in aggregate output. It is also found that after one year a devaluation will have an expansionary effecton output. The evidence suggests that in the long run, devaluations will have no effect on output.
Handle: RePEc:nbr:nberwo:1676
Template-Type: ReDIF-Paper 1.0
Title: Unions, Pension Wealth, and Age-Compensation Profiles
Author-Name: Steven G. Allen
Author-Person: pal6
Author-Name: Robert L. Clark
Note: LS PE
Number: 1677
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1677
File-URL: http://www.nber.org/papers/w1677.pdf
File-Format: application/pdf
Publication-Status: published as Allen, Steven G. and Robert L.Clark. "Unions, Pension Wealth, and Age-Compensation Profiles," Industrial and Labor Relations Review, Vol. 39, No. 4,(July 1986), pp. 509-517.
Abstract: This paper examines the effect of unions on both the magnitude and distribution of pension benefits. Our empirical results show that beneficiaries in collectively bargained plans receive larger benefits when they retire, receive larger increases in their benefits after they retire, and retire at an earlier age than beneficiaries in other pension plans. As a result, the pension wealth of union beneficiaries is 50 to 109 percent greater than that of nonunion beneficiaries. Just as wage differentials within and across establishments are smaller among union workers, benefit differentials within and across cohorts of retirees are smaller among union beneficiaries. This results from the smaller weight given to salary average in determining initial benefits and the larger percentage increases given to those who have been retired the longest under post-retirement increases. The more compressed benefit structure under unionism causes the union-nonunion compensation (wages plus pension contributions) differential to decline more quickly than the union-nonunion wage differential over the life cycle.
Handle: RePEc:nbr:nberwo:1677
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy Regime Shifts and the Unusual Behavior of Real Interest Rates
Author-Name: John Huizinga
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG ME
Number: 1678
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1678
File-URL: http://www.nber.org/papers/w1678.pdf
File-Format: application/pdf
Publication-Status: published as Huizinga, John & Mishkin, Frederic S., 1986. "Monetary policy regime shifts and the unusual behavior of real interest rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 231-274, January.
Publication-Status: published as Huizinga, John and Frederic S. Mishkin."Monetary Policy Regime Shifts and the Unusual Behavior of Real Interest Rates," Carnegie-Rochester Conference Series on Public Policy, Vol. 24, Spring 1986, pp. 231-274.
Abstract: A striking phenomenon of the early 1980s is the climb in real interest rates to levels unprecedented in the post-World War II period. In order to understand this phenomenon, this paper investigates the nature and timing of shifts in the real rate process to determine if the recent unusual behavior of real rates is associated with monetary policy regime changes. We find that not only are there significant shifts in the stochastic process of real interest rates in October 1979 and October 1982 when the Federal Reserve alters its behavior, but these dates are also found to be the most likely breakpoints in the real rate process. When we analyze another monetary policy regime change with many similarities to that of October 1979, the sharp rises in the discount rate in 1920, we also reach a similar conclusion; there is a striking correspondence between the monetary policy regime change and the shift in the real rate process. Other studies have examined competing explanations for the recent unusual behavior of real interest rates -- e.g.budget deficits or favorable changes in business taxation. Although these competing explanations have met with mixed success, our evidence lends substantial support to the view that monetary policy regime changes have been and continue to be an important source of shifts in the behavior of real interest rates.
Handle: RePEc:nbr:nberwo:1678
Template-Type: ReDIF-Paper 1.0
Title: Horizontal Equity: Measures in Search of a Principle
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 1679
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1679
File-URL: http://www.nber.org/papers/w1679.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, Vol. XLII, No. 2, pp. 139-154, (June 1989).
Abstract: Horizontal equity -- the command that equals be treated equally -- has received increased attention, particularly in attempts to measure the desirability of tax reform proposals. This paper questions whether the normative foundations for horizontal equity justify the indexes and approaches that have generally been adopted. It suggests that past attempts to implement horizontal equity are inconsistent with its supposed foundations and that more thorough examination of the concept raises serious doubts as to whether any alternative interpretation of horizontal equity reasonably consistent with common understanding of the concept can be justified.
Handle: RePEc:nbr:nberwo:1679
Template-Type: ReDIF-Paper 1.0
Title: Gibson's Paradox and the Gold Standard
Author-Name: Robert B. Barsky
Author-Person: pba670
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG ME
Number: 1680
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1680
File-URL: http://www.nber.org/papers/w1680.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 96, No. 3, pp. 528-550, (June 1988).
Abstract: This paper provides a new explanation for Gibson's Paradox -- the observation that the price level and the nominal interest rate were positively correlated over long periods of economic history. We explain this phenomenon interms of the fundamental workings of a gold standard. Under a gold standard, the price level is the reciprocal of the real price of gold. Because gold is adurable asset, its relative price is systematically affected by fluctuations inthe real productivity of capital, which also determine real interest rates. Our resolution of the Gibson Paradox seems more satisfactory than previous hypotheses. It explains why the paradox applied to real as well as nominal rates of return, its coincidence with the gold standard period, and the co-movement of interest rates, prices, and the stock of monetary gold during the gold standard period. Empirical evidence using contemporary data on gold prices and real interest rates supports our theory.
Handle: RePEc:nbr:nberwo:1680
Template-Type: ReDIF-Paper 1.0
Title: A Pigovian Rule for the Optimum Provision of Public Goods
Author-Name: Mervyn A. King
Note: PE
Number: 1681
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1681
File-URL: http://www.nber.org/papers/w1681.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol. 30, no.3, pp 273-291. 1986.
Abstract: The integrated treatant of optimal taxation and public expenditure presented here is based on the dual relationship between the prices of private goods and the quantities of public goods. In this paper we derive analogues of Roy's identity and the Slutsky equation for the case of public goods. The optimal provision of public goods and the level of taxation are shown to be dual problems.The conditions for optimum public good provision can be expressed as a ndification of the Samuelson conditions with extra terms representing (a) the distortionary effect of taxes on the willingness to pay for the public good, and (b) distributional effects.The former captures Pigou's notion of the indirect daniage caused by the need to finance public expenditure out of distortionary taxes, and we call this the "Pigou term". In certain cases a very simple benefit-cost ratio for public projects emerges that is equivalent to measuring benefits as if they were taxed.
Handle: RePEc:nbr:nberwo:1681
Template-Type: ReDIF-Paper 1.0
Title: The Cost of Annuities: Implications for Saving Behavior and Bequests
Author-Name: Benjamin M. Friedman
Author-Name: Mark Warshawsky
Note: ME
Number: 1682
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1682
File-URL: http://www.nber.org/papers/w1682.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. CV, Issue 1, pp. 135-154,(February 1990).
Abstract: The fact that most eldealy individuals in the United States choose to maintain a flat age-wealth profile, rather than buy individual life annuities, stands in contrast to central implications of the standard life-cycle model of consumption-saving behavior. The analysis in this paper lends support to an explanation for this phenomenon based either on the cost of annuities, importantly including the element of that cost due to adverse selection, or on the interaction of that cost and an intentional bequest motive. Expected yields offered on individual life annuities in the United States are lower by some 4-6%, or 2 1/2-4 1/2% after allowing for adverse selection, than yields on alternative long-term fixed-income investments. Simulations of an extended model of life-cycle saving and portfolio behavior, allowing explicitly for uncertain lifetimes and Social Security, show that yield differentials in this range can account for the observed behavior, even in the absence of a bequest motive, during the early years of retirement. By contrast, at older ages the combination of yield differentials in this range and a positive bequest motive is necessary to do so.
Handle: RePEc:nbr:nberwo:1682
Template-Type: ReDIF-Paper 1.0
Title: Annuity Prices and Saving Behavior in the United States
Author-Name: Benjamin M. Friedman
Author-Name: Mark Warshawsky
Note: ME
Number: 1683
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1683
File-URL: http://www.nber.org/papers/w1683.pdf
File-Format: application/pdf
Publication-Status: published as Bodie, Z., J. Shoven, D. Wise (eds.) Pensions in the U.S. Economy. Chicago: University of Chicago Press, 1988.
Publication-Status: published as Annuity Prices and Saving Behavior in the United States, Benjamin M. Friedman, Mark Warshawsky. in Pensions in the U.S. Economy, Bodie, Shoven, and Wise. 1988
Abstract: The observed reluctance of most individuals in the United States to buy individual life annuities, and the concomitant approximately flat average age-wealth profile, stand in sharp contradiction to the standard life cycle model of consumption-saving behavior. The analysis in this paper lends support to an explanation for this phenomenon based on the interaction of an intentional bequest motive and annuity prices that are not actuarially fair. Premiums charged for individual life annuities in the United States include a load factor of 32-48c per dollar,or18-33c per dollar after allowing for adverse selection, in comparison to actuarially fair annuity values. Load factors of this size are not out of line with those on other familiar (and almost universally purchased) insurance products. Simulations of an extended model of life cycle saving and portfolio behavior, allowing explicitly for uncertain lifetimes and Social Security, show that the load factor charged would have to be far larger than this to account for the observed behavior in the absence of a bequest motive. By contrast, the combination of a load factor in this range and a positive bequest motive can do so for some plausible values of the assumed underlying parameters. Moreover,if this combination of factors is leading elderly individuals to avoid purchasing life annuities, it implies a typical bequest that is fairly large in comparison to their consumption.
Handle: RePEc:nbr:nberwo:1683
Template-Type: ReDIF-Paper 1.0
Title: Hidden Stimuli to Capital Formation: Debt and the Incomplete Adjustment of Financial Returns
Author-Name: Robert S. Chirinko
Author-Person: pch94
Author-Name: Stephen R. King
Note: EFG PE
Number: 1684
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1684
File-URL: http://www.nber.org/papers/w1684.pdf
File-Format: application/pdf
Abstract: There is a common belief that the disappointing economic performance in the 1970s can be attributed in good part to the interaction of tax rules, inflation, and capital formation. In this paper, we reassess the relationships between inflation, the tax code, and investment incentives because previous results are based on a number of tenuous assumptions whose impact has not been fully appreciated. We also question the appropriateness of the conventional user cost formulation, and derive an alternative measure taking explicit account of the role of debt -- acquisition,retirement, and net-of-tax interest payments -- and the equity holders' ownership of the firm. Our numerical results show that previously reported disincentives for acquiring capital goods in generaland against longer-lived capital in particular are attenuated, and in a number of cases reversed, under various sets of assumptions. Differences in results stemming from the conventional and modified user costs are highlighted, and are illustrated by a comparison of the U.S. Treasury's tax reform proposals under the two formulations.
Handle: RePEc:nbr:nberwo:1684
Template-Type: ReDIF-Paper 1.0
Title: Productivity Growth in Manufacturing During Early Industrialization: Evidence from the American Northeast, 1820 to 1860
Author-Name: Kenneth L. Sokoloff
Note: DAE
Number: 1685
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1685
File-URL: http://www.nber.org/papers/w1685.pdf
File-Format: application/pdf
Publication-Status: published as Sokoloff, Kenneth L. "Productivity Growth in Manufacturing During Early Industrialization: Evidence from the American Northeast, 1820-1860," Long-Term Factors in Ameican Economic Growth, Income and Wealth Conference Volume 51, ed. by S. L. Engerman and R.E. Gallman, Chicago: UCP, 1986.
Abstract: This paper reports estimates of labor and total factor productivity, for thirteen manufacturing industries in the Northeast over the period from 1820 to 1860. It finds that although the highly mechanized and capital-intensive industries, such as cotton and wool textiles, realized somewhat more rapid progress than the others did, even the latter managed major advances. The evidence appears to support the conclusion that the manufacturing sector in the Northeast was quite dynamic during this stage of industrialization, and that much of its early productivity growth can be explained by changes in production processes that did not require mechanization or substantial increases in capital intensity. This suggests, as has been argued by a number of recent studies building on an old tradition, that developments such as increases in the division and intensity of labor within firms and other relatively subtle alterations in technique, perhaps stimulated by the expansion of markets, may have played important roles in accounting for the progress achieved.
Handle: RePEc:nbr:nberwo:1685
Template-Type: ReDIF-Paper 1.0
Title: Is Increased Price Flexibility Stabilizing?
Author-Name: J. Bradford De Long
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG ME
Number: 1686
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1686
File-URL: http://www.nber.org/papers/w1686.pdf
File-Format: application/pdf
Publication-Status: published as DeLong, T. Bradford and Lawrence H. Summers. "Is Increased Price Flexibility Stabilizing?" American Economic Review, Vol. 76, No. 5, (December 1986),pp. 1031-1044.
Abstract: This paper uses Taylor's model of overlapping contracts to show that increased wage and price flexibility can easily be destabilizing. This result arises because of the Mundell effect. While lower prices increase output, the expectation of falling prices decreases output. Simulations based on realistic parameter values suggest that increases in price flexibility might bell increase the cyclical variability of output in the United States.
Handle: RePEc:nbr:nberwo:1686
Template-Type: ReDIF-Paper 1.0
Title: A Reappraisal of Recent Tests of the Permanent Income Hypothesis
Author-Name: Charles R. Nelson
Author-Person: pne247
Note: ME
Number: 1687
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1687
File-URL: http://www.nber.org/papers/w1687.pdf
File-Format: application/pdf
Publication-Status: published as Nelson, Charles R. "A Reappraisal of Recent Tests of the Permanent Income Hypothesis," Journal of Political Economy, Vol. 95, No. 3, June 1987, pp. 64 1-646.
Abstract: Hall (1978) showed that the permanent income hypothesis implies that consumption (1) follows a random walk, and (2) cannot be predicted by past income. Reexamination of Hall's data results in rejection of the random walk hypothesis in favor of the alternative hypothesis of positively autocorrelated changes. Evidently this is due to Hall's choice of a quadratic utility function. A logrithmic utility function implies a random walk in the log of consumption which is supported by the data. Hall reported that past income had a negative but insignificant relation to consumption. Changes in the log of income, however, do have a positive predictive relation to changes in the log of consumption. The adjustment of consumption to income seems to be spread over two quarters. Flavin's (1981) test of the theory is formally equivalent to Hall's except for assuming stationarity around a time trend. Mankiw and Shapiro (1984) have pointed out that the effect of detrending may be to tend to rejection of the theory when it is in fact correct. For Hall's data the effect of detrending is to reverse the sign of the coefficient on past income. Its magnitude is what the Mankiw-Shapiro analysis predicts under the permanent income hypothesis.
Handle: RePEc:nbr:nberwo:1687
Template-Type: ReDIF-Paper 1.0
Title: The Economics of Reproduction-Related Health Care
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Author-Name: Leslie Perreault
Note: EH
Number: 1688
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1688
File-URL: http://www.nber.org/papers/w1688.pdf
File-Format: application/pdf
Publication-Status: published as Fuchs Victor and Leslie Perreault. "Expenditures for Reproduction-Related Health Care," Journal of the American Medical Association, Vol. 255, No. 1,(Jan. 3, 1986), pp. 76-81.
Abstract: This paper presents the first systematic estimates of the direct money costs of reproduction-related health services. In 1982 Americans spent approximately $17.7 billion for contraception, abortion, treatment of infertility, obstetrical care, and infant care. This represented 5.5 percent of total health care spending and was equal to $327 per woman of reproductive age (15?44). Obstetrical care accounted for almost half of the reproduction-related expenditures and infant care accounted for morethan one-third. The paper discusses the demographic, technologic, economic,and sociopolitical factors that determine these expenditures. It also considers related public policy issues regarding legal status, sources of funding, and allocation of resources.
Handle: RePEc:nbr:nberwo:1688
Template-Type: ReDIF-Paper 1.0
Title: The Pricing of Bonds and Bank Loans in International Markets: An Empirical Analysis of Developing Countries' Foreign Borrowing
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 1689
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1689
File-URL: http://www.nber.org/papers/w1689.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian. "The Pricing of Bonds and Bank Loans in International Markets: An Empirical Analysis of Developing Countries' Foreign Borrowing," European Economic Review, Vol. 30, No. 3, (June 1986), pp. 565-589.
Abstract: The purpose of this paper is to compare the pricing of bank loans and bonds in international markets. The results obtained, using data on LDC debtors, indicate that in both markets the country risk premium has responded to some of the variables suggested by the theory. However, the way in which these variables affect the risk premium differs across these markets. Data on LDC bond yields in the secondary market for 1980-85 are also used to analyze the way in which this market reacted and anticipated the debt crisis.
Handle: RePEc:nbr:nberwo:1689
Template-Type: ReDIF-Paper 1.0
Title: Choice Under Uncertainty: A Model of Applications for the Social Security Disability Insurance Program
Author-Name: Janice Halpern
Author-Name: Jerry A. Hausman
Author-Person: pha893
Note: LS
Number: 1690
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1690
File-URL: http://www.nber.org/papers/w1690.pdf
File-Format: application/pdf
Publication-Status: published as Halpern, Janice and Jerry Hausman. "Choice Under Uncertainty: A Model of Applications for the Social Security Disability Insurance Program," Journal of Public Economics, Vol. 31, 1986, pp. 131-162.
