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Template-Type: ReDIF-Paper 1.0
Title: The Relation Between Price and Marginal Cost in U.S. Industry
Author-Name: Robert E. Hall
Note: EFG PE
Number: 1785
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1785
File-URL: http://www.nber.org/papers/w1785.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 96, No. 5, pp. 921-947, (1988).
Abstract: An examination of data on labor input and the quantity of output reveals that most U.S. industries have marginal costs far below their prices. The corilusion rests on the empirical finding that cyclical variations in labor input are small compared to variations in output. In booms, firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs. The paper documents the disparity between price and marginal cost,where marginal cost is estimated from variations in cost from one year to the next. It considers a wide variety of explanations of the flndings that are consistent with competition, but none is found to be plausible.
Handle: RePEc:nbr:nberwo:1785
Template-Type: ReDIF-Paper 1.0
Title: The Allocation of Credit and Financial Collapse
Author-Name: N. Gregory Mankiw
Note: ME
Number: 1786
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1786
File-URL: http://www.nber.org/papers/w1786.pdf
File-Format: application/pdf
Publication-Status: published as Mankiw, N. Gregory."The Allocation of Credit and Financial Collapse," Quarterly Journal of Economics, Vol. 101, No. 3, (August 1986), pp. 455-470.
Abstract: This paper examines the allocation of credit in a market in which borrowers have greater information concerning their own riskiness than do lenders. It illustrates (1) the allocation of credit is inefficientand at times can be improved by government intervention, and (2) small changes in