Abstract: Not all people with health problems are disabled. Some individuals with severe physical or mental impairments, such as blindness or limb amputation, continue to hold jobs and generally function satisfactorily.They constitute, however, a group of potentially disabled individuals who might apply and qualify for Disability Insurance or other disability-related benefits if they were to lose their jobs or to decide that employment offered an inadequate financial or non-pecuniary reward. Thus, disability, or a health-related inability to work, is more than a medical problem but involves motivational and attitudinal factors. We specify a model of the application process, which we model as choice under uncertainty about approval of an application for Disability Insurance. We specify the possible outcomes to the choice process of an individual in which the probability of acceptance for Disability Insurance is a key consideration. We then estimate a joint model of labor supply and application to the Disability Insurance program based on the 1972 survey. We then compare our results to the observed time series applications process since 1976. Lastly, we estimate the sensitivity of the application process to the probability of acceptance and the level of benefits.
Handle: RePEc:nbr:nberwo:1690
Template-Type: ReDIF-Paper 1.0
Title: Subsidies, Quality, and Regulation in the Nursing Home Industry
Author-Name: Paul J. Gertler
Author-Person: pge194
Note: EH
Number: 1691
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1691
File-URL: http://www.nber.org/papers/w1691.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol.38, pp.33-52, 1989.
Abstract: This paper analyzes the impact of the Medicaid patient subsidy and Certificate of Need (CON) cost containment programs on nursing home behavior.The analysis is complicated by the fact the both proprietary and "not for profit" nursing homes exist, and by the problem that qualityis not directly observed. Medicaid pays the for the care of the financially indigent by directly reimbursing nursing homes at a predetermined rate. As a result, nursing homes can price discriminate between patients who finance their care privately and patients whose care is financed by Medicaid. Nevertheless, nursing homes are required to provide the same quality to both types of patients. Typically, Medicaid reimbursement rates are set by a cost plus method, where the reimbursement per patient is equal to average cost plus some return referred to as the Medicaid "plus" factor. Our results show that Medicaid policymakers face a trade-off between quality and the access of poor to nursing home care. Specifically, we find that increases in the Medicaid "plus" factor cause nursing homes to reduce quality and substitute Medicaid patients for "private pay" patients. These quality differences can be quite large. In fact, in our sample, we find that homes who receive high Medicaid "plus" factors provide hundreds of thousands of dollars less in goods and services than homes who receive average Medicaid "plus" factors, certris paribus. CON attempts to control nursing home expenditures by limiting the supply of beds with capacity constraints and entry barriers. Our analysis shows that CON policy makers are forced to trade off containing the size of the industry (and therefore total Medicaid payments) against quality and access of the poor to nursing home care. Specifically, we find that the capacity constraints and the reduced competition from the entry barriers lead to lower quality and fewer Medicaid patients receiving care.
Handle: RePEc:nbr:nberwo:1691
Template-Type: ReDIF-Paper 1.0
Title: Capital Mobility in the World Economy: Theory and Measurement
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 1692
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1692
File-URL: http://www.nber.org/papers/w1692.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice, 1986. "Capital mobility in the world economy: Theory and measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 55-103, January.
Publication-Status: published as Obstfeld, Maurice. "Capital Mobility in the World Economy: Theory and Measurement," Carnegie-Rochester Conference Series on Public Policy, Vol. 24,(Spring 1986), pp. 55-103.
Abstract: This paper is a critical assessment of some recent empirical evidence on the extent of international capital mobility. Its major conclusion is that while much of this evidence is difficult to interpret without ambiguity, it is consistent with a world economy in which the degree of capital mobility is high and increasing. Two main approaches to the measurement of capital mobility are discussed. The first, traditional, approach is based on comparing expected yields on assets located in different countries. The second,and more novel, approach is based on comparing national saving rates and domestic investment rates.
Handle: RePEc:nbr:nberwo:1692
Template-Type: ReDIF-Paper 1.0
Title: The Impact of the Runaway Office on Union Certification Elections in Clerical Units
Author-Name: Beatrice J. Freiberg
Author-Name: William T. Dickens
Note: LS
Number: 1693
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1693
File-URL: http://www.nber.org/papers/w1693.pdf
File-Format: application/pdf
Publication-Status: published as Frieberg, Beatrice J. and William T. Dickens. "The Impact of the Runaway Office on Union Certification Elections in Clerical Units," Industrial Relations Research Association Papers and Proceedings, 1987, pp. 29-40.
Abstract: The law prohibits firms from moving work to avoid unionization. Still, many employees fear that joining a union may cost them their jobs. This paper assesses the impact of that fear on how clerical workers vote in union certification elections. Two data sets were collected and analyzed for this purpose, and three measures of the firms' ability to relocate office work were developed. Clerical workers in offices that were judged to be easier to relocate were found to be more likely to report that the fear of job loss was important to their voting decision. Those who voted against the union were most likely to report that the fear that they would lose their jobs was a significant consideration. Further, workers in units judged to be most easily relocated were found to have a 7 to 30% lower probability of voting union than those who were in less mobile jobs.
Handle: RePEc:nbr:nberwo:1693
Template-Type: ReDIF-Paper 1.0
Title: Real Interest and Consumption
Author-Name: Robert E. Hall
Note: EFG
Number: 1694
Creation-Date: 1985-08
Order-URL: http://www.nber.org/papers/w1694
File-URL: http://www.nber.org/papers/w1694.pdf
File-Format: application/pdf
Abstract: One of the important determinants of the response of saving and consumption to the real interest rate is the elasticity of intertemporal substitution. That elasticity can be measured by the response of the rate of change of consumption to changes in the expected real interest rate. A detailed study of data for the twentieth-century United States shows no strong evidence that the elasticity of intertemporal substitution is positive. Earlier studies flnding substantially positive elasticities are shown to suffer from a bias related to the timing of instrumental variables.
Handle: RePEc:nbr:nberwo:1694
Template-Type: ReDIF-Paper 1.0
Title: Affordability and the Value of Seller Financing
Author-Name: Donald R. Haurin
Author-Person: pha178
Author-Name: Patric H. Hendershott
Note: ME
Number: 1695
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1695
File-URL: http://www.nber.org/papers/w1695.pdf
File-Format: application/pdf
Publication-Status: published as Maurin, Donald R. and Patric H. Hendershott. "Affordability and the Valueof Creative Finance: An Application to Seller Financed Transactions." Housing Finance Review, Vol.5, No.3, (Winter 1986), pp. 189-206.
Abstract: The typical methodology in valuing seller financing consists of calculating a discount -- the present value of the after-tax interest savings due to the creative financing --and including this variable, along with other characteristics of the purchased house, in an hedonic price equation explaining the house price actually paid. Resulting from this equation is a set of marginal prices corresponding to each characteristic of the house, including the quantity (discount) of creative finance accompanying the house. The central question usually addressed is whether the discount is fully capitalized in the value of the house -- whether the price of creative finance is unity. In our view, one should not ask what the price of creative finance is because this price, like that of other housing attributes, likely depends upon supply and demand conditions. We develop and estimate a model incorporating this dependency.
Handle: RePEc:nbr:nberwo:1695
Template-Type: ReDIF-Paper 1.0
Title: Aggregate Supply and Demand Factors in OECD Unemployment: An Update
Author-Name: Michael Bruno
Note: ITI IFM
Number: 1696
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1696
File-URL: http://www.nber.org/papers/w1696.pdf
File-Format: application/pdf
Publication-Status: published as Economica (Supplement) ppS35-S52, 1986.
Abstract: The paper analyzes the change in unemployment in 12 OECD countries over the period 1970-83 in terms of underlying aggregate supply and demand shifts. Earlier evidence on wage gaps (given by Brunoand Sachs) is revised and extended. For most European countries a process of reduction in gaps is taking place in the 1980's, but the average absolute levels, when weighted by country size, are still sizeable, thus a 'classical' element of unemployment remains. However, most of the large additional increase in unemployment after 1980 (as well as the profit squeeze and investment slowdown) is ascribed to the contractionary stance of macropolicy in Europe, in contrast to the subsequent expansion and sharp fall of unemployment in the U.S. The large U.S. deficit coupled with monetary restraint and the resulting dollar appreciation also account for the sharp difference in the behavior of import prices in the U.S. and Europe which in turn may explain the considerably slower inflation deceleration in Europe and the reluctance to expand activity more rapidly.
Handle: RePEc:nbr:nberwo:1696
Template-Type: ReDIF-Paper 1.0
Title: Lending with Costly Enforcement of Repayment and Potential Fraud
Author-Name: Jonathan Eaton
Author-Person: pea5
Note: ITI IFM
Number: 1697
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1697
File-URL: http://www.nber.org/papers/w1697.pdf
File-Format: application/pdf
Publication-Status: published as Eaton, Jonathan. "Lending with Costly Enforcement of Repayment and Potential Fraud," Journal of Banking and Finance, International Colloquium in Memory of Daniel Recanti, A Special Issue, Vol. 10, No. 2, pp. 281-294, June 1986.
Abstract: If contracts are costlessly enforcible then insolvency is the only reason for nonrepayment of loans. While some models have examined the borrower's incentive to repay, it has typically been assumed that the penalty suffered by a debtor in default is imposed automatically and without cost to the lender. If in fact invoking a penalty is costly, Pareto-improving loans may be dynamically inconsistent not because of the absence of a sufficiently harsh penalty for default, but because the lender has no incentive actually to implement the penalty in the event of default. In such situations infinitely-lived institutions can emerge as banking intermediaries between lenders and borrowers. These institutions, repeatedly involved in lending, have an incentive to enforce contracts that individual lenders lack. They can consequently sustain more lending. For their reputations as enforcers of contracts to have value requires that banks earn strictly positive profits. Maintaining the value of bank equity also provides an incentive for bankowners to invest deposits rather than to use these funds fraudulently. Because of the supernormal profits that banks must earn, an equilibrium that is sustained by bank reputation will not replicate an equilibrium in which loan repayment is automatically guaranteed.
Handle: RePEc:nbr:nberwo:1697
Template-Type: ReDIF-Paper 1.0
Title: An Analysis of the Stabilizing and Welfare Effects of Intervention in Spot and Futures Markets
Author-Name: Robert B. Campbell
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: EFG ITI IFM
Number: 1698
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1698
File-URL: http://www.nber.org/papers/w1698.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, Robert B. and Stephen J. Turnovsky. "An Analysis of the Stabilizing Effects of Intervention in Spot and Futures Markets," Journal of Public Economics, Vol. 28, No. 2, (November 1985), pp. 165-209.
Abstract: This paper analyzes the effects of three alternative rules on the long-run distributions of both the spot and futures prices ina single commodity market, in which the key behavioral relationships are derived from the optimizing behavior of producers and speculators.The rules considered include: (i) leaning against the wind in the spot market; (ii) utility maximizing speculative behavior by the stabilization authority in the futures market; (iii) leaning against the wind in the futures market. Since the underlying model is sufficiently complex to preclude analytical solutions, the analysis makes extensive use of simulation methods. As a general proposition we find that intervention in the futures market is not as effective in stabilizing either the spot price of the futures price as is intervention in the spot market. Indeed, Rule (iii), while stabilizing the futures price may actually destabilize the spot price. Furthermore, the analogous type of rule undertaken in the spot market will always stabilize the futures price to a greater degree than it does the spot price. The welfare implications of these rules are also discussed. Our analysis shows how these can generate rather different distributions of welfare gains, including the overall benefits.
Handle: RePEc:nbr:nberwo:1698
Template-Type: ReDIF-Paper 1.0
Title: Monetary and Fiscal Policy Under Perfect Foresight: A Symmetric Two Country Analysis
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 1699
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1699
File-URL: http://www.nber.org/papers/w1699.pdf
File-Format: application/pdf
Publication-Status: published as Turnovsky, Stephen J. "Monetary and Fiscal Policy Under Perfect Foresight: A Symmetric Two Country Analysis," Economica, Vol. 53, No. 210, May 1986,pp. 139-157.
Abstract: This paper analyzes the effects of anticipated and unanticipated domestic monetary and fiscal expansions on both the domestic and foreign economies. The analysis is based on symmetric behavior, which is not only not an unreasonable first approximation, but also offers significant analytical advantages. Specifically, it enables the dynamics of the system to be decoupled into (a) averages and (b) differences of relevant variables. Not only does this render the analysis tractable, but it also helps provide economic insight. One striking aspect is that the differences, but not the averages, respond to announcements. The consequences of this for the dynamic adjustments of the two economies to the various disturbances are discussed at length.
Handle: RePEc:nbr:nberwo:1699
Template-Type: ReDIF-Paper 1.0
Title: On the Nature and Estimation of Age. Period, and Cohort Effects in Demographic Data
Author-Name: David E. Bloom
Author-Person: pbl79
Note: LS
Number: 1700
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1700
File-URL: http://www.nber.org/papers/w1700.pdf
File-Format: application/pdf
Publication-Status: published as Bloom, David E. "On the Nature and Estimation of Age, Period, and Cohort Effects in Demographic Data," Genus, 1987.
Abstract: This paper develops a general procedure for estimating age, period, and cohort effects in demographic data. The procedure involves structuring, mathematically, the effect of cross-cohort changes in the timing and level of a vital event on period rates of occurrence of the event. The procedureis illustrated and tested in an application to data on the first birth rates of American women. Overall, the empirical results provide support for the procedure. The results also provide evidence that period effects are highly age-specific and that the size of cohort effects may be substantially overestimated by models which fail to allow for the age specificity of period effects.
Handle: RePEc:nbr:nberwo:1700
Template-Type: ReDIF-Paper 1.0
Title: Marriage Patterns in the United States
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Neil G. Bennett
Note: LS
Number: 1701
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1701
File-URL: http://www.nber.org/papers/w1701.pdf
File-Format: application/pdf
Publication-Status: published as (With Richard Freeman) Published as "The Fall in Private Pension Coveragein the United States", American Economic Review, Vol. 82, no. 2 (1992): 539-545.
Abstract: This paper analyzes cohort marriage patterns in the United States in order to determine whether declining rates of first marriage are due to changes in the timing of marriage, the incidence of marriage, or both. Parametric models, which are well-suited to the analysis of censored or truncated data, are fit separately to information on age at first marriage derived from three data sets which were collected independently and at different points in time. Extended versions of the models are also estimated in which the parameters of the model distributions are allowed to depend on social and, economic variables.The results provide evidence that the incidence of first marriage is declining and that there is only a slight tendency for women to delay marriage. In addition, education is the most important correlate of decisions about the timing of first marriage whereas race is the most important correlate of decisions about its incidence.
Handle: RePEc:nbr:nberwo:1701
Template-Type: ReDIF-Paper 1.0
Title: The Behavior of Interest Rates and Real Exchange Rates During a Liberalization Episode: The Case of Chile 1973-83
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 1702
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1702
File-URL: http://www.nber.org/papers/w1702.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian. "Monetarism in Chile 1973-1983: Some Economic Puzzles," Economic Development and Cultural Change, Chicago: UCP, Vol. 34, No. 3, April 1986, pp. 535-559.
Abstract: This paper analyzes the behavior of some key variables during the recent economic liberalization reform attempted in Chile. The paper concentrates on the behavior of the real exchange rate and nominal and real interest rates during the period 1977-83. It is argued that as a consequence of the liberalization of the capital account in Chile in 1979-81, dramatic inflows of financial capital resulted. These capital inflows generated an important increase in expenditure, and a lower relative price of tradables to nontradables or real appreciation. Moreover, it is argued that it is the liberalization of the capital account, and not the adoption of a preannounced rate of devaluation, that generated the dramatic real appreciation of the Chilean currency between 1979 and 1981 . A model to analyze interest rate behavior in a semi-open economy is also presented and applied to the case of Chile. The results obtained suggest that during this period interest rates responded both to open-economy and closed-economy factors. Among the former the increase in the expected rate of devaluation was particularly important.
Handle: RePEc:nbr:nberwo:1702
Template-Type: ReDIF-Paper 1.0
Title: Growth and External Debt Under Risk of Debt Repudiation
Author-Name: Daniel Cohen
Author-Person: pco389
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 1703
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1703
File-URL: http://www.nber.org/papers/w1703.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, 1985
Publication-Status: published as International Volatility and Economic Growth, Meril and Gordon eds., North Holland, 1991
Publication-Status: published as Growth and External Debt Under Risk of Debt Repudiation, Daniel Cohen, Jeffrey Sachs. in International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, de Ménil and Gordon. 1991
Abstract: We analyze the pattern of growth of a nation which borrows abroad and which has the option of repudiating its foreign debt. We show that the equilibrium strategy of competitive lenders is to make the growth of the foreign debt contingent on the growth of the borrowing country. We give a closed-form solution to a linear version of our model. The economy, in that case, follows a two-stage pattern of growth. During the first stage, the debt grows more rapidly than the economy. During the second stage, both the debt and the economy grow at the same rate, and more slowly than in the first stage. During this second stage, the total interest falling due on the debt is never entirely repaid; only an amount proportional to the difference of the rate of interest and the rate of growth of the economy is repaid each period.
Handle: RePEc:nbr:nberwo:1703
Template-Type: ReDIF-Paper 1.0
Title: The Ineffectiveness of Effective Tax Rates on Business Investment
Author-Name: Robert S. Chirinko
Author-Person: pch94
Note: EFG PE
Number: 1704
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1704
File-URL: http://www.nber.org/papers/w1704.pdf
File-Format: application/pdf
Publication-Status: published as Chirinko, Robert S. "The Ineffectiveness of Effective Tax Rates: A Comment on Feldstein's Fisher-Schultz Lecture," Journal of Public Economics Volume: 32 Issue: 3 (April 1987) Pages: 369-387
Abstract: In his Fisher-Schultz Lecture, Martin Feldstein examined the effects of non-neutral tax rules on business investment by estimating three econometric models, and he concluded that "the rising rate of inflation has, because of the structure of existing U.S. tax rules, substantially discouraged investment in the past 15 years." In a detailed examination of Feldstein's Effective Tax Rate model and a less extensive review of his other formulations (Neoclassical and Return-Over-Cost models), a number of important and independent criticisms are advanced. Our results from examining all three models suggest strongly that taxes have not adversely affected capital formation during the recent episode of inflation, a conclusion consistent with the relatively robust levels of net investment between 1965 and 1981 actually shown in the newly benchmarked National Income data.
Handle: RePEc:nbr:nberwo:1704
Template-Type: ReDIF-Paper 1.0
Title: Interest Rates, Money Supply Announcements, and Monetary Base Announcements
Author-Name: John Huizinga
Author-Name: Leonardo Leiderman
Note: EFG ME
Number: 1705
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1705
File-URL: http://www.nber.org/papers/w1705.pdf
File-Format: application/pdf
Publication-Status: published as Huizinga, John and Leonardo Leiderman. "The Signalling Role Of Base And Money Announcements And Their Effects On Interest Rates," Journal of Monetary Economics, 1987, v20(3), 439-462.
Abstract: This paper presents a new set of empirical regularities on the link between interest rates, money supply announcements and monetary base announcements. Among the main findings reported are: (i) unexpected increases in the announced monetary base have a significantly positive effect on interest rates during the period from October 1979 to October 1982; (ii) although unexpected money supply and monetary base announcements have the same impact on interest rates, they have different implications for the future behavior of the money supply and monetary base; (iii) the significant response of longer-term interest rates to unexpected monetary announcements is reflecting a response of current and expected future short-term rates -- i.e.term-structure premia are not altered by these announcements.
Handle: RePEc:nbr:nberwo:1705
Template-Type: ReDIF-Paper 1.0
Title: On the Age at Leaving Home in the Early Nineteenth Century: Evidence from the Lives of New England Manufacturers
Author-Name: David W. Galenson
Note: DAE
Number: 1706
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1706
File-URL: http://www.nber.org/papers/w1706.pdf
File-Format: application/pdf
Publication-Status: published as Galenson, David W. "On the Age at Leaving Home in the Early Nineteenth Century: Evidence from the Lives of New England Manufacturers," Social Science History, Vol. 11, No. 4, Winter 1987, pp. 355-78.
Abstract: Much recent research has focussed on some decisions that affected family composition in the past, including the determination of the age of marriage and the timing of fertility. This paper considers another such decision that has been relatively neglected, the determination of the age at which children left the parental home. Observations drawn from a collection of biographies of successful New England manufacturers, most of whom departed from their parents' homes in the first half of the nineteenth century, indicated that their age of departure was concentrated in the late teen ages and early twenties, with a median of 18 years. Multivariate analysis suggested that the age at which these men had left home varied directly with family income or wealth and inversely with the opportunity cost of their retention at home. Sons whose fathers had died tended to leave home earlier than otherwise, as did those whose first job away from home was in the employ of a relative, while those whose families invested more in their formal education appear to have stayed home longer.
Handle: RePEc:nbr:nberwo:1706
Template-Type: ReDIF-Paper 1.0
Title: Tax Reform and Financial Markets
Author-Name: Patric H. Hendershott
Note: ME PE
Number: 1707
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1707
File-URL: http://www.nber.org/papers/w1707.pdf
File-Format: application/pdf
Publication-Status: published as Patric H. Hendershott, 1985. "Tax reform and financial markets," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 29, pages 153-186.
Publication-Status: published as Hendershott, Patric H., "Tax Reform and Financial Markets," Economic Consequences of Tax Reform, Federal Reserve Bank of Boston, 1986.
Abstract: Four tax reform proposals have been advanced in recent years: Bradley-Gephardt, Kemp-Kasten, Treasury-Department and the Administration plan. These plans could have significant impacts on financial markets. Reductions ininvestment incentives and marginal tax rates would tend to lower before-tax interest rates, and lower taxes on existing corporate capital would tend to increase stock prices. The pattern of security issues would be altered by resulting changes in the composition of investment between real estate and nonreal estate assets and in desired loan-to-value ratios. The paper compares and contrasts the likely impacts of each of the four reform proposals on interest rate (taxable and tax-exempt), security flows, and stock prices.
Handle: RePEc:nbr:nberwo:1707
Template-Type: ReDIF-Paper 1.0
Title: Tax Reform, Interest Rates and Capital Allocation
Author-Name: Patric H. Hendershott
Note: PE
Number: 1708
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1708
File-URL: http://www.nber.org/papers/w1708.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. "Tax Reform, Interest Rates and Capital Allocation," Tax Reform and Real Estate, Follain (ed.) The Urban Institute, 1986, pp. 2 7-57.
Abstract: The impacts of four major tax reform proposals on the level of interest rates and the allocation of the American capital stock are derived. The four plans are Bradley-Gephardt, Kemp-Kasten, Treasury I and Treasury II. The allocation is among seven types of nonresidential capital, rental housing, and owner occupied housing held by households in five different income classes.The inflation-neutrality of the four plans as also deduced.
Handle: RePEc:nbr:nberwo:1708
Template-Type: ReDIF-Paper 1.0
Title: Taxation and the Size and Composition of the Capital Stock: An Asset Price Approach
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 1709
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1709
File-URL: http://www.nber.org/papers/w1709.pdf
File-Format: application/pdf
Publication-Status: published as From Modern Developments in Public Finance: Essays in Honor of Arnold Harberger, edited by Michael J. Boskin, pp. 61-94. Oxford: Basil Blackwell Ltd., 1987.
Abstract: This paper develops an asset price approach to the analysis of capital taxation. The costs of adjusting capital stocks cause tax changes to have important impacts on the valuation of existing capital. The recapitalizations associated with tax reforms represent an important aspect of their incidence. These effects are studied within the context of an empirically calibrated general equilibrium model. The model extends previous work by explicitly treating the process of adjustment following tax reforms, treating in detail the relationship between tax rules and interest rates and examining the differential incidence effects of corporate tax reductions and investment incentives.
Handle: RePEc:nbr:nberwo:1709
Template-Type: ReDIF-Paper 1.0
Title: Issues in National Savings Policy
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE EFG
Number: 1710
Creation-Date: 1985-09
Order-URL: http://www.nber.org/papers/w1710
File-URL: http://www.nber.org/papers/w1710.pdf
File-Format: application/pdf
Publication-Status: published as Savings and Capital Formation: The Policy Optionseds. F.G. Adams and SM Watcher Lexington, MA, DC Heath and Co., 1986,pp. 65-88
Abstract: This paper reviews a number of issues relating to the policy goal of increasing national savings. The first section considers the measurement and definition of national savings. Comparisons of current US savings rates with those of other countries and with the past US experience are presented. The second section considers possible avenues through which public policy can increase natianal savings. While most discussion has centered on the effects of changes in the rate of return received by savers, this is far from the only channel through which policy can effect savings. I conclude that changes in public savings or dissaving through budget surpluses or deficits are the most potent and reliable policy tool for altering the saving rate. The third section of the paper examines a crucial savings policy question. Where will extra savings go? Both empirical estimates and econometric model simulations suggest will find their way into increased plant and equipment investment. A major effect of increased savings would be to reduce capital inflows and improve American competitiveness.
Handle: RePEc:nbr:nberwo:1710
Template-Type: ReDIF-Paper 1.0
Title: Poverty in America: Is Welfare the Answer or the Problem?
Author-Name: David T. Ellwood
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: LS
Number: 1711
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1711
File-URL: http://www.nber.org/papers/w1711.pdf
File-Format: application/pdf
Publication-Status: published as Ellwood, David T. and Lawrence H. Summers. "Poverty in America: Is Welfare the Answer or the Problem?" in Fighting Poverty: What Works and What Doesn't, eds. S.Bazinger and D. Wienberg, Cambridge: Harvard University Press, 1986, pp. 78-105
Abstract: This paper reviews the current policies for fighting poverty and explores the impact they have had. We begin by reviewing trends in poverty, poverty spending and economic performance. It is immediately apparent that economic performance is the dominant determinant of the measured poverty rate over the past two decades. Government assistance programs expanded greatly over this period, but the growth in cash assistance was too modest to have major effects, and the large growth in in-kind benefits could not reduce measured poverty since such benefits are not counted as income. Next we focus on three groups: the disabled, female family heads, and unemployed black youth. We find little evidence that government deserves the blame for the problems of each group, and suggest that the broad outlines of current policies are defensible on economic grounds.
Handle: RePEc:nbr:nberwo:1711
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Tariffs and Tax Enforcement Costs
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 1712
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1712
File-URL: http://www.nber.org/papers/w1712.pdf
File-Format: application/pdf
Publication-Status: published as Joshua Aizenman, 1987. "Inflation, Tariffs and Tax Enforcement Costs," Journal of Economic Integration, vol 2(2), pages 12-17.
Abstract: This paper derives the dependency of optimal tariff and inflation tax on tax collection and enforcement costs. The analysis is done for a small, open economy. The existence of such costs can justify tariff and inflation tax policies as optimal revenue-raising devices. This paper suggests that greater government demand for revenue will increase the use of inflation and tariffs as revenue devices. The analysis derives elasticity rules that tie optimal tariff and inflation rates to the costs of tax collection.
Handle: RePEc:nbr:nberwo:1712
Template-Type: ReDIF-Paper 1.0
Title: A Problem of Financial Market Equilibrium When the Timing of Tax Payments is Indeterminate
Author-Name: David F. Bradford
Note: PE
Number: 1713
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1713
File-URL: http://www.nber.org/papers/w1713.pdf
File-Format: application/pdf
Publication-Status: published as Heller, Walter P., Ross M. Starr and David A. Starrett (eds.) Social Choice and Public Decision Making: Essays in Honor of Kenneth J. Arrow. New York: Cambridge University Press, 1986.
Abstract: If firms are indifferent about the timing of dividends, the government's cash flow from taxes on dividends is indeterminate. In an earlier paper, I showed in the context of a world without uncertainty that variations in tax receipts from this source would have no real effects. The extension of the analysis to a world of risk turns out to involve new elements that may be of some general interest. In particular, the conditions for neutrality seem less likely to be fulfilled in a practical context.
Handle: RePEc:nbr:nberwo:1713
Template-Type: ReDIF-Paper 1.0
Title: Does Deductibility Influence Local Taxation?
Author-Name: Robert P. Inman
Note: PE
Number: 1714
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1714
File-URL: http://www.nber.org/papers/w1714.pdf
File-Format: application/pdf
Abstract: Recent proposals to reform the U.S. tax code all contain significant reforms of the cufrent provision allowing for the deductibility of state and local taxes.This paper examines the effect of deductibility reform on the revenue decisions of the largest U.S. cities. The analysis of eight alternative reforms concludes:(1) total taxes change very little in the long-run, falling at most by 13% and, for many cities, even rising slightly; (2) fees and license revenue (predominantly a tax on firms) generally fall, in some cases by 30% or more; (3) the net effect on total revenues (tax plus fees) is generally small, never declininq by more than 12% even with full loss of deductibility; and (4) policies to offset city revenue losses are effective in neutralizing the negative effects of deductibility reform.
Handle: RePEc:nbr:nberwo:1714
Template-Type: ReDIF-Paper 1.0
Title: Assistance to the Poor in a Federal System
Author-Name: Charles Brown
Author-Person: pbr341
Author-Name: Wallace E. Oates
Author-Person: poa3
Note: LS
Number: 1715
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1715
File-URL: http://www.nber.org/papers/w1715.pdf
File-Format: application/pdf
Publication-Status: published as Brown, Charles and Wallace Oates. "Assistance to the Poor in a Federal System," Journal of Public Economics, Vol. 32, No. 3, April 1987, pp. 307-330.
Abstract: This paper explores the roles of different levels of government in assisting the poor. Using a model with utility interdependence, the paper presents some theoretical results on how levels of poor relief vary with the extent of mobility of the poor under both centralized and decentralized systems of support. After surveying the relevant empirical work and the experience under the English Poor Laws, the paper argues for a basic role for central government in this function.
Handle: RePEc:nbr:nberwo:1715
Template-Type: ReDIF-Paper 1.0
Title: Short-Term and Long-Term Interest Rates in a Monetary Model of a Small Open Economy
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 1716
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1716
File-URL: http://www.nber.org/papers/w1716.pdf
File-Format: application/pdf
Publication-Status: published as Turnovsky, Stephen J. "Short-Term and Long-Term Interest Rates in a Monetary Model of a Small Open Economy," Journal of International Economics, Vol. 20, No. 3/4. May 1986, pp. 291-311.
Abstract: This paper analyzes the effects of both anticipated and unanticipated monetary and fiscal disturbances, on the dynamic behavior of a monetary model of a small open economy. It focuses on the adjustment of the short-term and long-term interest rates and the divergence of their transitional paths, particularly in anticipation of these disturbances. The analysis demonstrates how anticipation of a future policy change can generate perverse short-run behavior. The essential reason for the divergence between the short and long rates is that the latter is dominated by long-term expectations, while the former is primarily determined by current influences.
Handle: RePEc:nbr:nberwo:1716
Template-Type: ReDIF-Paper 1.0
Title: Standard-Rate Wage Setting, Labor Quality, and Unions
Author-Name: Charles Brown
Author-Person: pbr341
Note: LS
Number: 1717
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1717
File-URL: http://www.nber.org/papers/w1717.pdf
File-Format: application/pdf
Abstract: "Standard rate" wage policies, under which all workers in a particular job receive the same wage, are common for blue-collar workers, especially those covered by collective bargaining agreements and those who work for large employers.This paper analyzes the impact of standard-rate wage setting.There are two important conclusions. First,a standard-rate rule which leaves the employer free to set the rate can either increase or reduce the quality of labor hired. Given empirically likely distributions of alternative wages for workers, it pushes employers toward the middle of the quality distribution. Second, union standard-rate policies allow union?ununion differences in wages for workers of a given qualityto exist even when union employers are free to alter the quality of their workforces.
Handle: RePEc:nbr:nberwo:1717
Template-Type: ReDIF-Paper 1.0
Title: The Comparative Advantage of Educated Workers in Implementing New Technology: Some Empirical Evidence
Author-Name: Ann P. Bartel
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Note: LS PR
Number: 1718
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1718
File-URL: http://www.nber.org/papers/w1718.pdf
File-Format: application/pdf
Publication-Status: published as Bartel, Ann P. and Frank R. Lichtenberg."The Comparative Advantage of Educated Workers in Implementing New Technology: Some Empirical Evidence,"Review of Economics and Statistics, Vol. LXIX, No. 1, February 1987, pp. 1-11.
Abstract: In this paper we estimate variants of a labor demand equation derived from a (restricted variable) cost function in which "experience"on a technology (proxied by the mean age of the capital stock) enters "non-neutrally." Our specification of the underlying cost function isbased on the hypothesis that highly educated workers have a comparative advantage with respect to the adjustment to and implementation of new technologies. Our empirical results are consistent with the implication of this hypothesis, that the relative demand for educated workers declines as the capital stock (and presumably the technology embodied therein) ages. According to our estimates, the education-distribution of employment depends more strongly on the age of equipment than on the age of plant, and the effect of changes in equipment age on labor demand is magnified in R&D-intensive industries.
Handle: RePEc:nbr:nberwo:1718
Template-Type: ReDIF-Paper 1.0
Title: Defined Benefit versus Defined Contribution Pension Plans: What are the Real Tradeoffs?
Author-Name: Zvi Bodie
Author-Person: pbo569
Author-Name: Alan J. Marcus
Author-Person: pma1156
Author-Name: Robert C. Merton
Author-Person: pme203
Note: ME
Number: 1719
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1719
File-URL: http://www.nber.org/papers/w1719.pdf
File-Format: application/pdf
Publication-Status: published as Bodie, Zvi, Alan J. Marcus, Robert C. Merton."Defined Benefit versus Defined Contribution Pension plans: What are the Real Tradeoffs?" Pensions in the U.S. Economy, eds. Z. Bodie, J. Shoven, D. Wise. Chicago: UCP, 1988
Publication-Status: published as Defined Benefit versus Defined Contribution Pension Plans: What are the Real Trade-offs?, Zvi Bodie, Alan J. Marcus, Robert C. Merton. in Pensions in the U.S. Economy, Bodie, Shoven, and Wise. 1988
Abstract: Defined Benefit and Defined Contribution plans have significantly different characteristics with respect to the risks faced by employers and employees, the sensitivity of benefits to inflation, the flexibility of funding, and the importance of governmental supervision. In this paper, we examine some of the main tradeoffs involved in the choice between DB and DC plans. Our most general conclusion is that neither plan type can be said to wholly dominate the other from the perspective of employee welfare.The major advantage of DB plans is the potential they offer to provide a stable replacement rate of final income to workers. If the replacement rate is the relevant variable for worker retirement utility, then DB plans offer some degree of insurance against real wage risk. Of course, protection offered to workers is risk borne by the firm. As real wages change, funding rates must correspondingly adjust. However, to the extent that real wage risk is largely diversifiable to employers, and nondiversifiable to employees, the replacement rate stability should be viewed as an advantage of DB plans. The advantages of DC plans are most apparent during periods of inflation uncertainty. These are: the predictability of the value of pension wealth, the ability to invest in inflation-hedged portfolios rather than nominal DB annuities,and the fully-funded nature of the DC plan. Finally, the DC plan has the advantage that workers can more easily determine the true present value of the pension benefit they earn in any year, although they may have more incertainty about future pension-benefit flows at retirement. Measuring the present value of accruing defined benefits is difficult at best and imposes severe informational requirements on workers. Such difficulties could lead workers to misvalue their total compensation, and result in misinformed behavior.
Handle: RePEc:nbr:nberwo:1719
Template-Type: ReDIF-Paper 1.0
Title: Tests for Liquidity Constraints: A Critical Survey
Author-Name: Fumio Hayashi
Author-Person: pha83
Note: EFG
Number: 1720
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1720
File-URL: http://www.nber.org/papers/w1720.pdf
File-Format: application/pdf
Publication-Status: published as Hayashi, Fumio."Tests for Liquidity Constraints: A Critical Survey," Advances in Econometrics, Fifth World Congress, ed. Truman Bewley, New York: Cambridge University Press, 1987.
Abstract: This paper surveys recent empirical work on tests for liquidity constraints.The focus of the survey is on the tests based on the Euler equation. After examining the technical aspects of the recent tests on aggregate time-series data and on micro data, the survey tries to evaluate their economic significance. The paper concludes that for a significant fraction of the population the behavior of consumption over time is affected in away predicted by credit rationing and differential borrowing and lending rates. However, the available evidence is shown to have failed in providing information necessary to calculate the response of consumption to changes in the time profile of income.The paper attributes the failure to the fact that not much attention in the literature has been paid to the cause of liquidity constraints.
Handle: RePEc:nbr:nberwo:1720
Template-Type: ReDIF-Paper 1.0
Title: Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons
Author-Name: Bruce N. Lehmann
Author-Name: David M. Modest
Note: ME
Number: 1721
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1721
File-URL: http://www.nber.org/papers/w1721.pdf
File-Format: application/pdf
Publication-Status: published as Lehmann, Bruce N. and David M. Modest. "Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons." Journal of Finance , Vol. 42, No. 2, (June 1987), pp. 233-265.
Abstract: Our primary goal in this paper is to ascertain whether the absolute and relative rankings of managed funds are sensitive to the benchmark chosen to measure normal performance. We employ the standard CAPM benchmarks and a variety of APT benchmarks to investigate this question. We found that there is little similarity between the absolute and relative mutual fund rankings obtained from alternative benchmarks which suggests the importance of knowing the appropriate model for risk and expected return in this context. In addition, the rankings are quite sensitive to the method used to construct the APT benchmark. One would reach very different conclusions about the funds' performance using smaller numbers of securities in the analysis or the less efficient methods for estimating the necessary factor models than one would arrive at using the maximum likelihood procedures with 750 securities. We did, however, find the rankings of the funds are not very sensitive to the exact number of common sources of systematic risk that are assumed to impinge on security returns. Finally, we found statistically significant measured abnormal performance using all the benchmarks. The economic explanation of this phenomenon appears to be an open question.
Handle: RePEc:nbr:nberwo:1721
Template-Type: ReDIF-Paper 1.0
Title: Monetary Rules and Commodity Schemes Under Uncertainty
Author-Name: Stanley Fischer
Note: EFG
Number: 1722
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1722
File-URL: http://www.nber.org/papers/w1722.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley. "Monetary Rules and Commodity Schemes Under Uncertainty," Journal of Monetary Economics, Vol. 17, (1986), pp. 21-35.
Abstract: The paper sets out a simple monetary model anduses it to compare alternative monetary systems. Money may be either fiat or gold. Both gold supply and velocity are uncertain. Asset demands are derived from expected utility maximization. I demonstrate the basic argument against a commodity money -- that it wastes resources, show why the optimal growth rate of money may be zero, and compare the behavior of the economy under constant money stock, constant price level, and constant gold price rules. Expected utilityis typically highest under the constant price level rule.
Handle: RePEc:nbr:nberwo:1722
Template-Type: ReDIF-Paper 1.0
Title: Taxation of Investment and Savings in a World Economy: The Certainty Case
Author-Name: Roger H. Gordon
Author-Person: pgo95
Note: PE
Number: 1723
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1723
File-URL: http://www.nber.org/papers/w1723.pdf
File-Format: application/pdf
Publication-Status: published as Gordon Roger H. "Taxation of Investment and Savings in a WOrld Economy," American Economic Review, Vol. 76, No. 5, (December 1986), pp. 1086-1102.
Abstract: This paper explores the characteristics of individual portfolio holdings in a world economy with a unified securities market where there are many countries, each with its own tax rates and inflation rate. When nominal interest is taxable but income to equity owners is tax exempt in all countries, I show that the highest tax bracket investors specialize in equity and, among the remaining investors, those with lower tax rates buy bonds of countries with higher inflation rates. Because of the tax system, countries with a higher inflation rate must pay a higher real interest rate on their debt. This is necessary in equilibrium to compensate those who purchase the debt for their higher taxable income. This diversity of real rates of return in the world securities market has a variety of effects on the optimal tax policy of a small open economy. I also explore a model where there is a unified world market in bonds, but no international trade in equity. Here, I find a strong tax incentive for firms owned by investors in countries with high personal tax rates to become multinationals and invest abroad. If domestic investors do end up purchasing both bonds and domestic equity, then the optimal corporate tax rate on real corporate income in a small open economy would be quite high relative to the personal tax rate on nominal interest income, in order not to distort the portfolio composition of domestic investors.
Handle: RePEc:nbr:nberwo:1723
Template-Type: ReDIF-Paper 1.0
Title: The Welfare Analysis of Product Innovations with an Application to CT Scanners
Author-Name: Manuel Trajtenberg
Author-Person: ptr35
Note: PR
Number: 1724
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1724
File-URL: http://www.nber.org/papers/w1724.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, April 1989, 97(2), 444-479.
Abstract: The main goal of this paper is to put forward a methodology for the measurement of product innovations using a value metric, i.e., equating the "magnitude" of innovations with the welfare gains that they generate. This research design is applied to the case of Computed Tomography (CT) Scanners, a revolutionary innovation in medical technology. The econometric procedure centers on the estimation of a discrete choice model (the nested multinominal logit), that yeilds the parameters of a utility function defined over the-changing-quality dimensions of the innovative product. The estimated flow of social gains from innovation is used primarily to compute a social rate of return to R&D, to explore the interrelation between innovation and diffusion, and to trace the time profile of benefits and costs, the latter suggesting the possible occurance of "technological cycles".
Handle: RePEc:nbr:nberwo:1724
Template-Type: ReDIF-Paper 1.0
Title: The Empirical Foundations of the Arbitrage Pricing Theory I: The Empirical Tests
Author-Name: Bruce N. Lehmann
Author-Name: David M. Modest
Note: ME
Number: 1725
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1725
File-URL: http://www.nber.org/papers/w1725.pdf
File-Format: application/pdf
Publication-Status: published as "The Empirical Foundations of the Arbitrage Pricing Theory." From Journal of Financial Economics, Vol. 21, No. 2, pp. 213-254, (September 1988).(NOTE: R1221 is based on BOTH W1725 and W1726.)
Abstract: This paper provides a detailed and extensive examination of the validity of the APT based on maximum likelihood factor analysis of large cross-sections of securities. Our empirical implementation of the theory proved in capable of explaining expected returns on portfolios composed of securities with different market capitalizations although it provided an adequate account of the expected returns of portfolios formed on the basis of dividend yield and own variance where risk adjustment with the CAPM employing the usual market proxies failed. In addition, it appears that the zero beta version of the APT is sharply rejected in favor of the riskless rate model and that there is little basis for discriminating among five and ten factor versions of the theory.
Handle: RePEc:nbr:nberwo:1725
Template-Type: ReDIF-Paper 1.0
Title: The Empirical Foundations of the Arbitrage Pricing Theory II: The Optimal Construction of Basis Portfolios
Author-Name: Bruce N. Lehmann
Author-Name: David M. Modest
Note: ME
Number: 1726
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1726
File-URL: http://www.nber.org/papers/w1726.pdf
File-Format: application/pdf
Publication-Status: published as "The Empirical Foundations of the Arbitrage Pricing Theory." From Journal of Financial Economics, Vol. 21, No. 2, pp. 213-254, (September 1988).(NOTE: R1221 is based on BOTH W1725 and W1726.)
Abstract: The Arbitrage Pricing Theory (APT) of Ross (1976) presumes that a factor model describes security returns. In this paper, we provide a comprehensive examination of the merits of various strategies for constructing basis portfolios that are, in principle, highly correlated with the common factors affecting security returns. Three main conclusions emerge from our study. First, increasing the number of securities included in the analysis dramatically improves basis portfolio performance. Our results indicate that factor models involving 750 securities provide markedly superior performance to those involving 30 or 250 securities. Second, comparatively efficient estimation procedures such as maximum likelihood and restricted maximum likelihood factor analysis(which imposes the APT mean restriction) significantly outperform the less efficient instrumental variables and principal components procedures that have been proposed in the literature. Third, a variant of the usual Fame-MacBeth portfolio formation procedure, which we call the minimum idiosyncratic risk portfolio formation procedure, outperformed the Fama-MacBeth procedure and proved equal toor better than more expensive quadratic programming procedures.
Handle: RePEc:nbr:nberwo:1726
Template-Type: ReDIF-Paper 1.0
Title: The Funding Status of Teacher Pensions: An Econometric Approach
Author-Name: Robert P. Inman
Note: ME
Number: 1727
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1727
File-URL: http://www.nber.org/papers/w1727.pdf
File-Format: application/pdf
Publication-Status: published as Inman, Robert P. "Appraising the Funding Status of Teacher Pensions: An Econometric Approach, National Tax Journal, Vol. 39, No. 1, pp. 21-34, March 1986.
Abstract: The financing of public employee pensions has become an issue of growing public concern. This paper examines the fundinq status of teacher pension plans for the fifty states and for selected localities for the decade, 1971-1980. A pension underfunding equation based upon actuarial principles is specified and estimated using a sample of pension plans for which actuarially sound measures of underfundings are available. The ecometrically-estimated pension equationis then used to "predict" underfundings for each state and local pension plan for each year for which full pension plan data are available. The results reveal that the real dollar value of plan underfundings has risen by over 50% in the average state from 1971-1980. Strategies for funding these growing pension deficits are required.
Handle: RePEc:nbr:nberwo:1727
Template-Type: ReDIF-Paper 1.0
Title: Municipal Employment, Municipal Unions, and Demand for Municipal Services
Author-Name: Jeffrey S. Zax
Note: LS
Number: 1728
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1728
File-URL: http://www.nber.org/papers/w1728.pdf
File-Format: application/pdf
Publication-Status: published as Industrial Relations, vol 82, no.1, pp21-31, Winter 1989.
Abstract: Municipal unions may often use their own votes and those of sympathetic fellow citizens to promote increases in demand for municipal services. If successful, this strategy can increase member employment levels without sacrificing compensation. Municipal employee unionization significantly increases levels of annual manhours and employment per capita, and reduces annual hours of workper employee. The net effect of average unionization levels is to increase employees per capita by at least 4.7%, and manhours per capita by at least 3.3%, over levels that would prevail in the absence of municipal unions. These effects occur almost entirely in functions withr ecognized bargaining units. In these functions, employment levels are at least 9.9% higher than they would be in the absence of unionization.
Handle: RePEc:nbr:nberwo:1728
Template-Type: ReDIF-Paper 1.0
Title: Birth Outcome Production Functions in the U.S.
Author-Name: Hope Corman
Author-Name: Theodore J. Joyce
Author-Person: pjo112
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 1729
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1729
File-URL: http://www.nber.org/papers/w1729.pdf
File-Format: application/pdf
Publication-Status: published as Corman, Hope, Theodore J. Joyce and Michael Grossman. "Birth Outcome Production Functions in the U.S." Journal of Human Resources, Vol. 22, No. 3, Summer 1987.
Abstract: This paper contains the first infant health production functions that simultaneously consider the effects of a variety of inputs on race-specific neonatal mortality rates. These inputs include the use of prenatal care, neonatal intensive care, abortion, Federally subsidized organized family planning clinics, maternal and infant care projects, community health centers, and the WIC program. The empirical analysis is based on a cross section of U.S. counties in 1977, and the incidence of low birth weight (2,500 grams or less) is employed as an intermediate outcome. This allows us to examine the extent to which prenatal inputs operate directly on neonatal mortality and also allows us to examine their indirect effects on mortality rates through low birth weight. Since mothers with poor endowed birth outcomes will attempt to offset these unfavorable prospects by utilizing more health inputs, major emphasis is placed on two-stage least squares estimatesof the production function. Our results underscore the qualitative and quantitative importance of abortion, prenatal care, neonatal intensive care,and the WIC program in black and white birth outcomes.
Handle: RePEc:nbr:nberwo:1729
Template-Type: ReDIF-Paper 1.0
Title: Intergenerational Risk Sharing
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Hal R. Varian
Author-Person: pva5
Note: PE
Number: 1730
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1730
File-URL: http://www.nber.org/papers/w1730.pdf
File-Format: application/pdf
Publication-Status: published as Gordon and Varian, "Intergenerational Risk Sharing," from Journal of Public Economics, Vol.37, no. 2, pp. 185-202, November 1988.
Abstract: In this paper, we argue that in designing government debt and tax-transfer policies, it is important to consider their implications for the allocation of risk between generations. There is no reason to presume that the market or the family can allocate risk efficiently to future generations, implying that stochastic government policies have the potential to create first-order welfare improvements. The model provides a non-Keynsian justification for debt-finance of wars and recessions, as well as an added rationale for Social Security type tax-transfer schemes which aid unlucky generations, e.g., the Depression generation,at the expense of luckier generations.
Handle: RePEc:nbr:nberwo:1730
Template-Type: ReDIF-Paper 1.0
Title: The Determinants of IRA Contributions and the Effect of Limit Changes
Author-Name: Steven F. Venti
Author-Name: David A. Wise
Author-Person: pwi45
Note: PE
Number: 1731
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1731
File-URL: http://www.nber.org/papers/w1731.pdf
File-Format: application/pdf
Publication-Status: published as Venti, Steven F. and David A. Wise. "The Determinants of IRA Contributionsand the Effect of Limit Changes," Pensions in the U.S. Economy, eds. Zvi Bodie, John Shoven and David Wise, Chicago: UCP, 1988. pp. 9-47.
Publication-Status: published as The Determinants of IRA Contributions and the Effect of Limit Changes, Steven F. Venti, David A. Wise. in Pensions in the U.S. Economy, Bodie, Shoven, and Wise. 1988
Abstract: Tax-deferred savings are potentially an important component of savings for retirement and could represent a very substantial increase in tax-free savings for many employees. IRAs may also have a substantial effect on national savings. Total IRA contributionsin 1982 were over 29 billion dollars. Despite the program's size and potential significance, little is known about the determinants of IRA contributions.This paper presents: (1) analysis of the effect of individual attributes on whether a person contributes, (2) analysis of the effect of individual attributes on how much is contributed,and (3) simulations of the effect of potential changes in contribution limits on the amount that is contributed to IRA accounts. Results of a similar analysis based on Canadian data are compared with results for the United States. Persons with low incomes are unlikely to have IRA accounts. In addition, after controlling for income, age, and other variables, persons without private pension plans are no more likely than those with them to Contribute to an IRA. The analysis of Canadian data yields similar findings, and indeed specific parameter estimates for the two countries are very similar. Simulations based on the estimates suggest that the current Treasury Department proposal would lead to about a 30 percent increase in IRA contributions.
Handle: RePEc:nbr:nberwo:1731
Template-Type: ReDIF-Paper 1.0
Title: Was it Real? The Exchange Rate-Interest Differential Relation, 1973-1984
Author-Name: Richard Meese
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: ITI IFM
Number: 1732
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1732
File-URL: http://www.nber.org/papers/w1732.pdf
File-Format: application/pdf
Publication-Status: published as Meese, Richard and Kenneth Rogoff. "Was It Real? The Exchange Rate-Interest Differential Relation: 1973-1984". Journal of Economic Dynamics and Control, Vol. 10, no. 1-2, (June 1986), pp. 297-298.
Publication-Status: published as Meese, Richard and Kenneth Rogoff. "Was It Real? The Exchange Rate-Interest Differential Relation over the Modern Floating-Rate Period". The Journal of Finance, Vol. XLIII, No. 4, pp. 933-948, (September 1988).
Abstract: The main result of Meese and Rogoff [1983 a,b] is that small structural exchange rate models forecast major dollar exchange rates no better than a naive random walk model. This result obtains even when the model forecasts are based on actual realized values of the explanatory variables. Here we improve our methodology by implementing a new test of out-of-sample fit; the test is valid even for overlapping long-horizon forecasts. We find that the dollar exchange rate models perform somewhat less badly over the recent Reagan regime period than over the episodes studied previously. The methodology is also applied to the mark/yen and mark/pound exchange rates, and to real exchange rates. Finally, we test to see if real exchange rates and real interest differentials can be represented as a cointegrated process. The evidence suggests that there is no single common influence inducing nonstationarity in both real exchange rates and real interest differentials.
Handle: RePEc:nbr:nberwo:1732
Template-Type: ReDIF-Paper 1.0
Title: Union Work Rules and Efficiency in the Building Trades
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 1733
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1733
File-URL: http://www.nber.org/papers/w1733.pdf
File-Format: application/pdf
Publication-Status: published as Allen, Steven G. "Union Work Rules and Efficiency in the Building Trades," Journal of Labor Economics, Vol. 4, No. 2, (April 1986), pp. 212-242.
Abstract: This paper estimates the effect of union work rules in the building trades on employment and costs by comparing factor demand elasticities for union and nonunion contractors and subcontractors over micro data from two different types of construction. The results show that the elasticities of substitution between labor and nonlabor inputs and own-price elasticities for nonlabor inputs are about the same for union and nonunion contractors. In contrast, the elasticities of substitution among different skill categories of labor and the own-price elasticities for each category are much lower under unionism. A simulation based on a typical office building subcontract shows that these lower factor demand elasticities result in excess staffing of 3.2 percent, excess labor costs of 5.0 percent, and excess total costs of 2.0 percent. This study also examines directly the effect of union work rules on the use of prefabricated components and finds that union contractors are justas likely to use them as nonunion contractors.
Handle: RePEc:nbr:nberwo:1733
Template-Type: ReDIF-Paper 1.0
Title: Sharing Some Thoughts on Weitzman's The Share Economy
Author-Name: Russell Cooper
Note: EFG
Number: 1734
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1734
File-URL: http://www.nber.org/papers/w1734.pdf
File-Format: application/pdf
Publication-Status: published as "Will Share Contracts Increase Economic Welfare? From The American Economic Review, Vol. 78, No. 1, (March 1988).
Abstract: This paper explores the positive and normative aspects of share contracts. In particular, the paper explores the properties of a share system as advanced by Martin Weitzman in The Share Economy.The model employed highlights a "macroeconomic externality" created in a multi-sector economy with imperfect competition. The introduction of share contracts is shown to influence the comparative static properties of the model economy and in some cases to lead to Pareto superior outcomes.
Handle: RePEc:nbr:nberwo:1734
Template-Type: ReDIF-Paper 1.0
Title: Productivity Growth in the Automobile Industry, 1970-1980: A Comparisonof Canada, Japan and the United States
Author-Name: Melvyn A. Fuss
Author-Name: Leonard Waverman
Note: PR
Number: 1735
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1735
File-URL: http://www.nber.org/papers/w1735.pdf
File-Format: application/pdf
Publication-Status: published as Hulten, Charles R. (ed.) Productivity Growth in Japan and the United States. Chicago: University of Chicago Press, 1990.
Publication-Status: published as Productivity Growth in the Motor Vehicle Industry, 1970-1984: A Comparison of Canada, Japan, and the United States, Melvyn Fuss, Leonard Waverman. in Productivity Growth in Japan and the United States, Hulten. 1991
Abstract: In this paper we calculate and analyze the automobile industries cost and productivity experience during the 1970 's in Canada, the U.S.and Japan. Utilizing an econometric cost function methodology, we are able to isolate the major source of short-run disequilibrium in this industry-variations' in capacity utilization-and analyze its effects on cost and total factor productivity (TFP) gross. This is achieved through a novel application of the Viner-Wng envelope theorem, which allows us to track short-run behavior utilizing what is essentially a long-run cost function.To striking empirical results energe. First, TFP grew much faster in the Japanese automobile industry (4.3% annum) than in the Canadian (1.4%) and U. S.(1.6%) industries. Second, the importance in analyzing variations in capacity utilization is confinned by the fact that failure to correct for this source of productivity change would have led to a 31% under estimate of long-run TFP growth in Canada arid a 37% underestimate for the United States.
Handle: RePEc:nbr:nberwo:1735
Template-Type: ReDIF-Paper 1.0
Title: Social Security and Individual Welfare: Precautionary Saving, LiquidityConstraints, and the Payroll Tax
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Kenneth L. Judd
Author-Person: pju19
Note: PE
Number: 1736
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1736
File-URL: http://www.nber.org/papers/w1736.pdf
File-Format: application/pdf
Publication-Status: published as Hubbard, R. Glenn and Kenneth L. Judd. "Social Security and Individual Welfare: Precautionary Saving, Borrowing Constraints, and the Payroll Tax," American Economic Review, Vol. 77, No. 4, 1987, pp. 630-646.
Abstract: Recent advances in the examination of efficiency gains from dynamic tax reforms have used simulation models to isolate intragenerational and/or intergenerational effects. Important considerations having to do with uncertainty or capital market imperfections are frequently missing from such a framework. In this paper, we focus on the welfare gains from introducing social security retirement annuities, given lifetime uncertainty and borrowing restrictions.Our principal findings are four. First, given the considerations mentioned above, "precautionary saving" exceeds life-cycle saving (that would have taken place in the absence of lifetime uncertainty), lending further support to the notion that the perfect-certainty version of the life-cycle model provides an inadequate explanation of observed saving behavior. Second, the introduction of an actuarially fair social security system leads to a significant partial equilibrium increase in lifetime consumption and welfare, accompanied by a reduction in the capital stock.The increase in lifetime welfare is reduced, however,and in many cases eliminated, when borrowing restrictions are imposed.Third, extending the model to general equilibrium, we find that the partial equilibrium gains in lifetime welfare from participation in social security are offset by the interaction of higher steady-state interest rates and binding liquidity constraints. Finally, replacing the proportional payroll tax with a progressive tax (essentially a linear tax with an exemption), we show that age-specific tax schemes can restore much of the potential gain from introducing social security.
Handle: RePEc:nbr:nberwo:1736
Template-Type: ReDIF-Paper 1.0
Title: Life Insurance of the Elderly: Adequacy and Determinants
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: ME PE
Number: 1737
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1737
File-URL: http://www.nber.org/papers/w1737.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan and Laurence Kotlikoff. "Life Insurance of the Elderly: Adequacy and Determinants,"Work, Health and Income Among the Elderly, G. Burtlss, ed. Washington: Brookings, 1987. pp. 29-67.
Publication-Status: published as Auerbach, Alan J. and Laurence J. Kotlikoff. "The Adequacy Of Life Insurance Purchases," Journal of Financial Intermediation, 1991, v1(3), 215-241.
Abstract: Despite a general reduction in poverty among the aged, roughly one third of elderly nonmarried women are officially poor. Many of these women are widows.The fact that poverty rates are significantly larger for widows than for married women suggests that many households may fail to buy sufficient life insurance.This paper considers the adequacy and determinants of life insurance among the elderly. Its principal conclusions are:(1) Combined private and public life insurance is inadequate for a significant minority of elderly households;(2) Of those elderly households in which the husband's future income representsa significant fraction of total household resources, roughly half are inadequately insured;(3) Households do not significantly offset Social Security's provision of survivor insurance by reducing their private purchase of life insurance; and(4) The actual determinants of the purchase of life insurance appear to differ greatly from those predicted by economic theory.
Handle: RePEc:nbr:nberwo:1737
Template-Type: ReDIF-Paper 1.0
Title: Nominal Contracting and Price Flexibility in Product Markets
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Robert J. Weiner
Note: ME
Number: 1738
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1738
File-URL: http://www.nber.org/papers/w1738.pdf
File-Format: application/pdf
Publication-Status: published as Hubbard and Weiner, "Contracting and Price Flexibility in Commodity Markets ," from Review of Economics and Statistics, February 1989, vol. 71, no. 1,pp. 80-89.
Abstract: The search for microeconomic foundations of non-Walrasian outcomes in labor and product markets has spawned many studies of contracting. This paper emphasizes the role of contracts for market equilibrium -- for many raw materials and basic industrial commodities -- in which long-term contractual arrangements and spot markets coexist. Our principal goals are two -- (i) to explain the existence of contracts and the equilibrium fraction of trades carried out under contract, and (ii) to consider the impact of demand and supply shocks on spot prices when market trades also take place through long-term contracts. We find that the relative importance of contracting depends on, inter alia, the variance of the spot price and the sources of underlying fluctuations. Consistent with the findings of previous macroeconomic studies, we find that contracting and price rigidity are more likely the more important demand shocks are relative to supply shocks. We adapt our static model of contract price and quantity determination to discuss the adjustment of contract prices. Finally, we discuss three important applications of our multiple-price modeling structure -- to (i) analyses of the effects of changes in vertical market structure on market equilibrium in commodity markets (with specific reference to petroleum and copper), (ii) models of the optimal degree of contract indexation,and (iii) aggregate studies of "sticky prices" in macroeconomics.
Handle: RePEc:nbr:nberwo:1738
Template-Type: ReDIF-Paper 1.0
Title: Inflation, Exchange Rates and Stabilization
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 1739
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1739
File-URL: http://www.nber.org/papers/w1739.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "Inflation, Exchange Rates and Stabilization." Essays in International Finance, No. 165, (October 1986), pp. 1-24. Internation Finance Section, Princeton, NJ: Princeton University Press.
Abstract: The essay is an extended version of the Frank D. Graham Lecture presented at Princeton University in May 1985. It discusses the interaction of inflation and exchange rate policy in a variety of contexts. Four different settings are used to highlight that role: the experiments with exchange rate overvaluation in the Southern Cone; the place of exchange depreciation in the transition from high to even higher inflation discussed in the context of Brazil; exchange rate fixing and real appreciation during stabilization in the 1920s; and finally the U.S. real appreciation of 1980-85. The common thread of the argument is that exchange rate policy can make an important contribution to stabilization, but that it can also be lead to persistent deviations from PPP, with devastatingly adverse effects.The essay investigates through what channels these PPP deviatiins arise and how they influence inflation, trade and capital flight.
Handle: RePEc:nbr:nberwo:1739
Template-Type: ReDIF-Paper 1.0
Title: The Administration Tax Reform Proposal and Housing
Author-Name: Patric H. Hendershott
Author-Name: David C. Ling
Author-Person: pli857
Note: PE
Number: 1740
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1740
File-URL: http://www.nber.org/papers/w1740.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. and David C. Ling. Likely Impacts of the Administration Proposal and HR 3838." Tax Reform and Real Estate, Follain (ed.), The Urban Institute, 1986, pp 87-112.
Abstract: This paper estimates the likely impact of the Administration tax reform plan on housing. Our analysis incorporates two general equilibrium impacts -- a one percentage point decline in the level of interest rates and a decrease in the property tax rate on principal residences -- and corrects errors regarding discount rates and refinancing in the basic rental model. A 7 percent increase in market rents (11 percent without the decline in interest rates) is projected. Consideration of the individual components of the Administration plan suggests that the only significant negative provisionis the cut in the personal tax rate from 0.53 (including a 6 percent state and local rate deductible at the Federal level) to 0.41. Without this cut (and the decline in interest rates which is largely attributable to the cut), market rents would fall by 6 percent. Rents rise only because rental housing is a negatively taxed asset in the sense that a tax cut lowers the supply of the asset.The general-equilibriwn effects will offset the negative direct effects -- the cut in marginal tax rates and loss of deductibility of property taxes -- on owner-occupied housing in the aggregate. However, this housing will generally be cheaper for households with incomes below $40,000 -- especially below $25,000 -- but will be more expensive for those with incomes above $60,000.This constitutes an improvement in both efficiency and equity because under current law the price of owner housing services is far lower for high income households than for low income households. Homeownership rates should increase by 2 to 3 percentage points for households with incomes below $40,000 and 1 to 2 percentage points in the aggregate.
Handle: RePEc:nbr:nberwo:1740
Template-Type: ReDIF-Paper 1.0
Title: Commodity Export Boom and the Real Exchange Rate: The Money-Inflation Link
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 1741
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1741
File-URL: http://www.nber.org/papers/w1741.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian. "Commodity Export Boom and the Real Exchange Rate: The Money-Inflation Link," Natural Resources and the Macroeconomy, eds. J. Peter Neeny and Sweder van Wijnbergen, Cambridge, MA: MIT Press, 1986.
Abstract: This paper analyzes the relation between exogenous changes in commodity export prices and the real exchange rate in a monetary economy. The traditional Dutch?Disease case is extended, and the monetary consequences of an export boom are explored. It is shown that commodity export booms can generate, in the short run, either an excess demand or an excess supply for money. In a monetary setting the short-run behavior of the real exchange rate can differ significantly from the more traditional Dutch-Disease case without money. The model is tested using data for Colombia.
Handle: RePEc:nbr:nberwo:1741
Template-Type: ReDIF-Paper 1.0
Title: Employment While in College, Academic Achievement and Post-College Outcomes: A Summary of Results
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Daniel R. Sherman
Note: LS
Number: 1742
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1742
File-URL: http://www.nber.org/papers/w1742.pdf
File-Format: application/pdf
Publication-Status: published as Ehrenberg, Ronald G. and Daniel R. Sherman. "Employment While in College, Academic Achievement and Post-College Outcomes: A Summary of Results," Journal of Human Resources, Vol. 22, No. 1, Winter 1987, pp. 1-23.
Abstract: This paper uses panel data that cover the 1972-1979 period obtained from the National Longitudinal Survey of the High School Class of 1972 to study how male college students' employment while in college influences their academic performance, persistence in school, decisions to enroll in graduate school, and post-college labor market success. The analytic framework employed treats in-school employment as endogenous and determines persistence by a comparison of expected utilities.
Handle: RePEc:nbr:nberwo:1742
Template-Type: ReDIF-Paper 1.0
Title: Foreign Currency Futures
Author-Name: Robert J. Hodrick
Author-Person: pho115
Author-Name: Sanjay Srivastava
Note: ITI IFM
Number: 1743
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1743
File-URL: http://www.nber.org/papers/w1743.pdf
File-Format: application/pdf
Publication-Status: published as Hodrick, Robert J. and Sanjay Srivastava. "Foreign Currency Futures," Journal of International Economics, Vol. 22, No. 1/2, Feb. 1987, pp. 1-24.
Abstract: The theoretical nature of risk premiums in foreign currency futures markets is derived and studied empirically. Estimation problems encountered in using futures data are discussed. Since forward rates and futures prices are demonstrated to be approximately equal, and because risk premiums in forward markets are highly variable, consistency of the data requires time variation in daily risk premiums in the futures market. Unbiasedness of daily futures prices as predictors of the following day's futures price is rejected for all currencies. Reconciliation of daily and monthly data requires positive serial correlation in daily risk premiums.
Handle: RePEc:nbr:nberwo:1743
Template-Type: ReDIF-Paper 1.0
Title: Labor Supply Incentives and Disincentives for the Disabled
Author-Name: Jonathan S. Leonard
Author-Person: ple190
Note: LS
Number: 1744
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1744
File-URL: http://www.nber.org/papers/w1744.pdf
File-Format: application/pdf
Publication-Status: published as Leonard, Jonathan S. "Labor Supply Incentives and Disincentives for the Disabled," Disability and the Labor Market: Economic Problems, Policies, and Programs, eds. M. Berkowitz & M.A. Hill, Ithaca, NY: ILR Press, 1986, pp. 64-94.
Abstract: The past three decades have witnessed a large and puzzling decline in labor force participation by prime-age males, and a correspondingly large increase in Social Security disability beneficiary roles.This paper reviews the analytical studies that have attempted to determine the causal links between disability, beneficiary status, and labor-force non-participation. Although disability is often thought of as a purely medically determined condition with no labor supply responsiveness to economic factors, models of Social Security disability beneficiary status as an economic decision have had some success in explaining both the growth of the program and the decline in labor force participation. These studies have, however, produced a wide range of estimates of labor supply elasticity, in part because of the difficulty of the underlying econometric problem of estimating the response to two (or more) potential income streams, only one of which is usually observed for any individual.
Handle: RePEc:nbr:nberwo:1744
Template-Type: ReDIF-Paper 1.0
Title: The Effectiveness of Equal Employment Law and Affirmative Action Regulation
Author-Name: Jonathan S. Leonard
Author-Person: ple190
Note: LS
Number: 1745
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1745
File-URL: http://www.nber.org/papers/w1745.pdf
File-Format: application/pdf
Publication-Status: published as Leonard, Jonathan S. "The Effectiveness of Equal Employment Law and Affirmative Action Regulation," Research in Labor Economics, Vol. 8, Part B, 1987,pp. 319-350.
Abstract: This paper reviews some recent empirical analyses of the impact of affirmative action and anti-discrimination law on employment and productivity.The major findings are that:1)Affirmative action has some success in improving employment opportunities for minorities and females, particularly for blacks. Results for white females are mixed. 2)Increases in black employment under affirmative action have taken place in both high-skilled and low-skilled occupations. 3)Compliance reviews have not been targeted against establishments with the lowest relative proportions of minority or female employment. Targetting seems more compatible with an earnings redistribution rather than an anti-discrimination program. 4)While many of the detailed enforcement steps and sanctions of the contract compliance process seem to have little effect individually,the compliance review process as a whole has been effective. 5)The system of goals and timetables have not been adhered to as rigidly as one might expect of quotas. The goals firms agree to are greatly inflated relative to their subsequent achievements, but they are not hollow promises. 6)Litigation under Title VII of the Civil Rights Act of 1964 has played a significant role in increasing black employment. In addition, as minority and female employment shares have increased,their relative productivity, while poorly measured, has not significantly declined.
Handle: RePEc:nbr:nberwo:1745
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ITI IFM
Number: 1746
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1746
File-URL: http://www.nber.org/papers/w1746.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. "Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies," International Monetary Fund Staff Papers, Volume 33, No. 3, September 1986.
Publication-Status: published as Buiter, Willem. "Macroeconomic Policy Design in an Interdependent World Economy" An Analysis of Three Contingencies," International Aspects of Fiscal Policies, ed. by J. Frenkel, Chicago: UCP, 1988.
Publication-Status: published as Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies , Willem H. Buiter. in International Aspects of Fiscal Policies, Frenkel. 1988
Abstract: The paper uses a small analytical two-region (the United States and the Rest of the Industrial World) model, to analyze three issues Concerning international economic interdependence and macroeconomic policy coordination that have been raised in connection with the September1985 World Economic Outlook published by the IMF.They are: (1) What should bethe monetary and/or fiscal response in the Rest of the Industrial World to a tightening of U.S. fiscal Policy and what should be the U.S. monetary response? (2) What Should be the monetary and/or fiscal response in the United States and in the Rest of the Industrial World to a"Collapse of the U.S. dollar?" The paper highlights the importance of determining the causes of such a "hard landing" for the U.S.dollar, as the appropriate policy responses are very sensitive to this; (3) What should be the macroeconomic policy response in the Industrial World to a disappointing real growth performance? Again the correct identification of the reason(s) for the disappointmentis shown to be crucial.The final Section discusses and qualifies the activist policy conclusions derived from the formal analysis.
Handle: RePEc:nbr:nberwo:1746
Template-Type: ReDIF-Paper 1.0
Title: The Covariance Structure of Earnings and Income, Compensatory Behavior and On-the-Job Investments
Author-Name: J. R. Kearl
Note: DAE LS
Number: 1747
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1747
File-URL: http://www.nber.org/papers/w1747.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, May 1988.
Abstract: Observationally alike individuals who make different choices about on-the-job investments should have earnings profiles that differ in systematic ways. In particular, investments in non-specific human capital should result in lower initial earnings but higher earnings growth rates. Human capital models of this sort admit testing, then, by examining the covariance between the level of earnings and the growth rate of earnings. This paper reports estimates of this covariance using the sample covariance among income observations across time for the same individuals. The sample covariances are drawn from the Utah Panel Data, a panel of some 16,000 households with income and wealth observations at various intervals over the period from 1850 to 1900. The parameter of interest is negative. This estimate is robust to various specifications of the model. I also reexamine earlier work by Lillard and Weiss and Hause, who use data on earnings, and conclude that there is strong support for the on-the-job investment hypothesis using data from thre equite different sources covering different economies and different time periods.
Handle: RePEc:nbr:nberwo:1747
Template-Type: ReDIF-Paper 1.0
Title: The Effect of the Union Wage Differential on Management Opposition and Union Organizing Success
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 1748
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1748
File-URL: http://www.nber.org/papers/w1748.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B."The Effect of the Union Wage Differential on Management Opposition and Union Organizing Success," American Economic Review, May 1986.
Abstract: This paper argues that under current U.S. institutional arrangements, in which managements opposition to unions is as important as workers and unions,the magnitude of the union wage premium actually reduces organization rather than increasing it. It reduces organizing success by lowering profits, thus giving management a greater incentive to oppose unions. It shows that in the traditional monopoly model, any given premium can cause management to donate more resources to opposing a union than workers will donate to organizing. Empirical evidence from NLRB elections supports the model in which larger premiums induce greater opposition and thus reduce union organizing success.
Handle: RePEc:nbr:nberwo:1748
Template-Type: ReDIF-Paper 1.0
Title: The Covariation of Risk Premiums and Expected Future Spot Exchange Rates
Author-Name: Robert J. Hodrick
Author-Person: pho115
Author-Name: Sanjay Srivastava
Note: ITI IFM
Number: 1749
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1749
File-URL: http://www.nber.org/papers/w1749.pdf
File-Format: application/pdf
Publication-Status: published as Hodrick, Robert J. and Sanjay Srivastava. "The Covariation of Risk Premiums and Expected Future Spot Exchange Rates," with comment by Jacob A. Frenkel. Journal of International Money and Finance, Vol. 5, Supplement, (March 1986), pp. 5-30.
Abstract: Fama(1984) analyzed the variability and the covariation of risk premiums and expected rates of depreciation. We employ three statistical techniques that do not suffer from a potential bias in Fama's analysis, but we nevertheless confirm his findings. In contrast to his interpretation the results are not necessarily at variance with the predictions of a theoretical model of the risk premium. Increases in expected rates of depreciation of the dollar relative to five foreign currencies are positively correlated with increases in the expected profitability of purchasing these currencies in the forward market, and risk premiums have larger variances than expected rates of depreciation.
Handle: RePEc:nbr:nberwo:1749
Template-Type: ReDIF-Paper 1.0
Title: A Latent Variable Model of Quality Determination
Author-Name: Paul J. Gertler
Author-Person: pge194
Note: EH
Number: 1750
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1750
File-URL: http://www.nber.org/papers/w1750.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business and Economic Statistics, Vol. 6, pp.97-107, 1988.
Abstract: Despite substantial interest in the determination of quality, there has been little empirical work in the area. The problem, of course, is the general lack of data on quality. This paper overcomes the data problem by constructing a Multiple Indicator Multiple Cause (MIMIC) model of quality determination. We present a one-factor MIMIC model of quality which derives natural indicators out of the relationship between input demand and output determination. The indicators turn out to be input demands which have been filtered to remove variation due to all factors, except quality ana random disturbances. These indicators are measures of input investment in each unit of output or the volume (intensity) of service. The model is identified by defining input demand to be a function of quantity and "total effective output" (quantity times average quality), instead of quantity and average quality. The model is then applied to the determination of nursing home quality. The model appears to perform quite well, as the results generally conform with economic theory and restrictions implied by the MIMIC structure are accepted in hypothesis tests.
Handle: RePEc:nbr:nberwo:1750
Template-Type: ReDIF-Paper 1.0
Title: A Decomposition of the Elasticity of Medicaid Nursing Home Expenditures Into Price, Quality, and Quantity Effects
Author-Name: Paul J. Gertler
Author-Person: pge194
Note: EH
Number: 1751
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1751
File-URL: http://www.nber.org/papers/w1751.pdf
File-Format: application/pdf
Abstract: Nursing home expenditures have become a public policy concern primarily because the Medicaid program payes for approximately 50 percent. Medicaid makes health care available to individuals who otherwise could not afford it, by directly reimbursing nursing homes for Medicaid patient care. Typically, Medicaid reimbursement rates are set by a cost plus method, where the reimbursement per patient is equal to average cost plus some return referred to as the Medicaid "plus" factor. This paper estimates the elasticity of Medicaid expenditures with respect to a change in the Medicaid "plus" factor,and decomposes that elasticity into price, quality, and quantity components. The decomposition is derived from a model of nursing home behavior, which shows that an increase in the Medicaid "plus" factor causes nursing homes to admit more Medicaid patients and reduce quality.Total expenditures are the Medicaid reimbursement rate times the number of Medicaid patients receiving care. An increase in the Medicaid "plus" factor affects the Medicaid reimbursement by directly raising the Medicaid "plus" factor, and by indirectly decreasing average cost through a reduction in quality. These are the price and quality effects, respectively. The quantity effect is change in the number of Medicaid patients. The elasticities are estimated separately for proprietary and "not for profit" nursing homes using a 1980 sample of New York nursing homes. Uniformly, the proprietary elasticities are approximately twice as large as the "not for profit" elasticities. As expected the price and quantity effects are positive, and the quality effects are negative. In the decomposition, the quality effect is quite important. In fact, ignoring it would lead to a fifty-three percent overestimate of the Medicaid expenditure elasticity.
Handle: RePEc:nbr:nberwo:1751
Template-Type: ReDIF-Paper 1.0
Title: Increasing Returns and the Theory of International Trade
Author-Name: Paul R. Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 1752
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1752
File-URL: http://www.nber.org/papers/w1752.pdf
File-Format: application/pdf
Publication-Status: Published as "Urban Concentration: The Role of Increasing Returns and Transport Goods", International Regional Science Review, Vol. 19, no. 1/2 (1996): 5-30.
Abstract: Increasing returns are as fundamental a cause of international trade as comparative advantage, but their role has until recently been neglected because of the problem of modelling market structure. Recently substantial theoretical progress has been made using three different approaches. These are the Marshallian approach, where economies of scale are assumed external to firms; the Chamberlinian approach, where imperfect competition takes the relatively tractable form of monopolistic competition; and the Cournot approach of noncooperative quantity-setting firms. This paper surveys the basic concepts and results of each approach. It shows that some basic insights are not too sensitive to the particular model of market structure. Although much remains to be done, we have made more progress toward a general analysis of increasing returns and trade than anyone would have thought possible even a few years ago.
Handle: RePEc:nbr:nberwo:1752
Template-Type: ReDIF-Paper 1.0
Title: Taxes and Corporate Investment in Japanese Manufacturing
Author-Name: Fumio Hayashi
Author-Person: pha83
Note: EFG
Number: 1753
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1753
File-URL: http://www.nber.org/papers/w1753.pdf
File-Format: application/pdf
Publication-Status: published as "Productivity Growth in Japan and the United States," Studies in Income and Wealth, Vol. 53, ed. Charles R. Hulten, pp. 295-316. Chicago: Universityof Chicago Press, 1990.
Publication-Status: published as Taxes and Corporate Investment in Japanese Manufacturing, Fumio Hayashi. in Productivity Growth in Japan and the United States, Hulten. 1991
Abstract: This paper examines the impact of taxes on the incentive to invest for the Japanese manufacturing sector in the postwar period. The idyosyricratic feature of the Japanese corporation tax system as compared to the U.S. is the prevelence of tax-free reserves and the tax deductibility of a part of taxes paid by corporations in the previous year. Our formula for the tax-adjusted Q and the cost of capital incorporates this. The main conclusions areas follows. While the postulated negative relation with the cost of capital cannot be found, investment in Japanese manufacturing shows until 1974 a strong association with the tax-adjusted Q. Since the change in stock prices, not taxes, is the primary source of changes in Q, the profitability of capitalis the major determinant of investment.
Handle: RePEc:nbr:nberwo:1753
Template-Type: ReDIF-Paper 1.0
Title: Workers' Rights: Rethinking Protective Labor Legislation
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Note: LS
Number: 1754
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1754
File-URL: http://www.nber.org/papers/w1754.pdf
File-Format: application/pdf
Publication-Status: published as Ehrenberg, Ronald G. "Workers' Rights: Rethinking Protective Labor Legislation," Research in Labor Economics, Vol. 8, Part B, 1986.
Publication-Status: published as D. Lee Bawden and Felicity Skidmore, editors, Rethinking Employment Policy, Washington DC: The Urban Institute Press, 1989.
Abstract: This paper focuses on a few directions in which protective labor legislation might be expanded in the United States over the next decade and the implications of expansion in each area for labor markets. Specifically, it addresses the areas of hours of work, unjust dismissal, comparable worth, and plant closings. In each case, the discussion stresses the need to be explicit about how private markets have failed,the need for empirical evidence to test such market failure claims, the need for economic analysis of potential unintended side effects ofpolicy changes, and the existing empirical estimates of the likely magnitudes of these effects.
Handle: RePEc:nbr:nberwo:1754
Template-Type: ReDIF-Paper 1.0
Title: Exchange Controls, Capital Controls, and International Financial Markets
Author-Name: Alan C. Stockman
Author-Person: pst94
Author-Name: Alejandro Hernandez D.
Note: ITI IFM
Number: 1755
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1755
File-URL: http://www.nber.org/papers/w1755.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 78, No. 3, pp. 362-374, (June 1988).
Abstract: This paper examines the effects of restrictions on international financial markets. We analyze a general equilibrium, rational expectations model of a two-country world in which well-functioning international financial markets premit trade in all state-contingent securities except insofar as governments restrict these markets. The restrictions we examine take the form of taxes or quantitative controls on purchases of foreign currency and on the income from foreign assets. State-contingent financial markets allow households to allocate wealth optimally across states so that the imposition of exchange and capital controls has, roughly speaking, only substitution effects but no wealth effect. These restrictions reduce international trade in goods and lower ex-post welfare in the country in which they are imposed. Nominal prices and exchange rate are nonmonotonic functions of these restrictions.
Handle: RePEc:nbr:nberwo:1755
Template-Type: ReDIF-Paper 1.0
Title: The Return to Tax Simplification: An Econometric Analysis
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 1756
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1756
File-URL: http://www.nber.org/papers/w1756.pdf
File-Format: application/pdf
Publication-Status: published as Joel Slemrod, 1989. "The Return To Tax Simplification: an Econometric Analysis," Public Finance Quarterly, vol 17(1), pages 3-27.
Abstract: The purpose of this paper is to provide estimates of the probable saving in the resource cost of complying with the tax law that would result from simplifying the individual income tax law. These estimates are based on an econometric analysis of the tax filing behavior in 1982 of a sample of Minnesota taxpayers. A simple model of tax compliance behavior based on utility maximization is first presented in order to suggest the important determinants of compliance behavior. The empirical model treats the discrete choices of whether to itemize deductions and whether to hire professional tax advice, and the choice of how much time and money to spend, conditional on the discrete choices made. Simulations based on the econometric results suggest that significant resource saving could be expected from eliminating the system of itemized deductions, although no significant saving from changing to a single-rate tax structure can be confidently predicted.
Handle: RePEc:nbr:nberwo:1756
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Induced Abortion on Birth Outcomes in the U.S.
Author-Name: Theodore J. Joyce
Author-Person: pjo112
Note: EH
Number: 1757
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1757
File-URL: http://www.nber.org/papers/w1757.pdf
File-Format: application/pdf
Publication-Status: published as Joyce, Theodore. "The Impact of Induced Abortion on Black and White Birth Outcomes in the U.S.," Demography, Vol. 24, No. 2, May 1987, pp. 229-244.
Abstract: This paper examines the impact of induced abortion on birth outcomes by treating abortion as an endogenous input into the production of infant health. To gauge the direct and indirect effect of abortion, three measures of infant health are considered simultaneously: the neonatal sortality rate, the percentage of low-birth weight births, and the percentage of pretera births. All three are race-specific and all pertain to large counties in the U.S. in 1977. Because the utilization of health inputs nay be conditioned on the expected birth outcome, estimates obtained by two-stage least squares are emphasized. The results sake clear that abortion is an important determinant of infant health. This suggests that by reducing the number of unwanted births, abortion enhances the healthiness of newborns of a given weight and gestational age, as well as improving the distribution of births among high-risk groups. Moreover, these direct and indirect effects differ by race.
Handle: RePEc:nbr:nberwo:1757
Template-Type: ReDIF-Paper 1.0
Title: The Antebellum "Surge" in Skill Differentials One More Time: New Evidence
Author-Name: Robert A. Margo
Author-Person: pma319
Author-Name: Georgia C. Villaflor
Note: DAE
Number: 1758
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1758
File-URL: http://www.nber.org/papers/w1758.pdf
File-Format: application/pdf
Publication-Status: published as Margo, Robert and Georgia Villaflor. "The Growth of Wages in Antebellum America: New Evidence," Vol. 47, No. 4, December 1987.
Abstract: Changes in the skill differential are often used by economic historians to proxy changes in income inequality. According to Jeffrey Williamson and Peter Lindert, American skill differentials rose sharply between 1820 and 1860, which they interpret as increasing income inequality. Using a large, new sample of wage rates drawn from military records, we find no evidence of an aggregate "surge" in antebellum skill differentials. We do find, however, that skill differentials on the frontier rose relative to levels in settled areas. We show how a reduction in the costs of migrating from old to new regions can explain this finding.
Handle: RePEc:nbr:nberwo:1758
Template-Type: ReDIF-Paper 1.0
Title: The Optimal Size of a Tax Collection Agency
Author-Name: Joel Slemrod
Author-Person: psl10
Author-Name: Shlomo Yitzhaki
Author-Person: pyi12
Note: PE
Number: 1759
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1759
File-URL: http://www.nber.org/papers/w1759.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, Joel and Shlomo Yitzhaki. "The Optimal Size of a Tax Collection Agency," Scandinavian Journal of Economics, vol.89, pp183-192, 1987W
Abstract: This paper addresses the optimal degree of law enforcement regarding tax evasion. It derives the conditions that characterize the optimal size of a tax collection agency, and then provides a simple interpretation of the conditions in terms of excess burden.The paper clarified earlier findings that suggest that the optimal size should be set higher than a simple cost-benefit calculation would indicate. It concludes with a numerical example that illustrates the optimality condition and demonstrates that a policy based on a naive cost-benefit analysis of the tax collection agency could result in a substantial overcommitment of resources.
Handle: RePEc:nbr:nberwo:1759
Template-Type: ReDIF-Paper 1.0
Title: Taxpayer Behavior and the Distribution of the 1982 Tax Cut
Author-Name: Lawrence B. Lindsey
Note: PE
Number: 1760
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1760
File-URL: http://www.nber.org/papers/w1760.pdf
File-Format: application/pdf
Abstract: The Economic Recovery Tax Act of 1981 mandated the most substantial reduction in personal income tax rates since the tax cuts of 1964. The rate reductions stimulated debates about the responsiveness of taxpayers to tax rates and incentives, the magnitude of the foregone revenue, and the distribution of the tax burden. This paper provides estimates of these three parameters. A baseline income distribution was created which took the macroeconomic environment of 1982 as given. This distribution is contrasted with the actual income reported in 1982 to measure the added reporting of income as a result of the rate cuts. The National Bureau of Economic Research TAXSIM model was used to estimate the effects of taxpayer behavior on tax liabilities as well.
Handle: RePEc:nbr:nberwo:1760
Template-Type: ReDIF-Paper 1.0
Title: Estimating the Revenue Maximizing Top Personal Tax Rate
Author-Name: Lawrence B. Lindsey
Note: PE
Number: 1761
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1761
File-URL: http://www.nber.org/papers/w1761.pdf
File-Format: application/pdf
Abstract: The idea that marginal tax rates and tax revenue may be inversely related is at least as old as Adam Smith's Wealth of Nations. The emergence of the "Laffer Curve" in the modern public debate on the subject has rekindled interestin this idea. The present paper uses data from the 1982 tax rate reductions to estimate the revenue maximizing top personal tax rate.This paper also examines the components of taxable income to consider the sources of taxpayer response to changes in marginal tax rates. The National Bureau of Economic Research TAXSIM model was used extensively in this study to estimate the magnitude of taxpayer response to tax rate changes.
Handle: RePEc:nbr:nberwo:1761
Template-Type: ReDIF-Paper 1.0
Title: The Corporate Cost of Capital in Japan and the U.S.: A Comparison
Author-Name: Albert Ando
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 1762
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1762
File-URL: http://www.nber.org/papers/w1762.pdf
File-Format: application/pdf
Publication-Status: published as "The Corporate Cost of Capital in Japan and the United States: A Compar-ison." From Government Policy Towards Industry in the USA and Japan,edited by John B. Shoven, pp. 21-49. New York: Cambridge University Press 1988.
Abstract: This paper presents evidence about the coats of corporate capital in Japan and the US, for a sample of large companies, and evaluates a variety of hypotheses about why the cost might be lower in Japan.We find that the before-tax return to capital in Japan appears slightly lower than in the U.S. when corrected book measures of earnings are used, but that this result would be reversed if market returns to Japanese equity were used in place of corrected earningsto measure the cost of equity.To what ever extent the cost of capital may actually be lower in Japan, we show that this is unlikely to be due either to a lower overall corporate tax burden or the particular tax advantages of corporate borrowing.
Handle: RePEc:nbr:nberwo:1762
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Pollution Abatement Investment on Productivity Change: AnEmpirical Comparison of the U.S., Germany, and Canada
Author-Name: Klaus Conrad
Author-Name: Catherine J. Morrison
Note: PR
Number: 1763
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1763
File-URL: http://www.nber.org/papers/w1763.pdf
File-Format: application/pdf
Publication-Status: published as Conrad and Morrison, from Southern Economic Journal, January 1989.
Abstract: It has often been asserted that imposition of environmental regulations in the 1970's may be a partial explanation for the productivity growth slowdowns experienced by most industrialized countries during that decade.The contention is that expenses incurred to satisfy these regulations, such as investment in pollution abatement capital, is unproductive in terms of measured output. Thus conventional productivity measures will be biased downward when such regulations are imposed. In this paper we construct a model which explicitly recognizes the difference between pollution abatement capital and "productive" capital and then use this framework to devleop an adjustment to nonparametric measures of productivity growth, purging them of the bias resulting from regulation. We measure the bias for the manufacturing sectors of three countries, the U.S., Canada and Germany, and thereby assess the impact of increased pollution abatement capital regulation on productivity growth. Our principal finding is that the bias, which depends on relative rates of growth of output and pollution abatement capital investment, is modest.
Handle: RePEc:nbr:nberwo:1763
Template-Type: ReDIF-Paper 1.0
Title: Testing Long-Run Productivity Models for the Canadian and U.S. Agricultural Sectors
Author-Name: Susan M. Capalbo
Author-Name: Michael Denny
Author-Person: pde317
Note: PR
Number: 1764
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1764
File-URL: http://www.nber.org/papers/w1764.pdf
File-Format: application/pdf
Publication-Status: published as Susan M. Capalbo & Michael G. S. Denny, 1986. "Testing Long-Run Productivity Models for the Canadian and U.S. Agricultural Sectors," American Journal of Agricultural Economics, vol 68(3).
Abstract: This paper discusses a portion of our work linking data on the agriculture sector in the United States and Canada. The purpose of this work is to explore the evolution of gains in agricultural productivity in the two countries during the post-WWII period. Comparable data has been developed for each country and a series of tests have been applied about the nature of the long-run production sector. These tests are designed to evaluate the alternate possible structures of shifts in the long-run technology over time.There is considerable evidence in both countries that the long-run shifts have been Hicks Neutral in models that use gross, not net, output measures. The reverse is true for the net output models. The use of the conventional net output measures is strongly rejected. However there is evidence, in both countries, in support of the hypothesis that separability of a type that is similar to, but weaker, than real-value added is not rejected.
Handle: RePEc:nbr:nberwo:1764
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Tax Reform on Households
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 1765
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1765
File-URL: http://www.nber.org/papers/w1765.pdf
File-Format: application/pdf
Publication-Status: published as "The Effect of Tax Simplification on Individuals" From Economic Consequen-ces of Tax Simplification, Conference Series No. 29. Boston: Federal Reserve Bank of Boston, (1985).
Abstract: This paper analyzes the Reagan Administratioris tax reform proposal in terms of its three stated objectives --fairness, simplicity, and economic growth -- and considers its likely effecton labor supply, saving and investment, and housing. The paper also attempts to place the tax reform debate in the context of modern public finance theory, in order to provide some rigorous framework for discussion of the important issues.
Handle: RePEc:nbr:nberwo:1765
Template-Type: ReDIF-Paper 1.0
Title: Changes in the Age Distribution of Income in the United States, 1968-1984
Author-Name: Michael J. Boskin
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Michael Knetter
Note: PE
Number: 1766
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1766
File-URL: http://www.nber.org/papers/w1766.pdf
File-Format: application/pdf
Abstract: Among the interesting changes in the U.S. economy in recent years have been the substantial changes in the age distribution of income and its components. These changes are interesting in and of themselves, but also are an important background against which to interpret aggregate economic statistics. In this paper we present detailed data on both the shares of income, and the relative income per household, of households headed by persons of different ages. These data are supplemented by analogous data for the various components of income: earnings, property income, Social Security, unemployment insurance, welfare, and pensions. These data are tabulated from 17 years of the annual Current Population Surveys (CPS). Among the most interesting trends are the dramatic increase in the share of income received by households over the age of 65 and also in their relative incomes; the enormous growth in the absolute and relative contribution of Social Security income to the incomes of households 55-64, and 65 and over; the sharp decrease in the share of total earnings and of the relative earnings of these two most elderly cohorts; and swings in the shares of total income of the other age cohorts which reflect in part changes in the numbers of persons in households of different ages, e.g., due to the aging of the baby-boom generation.
Handle: RePEc:nbr:nberwo:1766
Template-Type: ReDIF-Paper 1.0
Title: Price Flexibility, Credit Rationing, and Economic Fluctuations: Evidence from the U.S., 1879-1914
Author-Name: Charles W. Calomiris
Author-Person: pca421
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Note: EFG ME
Number: 1767
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1767
File-URL: http://www.nber.org/papers/w1767.pdf
File-Format: application/pdf
Publication-Status: published as "Price Flexibility, Credit Availability, and Economic Fluctuations: Evidence from the United States, 1894-1909" From The Quarterly Journal of Economics, Vol. CIV, No. 418, pp. 429-452, (August 1989).
Abstract: The reawakening of interest in links between price flexibility and fluctuations in economic activity calls for a reconsideration of models of price and quantity adjustment. We examine relationships between credit disturbances and real activity under flexible prices, using monthly data on real and financial variables over the period from 1879-1914. Recent theoretical and empirical work has focused on models and institutions of the post World War II period. Historical episodes of pronounced business cycles, however, challenge our present formulations of the causes of fluctuations in output and employment. In this paper we pursue two goals: (i) to demonstrate that substantial price flexibility existed during the period to point out that models of economic fluctuations relying on sticky prices are not appropriate for analyzing the period, and (ii) to consider the effects of deflationary shocks on real variables in such a world. Our principal findings are two. First, we present evidence from several empirical tests to corroborate the stylized fact of price flexibility during our period of study (relative to patterns of flexibility observed in postwar data). Contrary to conclusions of many models applied to postwar data, we find that shocks to inflation rates produce positive and persistent effects on output.Second, extending earlier examinations of credit rationing as an outcome under imperfect information, we motivate this link by considering the impact of deflation on credit availability. The addition of measures of credit rationing accompanying deflation contributes substantially to our empirical explanation of output fluctuations during the period.
Handle: RePEc:nbr:nberwo:1767
Template-Type: ReDIF-Paper 1.0
Title: The Deductibility of State and Local Taxes: Impact Effects by State and Income Class
Author-Name: Daniel R. Feenberg
Author-Person: pfe56
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 1768
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1768
File-URL: http://www.nber.org/papers/w1768.pdf
File-Format: application/pdf
Publication-Status: published as Feenberg, Daniel R. and Harvey S Rosen. "The Deductibility of State and Local Taxes: Impact Effects by State and Income Class," Growth and Change, Vol. 17, No. 2, (April 1986), pp. 11-31.
Publication-Status: published as Feenberg, Daniel R. and Harvey S. Rosen. "The Interaction of State and Federal Tax Systems: The Impact of State and Local Tax Deductibility." American Economic Review, Vol. 76, No. 2, (May 1986), pp. 126-131.
Publication-Status: published as DANIEL R. FEENBERG & HARVEY S. ROSEN, 1986. "The Deductibility of State and Local Taxes: Impact Effects by State and Income Class," Growth and Change, vol 17(2), pages 11-31.
Abstract: This paper provides careful estimates of the impact of removing the deductibility of state and local taxes by state andby income class. We show how deductibility affects marginal and average tax rates for both state and federal tax systems. One striking result is that combined federal income tax and state tax burdens would generally fall under the President's tax reform proposal, even for high income people in high tax states.
Handle: RePEc:nbr:nberwo:1768
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rates and Prices
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 1769
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1769
File-URL: http://www.nber.org/papers/w1769.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "Exchange Rates and Prices," American Economic Review, Vol. 77, No. 1, (March 1987), pp. 93-106.
Abstract: The appreciation of the U.S. dollar over the past five years opens important areas of research. The fact of a large and persistent real appreciation poses a challenge for equilibrium theorists to uncover the change in fundamentals and seems to support the role of long-term wage contracts in macroeconomic adjustment. This paper adopts the perspective of given wages and investigates in a partial equilibrium setting the determinants of relative price changes of different groups of goods. Specifically it advances hypotheses about those sectors where an exchange rate change should lead to large relative price changes and others where the relative price effects should be negligible.The general idea is to draw an models of industrial organization to explain price adjustments in terms of the degree of market concentration, the extent of product homogeneity and substitutability, and the relative market shares of domestic and foreign firms. The exchange rate movement and the less than fully flexible money wage interact to produce a cost shock for some firms in an industry -- foreign firms in the home market and home firms abroad -- and thus bring about the need for an industry-wide adjustment in prices.
Handle: RePEc:nbr:nberwo:1769
Template-Type: ReDIF-Paper 1.0
Title: Monopolistic Competition, Aggregate Demand Externalities and Real Effects of Nominal Money
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Author-Name: Nobuhiro Kiyotaki
Note: EFG
Number: 1770
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1770
File-URL: http://www.nber.org/papers/w1770.pdf
File-Format: application/pdf
Publication-Status: published as Blanchard, Olivier and Nobuhiro Kiyotaki. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, Vol. 77, No. 4, September 1987, pp. 647-666.
Abstract: A long standing issue in macroeconomics is that of the relation of imperfect competition to fluctuations in output. In this paper we examine the relation between monopolistic competition and the role of aggregate demand in the determination of output. We first show that monopolistically competitive economies exhibit an aggregate demand externality. We then show that, because of this externality, small menu costs, that is small costs of changing prices may lead to large effects of aggregate demand on output and on welfare.
Handle: RePEc:nbr:nberwo:1770
Template-Type: ReDIF-Paper 1.0
Title: The Wage Price Spiral
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Note: EFG
Number: 1771
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1771
File-URL: http://www.nber.org/papers/w1771.pdf
File-Format: application/pdf
Publication-Status: published as Blanchard, Olivier J. "The Wage Price Spiral," Quarterly Journal of Economics, Vol. 101, No. 406, pp. 545-565, August 1986.
Abstract: This paper rehabilitates the old wage price spiral. It shows that, after an increase in aggregate demand, the process of adjustment of nominal prices and nominal wages results from attempts by workers to maintain or increase their real wage and by firms to maintain or increase their markups of prices over wages. Under continuous price and wage setting, the process of adjustment would be instantaneous ; under staggering of price and wage decisions, the adjustment takes time. The more inflexible real wages and markups are to shifts in demand, the higher is the degree of price level inertia, the longer lasting are the effects of aggregate demand on output.
Handle: RePEc:nbr:nberwo:1771
Template-Type: ReDIF-Paper 1.0
Title: Debt and Default in the 1930s: Causes and Consequences
Author-Name: Barry J. Eichengreen
Author-Person: pei2
Author-Name: Richard Portes
Author-Person: ppo132
Note: ITI IFM
Number: 1772
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1772
File-URL: http://www.nber.org/papers/w1772.pdf
File-Format: application/pdf
Publication-Status: published as Eichengreen, Barry and Richard Portes. "Debt and Default in the 1930s: Causes and Consequences," European Economic Review, Vol. 30, June 1986, pp. 599-640.
Publication-Status: published as Translated: "Deuda y suspensión de pagos en los años treinta" Barry Eichengreen, Richard Portes: Cuadernos económicos de ICE, No 43, 1989 , pages. 79-120
Publication-Status: published as Reprinted in "International Debt," Bird, Giraham and P.N. Snowden, eds., Elsevier Science B.V. 1995
Publication-Status: published as Reprinted in "The Disintigration of the World Economy Between the Wars," Thomas, Mark (ed.), Edward Elgar,1996.
Abstract: This paper analyzes the "debt crisis" of the 1930s to see what light this historical experience sheds on recent difficulties in international capital markets. We first consider patterns of overseas lending and borrowing in the 1920s and 1930s, comparing the performance of standard models of foreign borrowing in this period to the 1970-80s. Next, we analyze the incidence and extent of defaulton sovereign debt, adapting models of debt capacity to the circumstances of the interwar years. We consider the choices available to investors in those foreign loans which lapsed into default in the 1930s, emphasizing the distinction between creditor banks and bond holders. Finally, we provide the first estimates of the realized rate of return on foreign loans floated between the wars, based on a sample of dollar andsterling bonds issued in the 1920s.
Handle: RePEc:nbr:nberwo:1772
Template-Type: ReDIF-Paper 1.0
Title: International Capital Mobility and Crowding Out in the U.S. Economy: Imperfect Integration of Financial Markets or of Goods Markets?
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 1773
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1773
File-URL: http://www.nber.org/papers/w1773.pdf
File-Format: application/pdf
Publication-Status: published as Jeffrey A. Frankel, 1985. "International capital mobility and crowding-out in the U.S. economy: imperfect integration of financial markets or of goods markets?," Proceedings, Federal Reserve Bank of St. Louis, pages 33-74.
Publication-Status: published as Frankel, Jeffrey A. "International Capital Mobility and Crowding Out in the U.S. Economy: Imperfect Integration of Financial Markets or of Goods Markets?" How Open is the U.S. Economy?" ed. R.W. Hafer, Federal Reserve Bank of St. Louis, Lexington, MA: Lexington Books, 1986.
Abstract: Conventional wisdom in the field of international finance holds that the U.S. economy has become so open financiallly as to be characterized by perfect capital mobility: a highly elastic supply of foreign capital prevents the domestic rate of return from rising significantly above the world rate of return. This view has been challenged recently by the observation that investment rates are highly correlated with national saving rates, and the claim by Feldstein and Horioka that this correlation is evidence of relatively low capital mobility.The premise of this paper is that the Feldstein-Horioka finding regarding crowding out in an open economy is strong enough to survive the econometric critiques that have been leveled against it, but that it need have nothing to do with the degree of capital mobility in the sense of the openness of financial markets and the equalization of international interest rates expressed in a common currency. It is real interest rates that matter for questions of crowding out, and real interest parity requires not just that nominal interest rates be equalized expressed in a common currency, but also that purchasing power parity hold. It is well-known that purchasing power parity does not in fact hold. Currently, for example, the dollar is expected to depreciate in real terms. Thus real interest rate parity fails and crowding out takes place because of imperfect integration of goods markets, not imperfect integration of financial markets.
Handle: RePEc:nbr:nberwo:1773
Template-Type: ReDIF-Paper 1.0
Title: New Estimates of Federal Government Tangible Capital and Net Investment
Author-Name: Michael J. Boskin
Author-Name: Marc S. Robinson
Author-Name: John M. Roberts
Author-Person: pro554
Note: PE
Number: 1774
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1774
File-URL: http://www.nber.org/papers/w1774.pdf
File-Format: application/pdf
Publication-Status: published as Boskin, Michael J, et al, 1985. "New Estimates of the Value of Federal Mineral Rights and Land," American Economic Review, American Economic Association, vol. 75(5), pages 923-36, December.
Publication-Status: published as Boskin, Robinson, and Roberts, "New Estimates of Federal Government Tangible Capital and Net Investment," in Technology and Capital Formation, ed. by Dale W. Jorgenson and Ralph Landau, Cambridge, MA: MIT Press, 1988.
Abstract: Government capital formation raises a number of issues important to national economic well-being, yet the U.S., unlike most advanced countries, does not account for capital in its formal budget documents. We estimate depreciation of government capital using a methodology developed by Hulten and Wykoff which is based on used asset price data. We estimate a federal government net nonresidential capital stock of over $800 billion in 1984, more than 20% higher than estimated by the BEA. We also find much larger net federal investment since World War II than the BEA. The behavior of military and civilian structures and equipment is also examined.We analyze the potential importance of these results for measuring the net national savings rate, national wealth, the trend in government capital formation relative to private capital formation, and the relationship between net investment and deficits.
Handle: RePEc:nbr:nberwo:1774
Template-Type: ReDIF-Paper 1.0
Title: Should Social Security Be Means Tested?
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 1775
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1775
File-URL: http://www.nber.org/papers/w1775.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 95, No. 3, pp. 468-484, (June 1987).
Abstract: The provision of social security benefits to retirees distorts the saving decisions of workers who are rational enough to save for their future. Since the implicit rate of return in an unfunded social security program is less than the marginal product of capital, the resulting decline in saving causes a welfare loss. It has been suggested that this welfare loss could be reduced, while still protecting those who lack the foresight to save for their retirement (the"myopes" and "partial myopes" of the paper), by replacing the current universal social security program with a means-tested program that pays benefits only to the "myopic" individuals who have little or no other retirement income or assets.The present paper evaluates this suggestion with the help of an explicit steady-state welfare comparison of the optimal universal and optimal means-tested programs. The relative welfare levels depend on characteristics of the economy (the growth rates of population and real wages and the productivity of capital) and of the population (the frequency and degree of myopia with respect to saving for retirement).The analysis shows that, although a means tested program is generally superior, it does not always dominate the best alternative universal program.A universal program can be preferable under conditions which imply that the optimal means-tested program would induce rational savers to stop saving. The analysis also implies that overall welfare can be increased by using different social security programs for different groups of workers if the working population as a whole can be divided into two or more subgroups with different mixes of myopes, partial myopes and rational life-cycle savers.
Handle: RePEc:nbr:nberwo:1775
Template-Type: ReDIF-Paper 1.0
Title: Has Cost Containment Gone Too Far?
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: EH
Number: 1776
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1776
File-URL: http://www.nber.org/papers/w1776.pdf
File-Format: application/pdf
Publication-Status: published as Victor R. Fuchs, 1986. "Has Cost Containment Gone Too Far?," The Milbank Quarterly, vol 64(3).
Abstract: Current cost containment strategies will undoubtedly result in fewer health services for patients. The analytical framework presented in this paper shows how the effects of reductions in services on health and social welfare depend upon the amount and distribution of services(relative to potential benefit) prior to cost containment and on the size and selectivity of the reductions. Disagreement over whether cost containment has gone too far arises from disagreements about the criterion (health or social welfare), the prior distribution, and how selective the reductions will be. In the long run selectivity will be the key to successful cost containment.
Handle: RePEc:nbr:nberwo:1776
Template-Type: ReDIF-Paper 1.0
Title: Causes of Appreciation and Volatility of the Dollar with Comment by Jacob Frenkel
Author-Name: William H. Branson
Author-Name: Jacob A. Frenkel
Note: ITI IFM
Number: 1777
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1777
File-URL: http://www.nber.org/papers/w1777.pdf
File-Format: application/pdf
Publication-Status: published as Branson, William H. "Causes of Appreciation and Volatility of the Dollar,"with comment by Jacob A. Frenkel. The U.S. Dollar -- Recent Developments, Outlook, and Policy Options, pp. 33-63. Kansas City: The Federal Reserve Bank of Kansas City, 1985.
Abstract: In 1981 real interest rates in the United States increased spectacularly, and the dollar appreciated in real terms by about 20 percent. Since the end of 1981, long-term real interest rates have remained in the range of 5-10 percent, with nominal long rates above short rates. The dollar appreciated further, but more gradually, until early 1985. This paper argues that these movements in real interest rates and the real exchange rate are due to the shift in the high-employment deficit by some $200 billion that was announced in the 1981 budget program. This requires an increase in real interest rates and a real appreciation to generate the sum of excess domestic saving and foreign borrowing to finance it. The argument is a straightforward extension of the idea of "crowding out" at full employment to an open economy.The current situation is not sustainable, however. Eventually international investors will begin to resist further absorption of dollars into their portfolios, so U.S. interest rates will have to rise further, as the markets seem to expect, and the dollar will have to depreciate. This will continue until the current account is back in approximate balance, and the entire load of deficit financing is shifted to excess U.S. saving. In his comments on Branson's paper, Jacob A. Frenkel discusses additional factors that have contributed to the evolution of the dollar since 1980. He concludes that in addition to U.S. fiscal policies, monetary policy in the United States and the fiscal position of the U.K., West Germany and Japan have also contributed to the dollar's strength.
Handle: RePEc:nbr:nberwo:1777
Template-Type: ReDIF-Paper 1.0
Title: R&D and Productivity Growth: Comparing Japanese and U.S. Manufacturing Firms
Author-Name: Zvi Griliches
Author-Name: Jacques Mairesse
Author-Person: pma712
Note: PR
Number: 1778
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1778
File-URL: http://www.nber.org/papers/w1778.pdf
File-Format: application/pdf
Publication-Status: published as Productivity Growth in Japan and the United States, edited by Charles R. Hulten, pp. 317-340. Chicago: University of Chicago Press, 1990.
Publication-Status: published as R&D and Productivity Growth: Comparing Japanese and U.S. Manufacturing Firms, Zvi Griliches, Jacques Mairesse. in Productivity Growth in Japan and the United States, Hulten. 1991
Abstract: We compute rates of growth in labor productivity during the 1973-80 period for samples of individual manufacturing firms, in both Japan and the U.S., and relate them to differences in the rates of growth in their capital-labor ratios and in their intensities of R&D effort. Japanese firms spent about as much of their own money on R&D, relative to sales, as did similar U.S.firms. An econometric analysis of R&D performing firms leads to the acceptance of the hypothesis that the contribution of such expenditures to productivity growth was about the same in both countries. Hence, the rather large differences on the observed rates of productivity growth between the two countries can not be accounted for by differences in either the intensity or fecundity of such expenditures. We do find two important differences between the two countries which help to explain a significant fraction of the observed differences in productivity but require in turn, an explanation of their own: 1) Japanese firms reduced their employment levels significantly during this period while US firms were increasing theirs. This, by itself, accounts for the twice as fast growth in capital-labor ratio in Japanese manufacturing. 2) The estimated effect of the growth in the capital-labor ratio on firm productivity is approximately twice as large in Japan than in the US. The two factors together can account for about half of the observed differences in the average rates of productivity growth between the two countries.
Handle: RePEc:nbr:nberwo:1778
Template-Type: ReDIF-Paper 1.0
Title: Rational Bubbles in Stock Prices?
Author-Name: Behzad T. Diba
Author-Person: pdi273
Author-Name: Herschel I. Grossman
Note: ME EFG
Number: 1779
Creation-Date: 1985-10
Order-URL: http://www.nber.org/papers/w1779
File-URL: http://www.nber.org/papers/w1779.pdf
File-Format: application/pdf
Publication-Status: published as Diba and Grossman, "Explosive Rational Bubbles in Stock Prices?" from American Economic Review, Vol. 78, No. 3, June 1988, pp. 520-530.
Abstract: This paper reports empirical tests for the existence of rational bubbles in stock prices. The analysis focuses on a familiar model that defines market fundamentals to be the expected present value of dividends, discounted at a constantrate, and defines a rational bubble to be a self-confirming divergence of stock prices from market fundamentals in response to extraneous variables. The tests are based on the theoretical result that, if rational bubbles exist, time series obtained by differencing real stock prices do not have stationary means. Analysis of the data in both the time domain and the frequency domain suggests that the time series of aggregate real stock prices is nonstationary in levels but stationary in first differences. Applications of the time domain tests to simulated nonstationary time series that would be implied by rational bubbles indicates that the tests have power to detect relevant nonstationarity when it is present. Furthermore, application of the time-domain and frequency-domain tests to the time series of aggregate real dividends also indicates nonstationarity in levels but stationarity in first differences -- suggesting that market fundamentals can account for the stationarity properties of real stock prices. These findings imply that rational bubbles do not exist in stock prices. Accordingly,any evidence that stock price fluctuations do not accord with market fundamentals (asspecified above) is attributable to misspecification of market fundamentals.
Handle: RePEc:nbr:nberwo:1779
Template-Type: ReDIF-Paper 1.0
Title: The Dynamic Interaction of Exchange Rates and Trade Flows
Author-Name: William H. Branson
Note: ITI IFM
Number: 1780
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1780
File-URL: http://www.nber.org/papers/w1780.pdf
File-Format: application/pdf
Publication-Status: published as Peeters, Theo, Peter Praet, and Paul Reding (eds.) International Trade and Exchange Rates in the Late Eighties. Amsterdam and Oxford: North-Holland; distributed in the U.S. and Canada by Elsevier Science, N.Y, 1985.
Abstract: During the fifteen years since 1970, the theory of exchange-rate determination has been completely transformed. In the late 1960s, the standard model of the foreign exchange market had supply and demand as stable functions of exports and imports, with the expection that a floating rate would move gradually with relative price changes. However,the period of floating rates that began in the early 1970s has revealed that exchange rates exhibit the volatility of financial market prices.This experience, coupled with development of theory, led first to the"monetary" approach to exchange rate determination and then to the "asset market" approach. The monetary approach to exchange rate determination had essentially one-way causation from money to exchange rates, sometimes via purchasing power parity. The broader asset market approach assumes two-way causation.The exchange rate, in the asset-market view, is proximately determined by financial-market equilibrium conditions. It, in turn, influences the trade balance and the current account. The latter, in its turn, is the rate of accumulation of national claims on foreigners, and this feeds back into financial market equilibrium. Thus the asset market approach contains a dynamic feedback mechanism in foreign assets and exchange rates. This approach is called here a "fundamentals" model of exchange rate dynamics. Recent work on rational expectations adds a layer of expectations to the model. It is assumed that following an unexpected disturbance the market can anticipate where the fundamentals will move the system, and move the exchange rate in anticipation of that fundamentals path. This paper integrates the traditional elasticities and absorption approaches into the general equilibrium fundamentals model, and then add the expectations layer. The model is used to interpret recent shifts in U.S. fiscal policy and portfolio preferences for the dollar.
Handle: RePEc:nbr:nberwo:1780
Template-Type: ReDIF-Paper 1.0
Title: The Second Best Theory of Differential Capital Taxation
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 1781
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1781
File-URL: http://www.nber.org/papers/w1781.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "The Second Best Theory of Differential Capital Taxation," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 256-67, January 1990
Abstract: An important proposition in the theory of efficient taxation is that, if capital income is taxed, all types of capital income should be taxed at the same rate. This conclusion has motivated extensive empirical analysis of the tax rates on different types of capital income. It has also been the basis for a variety of proposals to revise actual tax rules.The present paper emphasizes that the comventional view must be modified in the very common situation in which some capital tax rate is politically constrained to something other than its optimal value, e.g., the zero rates on the imputed income on owner-occupied housing. The formal analysis of the paper examines the case in which there are three types of capital income and one of the tax rates is arbitrarily constrained to be zero.Three general "rule of thumb" results emerge from the specific analysis: First, if the several types of capital can be regarded as independent in production, the optimal tax rates on the taxable types of capital income should depart from equality in the direction of an inverse elasticity rule. Second, in comparison to these rates, capital that is a complement to the untaxed capital should generally be taxed more heavily while capital that is a substitute for the untaxed capital should be taxed less heavily. Third, variations in the degree of complementarity or substitutability between the two types of capital should alter the two tax rates in a way that maintains a constant difference in the total taxes on each type of capital. Although these rule-of-thumb results help to modify the conventional equal-tax-rates rule in an appropriate way, the most important implication of the present analysis is that any departure from optimal taxation makes it very difficult to set other capital tax rates optimally.
Handle: RePEc:nbr:nberwo:1781
Template-Type: ReDIF-Paper 1.0
Title: The Crime Rate and the Condition of the Labor Market: A Vector Autoregressive Model
Author-Name: Tadashi Yamada
Note: LS
Number: 1782
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1782
File-URL: http://www.nber.org/papers/w1782.pdf
File-Format: application/pdf
Abstract: Few empirical studies of the economics of crime have doubted the deterrent effects of the legal sanctions on crime. Those studies, however, have not established a definitive understanding of the effects of labor market conditions on crime. In this paper, we examine the impact of labor market conditions, represented by either male civilian unemployment or labor force participation rates, on seven major categories of crime, using the quarterly crime-rate data for the United States. Based on an analysis of the reported crime rates for murder, forcible rape, robbery, aggravated assault, burglary, larceny-theft, and motor vehicle theft during the period from the first quarter of 1970 through the fourth quarter of 1983, we reject the null hypothesis that labor market conditions have no effects on the crime rate. Rather, we find that the male civilian unemployment rates, especially the rate for those twenty-five years old and over, are strongly and positively associated with most of the crime rates studied. The male civilian labor force participation rates are also found to be related to the crime rates considered here. Youth labor force participation rates for both whites and non-whites, sixteen to nineteen years old, are more strongly associated with the examined crime rates than are the labor force participation rates for males, twenty years old and over.
Handle: RePEc:nbr:nberwo:1782
Template-Type: ReDIF-Paper 1.0
Title: A Multinominal Logistic Approach to the Labor Force Behavior of JapaneseMarried Women
Author-Name: Tadashi Yamada
Author-Name: Tetsuji Yamada
Author-Name: Frank Chaloupka
Author-Person: pch236
Note: LS
Number: 1783
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1783
File-URL: http://www.nber.org/papers/w1783.pdf
File-Format: application/pdf
Publication-Status: published as Yamada, Tadashi, Tetsuji Yamada and Frank Chaloupka. "Estimating the Part-Time and Full-Time Work Behavior of Japanese Women with Aggregate Data," Journal of Human Resources, Vol. 22, No. 4, Fall 1987, pp. 574-583.
Abstract: Using a multanornial logistic approach, we analyze the inter-dependencies among the labor force participation decisions of married women an Japan. These decisions are working part-time,working full-time, being unemployed (in the labor market but unable to find work), and not participating. Our focus is on the interdependency between the decision to work part-time and the decision to work full-time. Our results indicate that married women working full-time view part-time work as a good substitute, but the reverse is not observed. We also obtain estimates of the own-wage elasticity for both forms of participation and find that part-time labor force particicipation of Japanese married women is substantially more elastic than that of their full-time counterparts. These findings reinforce the view that married women in Japan with loose ties to the labor market are quite responsive to changes in the returns to work.
Handle: RePEc:nbr:nberwo:1783
Template-Type: ReDIF-Paper 1.0
Title: Expected Fiscal Policy and the Recession of 1982
Author-Name: William H. Branson
Author-Name: Arminio Fraga
Author-Name: Robert A. Johnson
Author-Person: pjo146
Note: ITI IFM
Number: 1784
Creation-Date: 1985-12
Order-URL: http://www.nber.org/papers/w1784
File-URL: http://www.nber.org/papers/w1784.pdf
File-Format: application/pdf
Publication-Status: published as T. Peeters, et al, editors. International Trade and Exchange Rates in the Late Eighties. Amsterdam: North-Holland, 1985.
Publication-Status: published as in M.H. Preston and R.T. Quandt, editors. "Prices, Competition and Equilibrium: Essays in Honor of W.J. Baremal." Totowa, NJ: Barnes and Noble, 1986. pp. 109-126
Abstract: The Economic Recovery Tax Act of 1981 had one aspect that is unusually useful for economic analysis. It provided an example of a clear-cut announcement of future policy actions at specified dates.This provides an opportunity to apply recent advances in the analysis of expectations dynamics to data that have been generated in an environment that includes such announced and anticipated policy action. A three-stage future tax cut was announced in the Tax Bill in March 1981. In a Keynesian model with liquidity-constrained consumers or investors, or with uncertainity, this would normally be expected to provide a stimulus to the economy when the tax cuts actually appear. But the financial markets could look ahead to the stimulus and the shift in the high-employment deficit brought about by the tax cuts, and their implications for bond prices and interest rates. In this paper we argue that this happened during the first half of 1981. As market participants came to understand that the tax and budget actions of March 1981 implied a future shift of the high-employment -- now "structural" -- deficit by some 5 percent of GNP, they revised their expectations of future real interest rates upward. This caused a jump in real long-term rates then, in 1981. And, it also caused a sudden and unanticipated real appreciation of the dollar at the same time. The jump in real long-term interest rates and the dollar appreciation in the first half of 1981 were essential features of the recession that began in July 1981.This paper points out the possibility of a purely anticipatory recession. If the only policy action had been the fiscal announcement, and if goods markets are "Keynesian" but financial markets are forward-looking, the announcement can cause a recession, which will end when the actual fiscal action begins to stimulate the economy. In the actual context of 1981, a shift toward monetary tightness also contributed to the recession.
Handle: RePEc:nbr:nberwo:1784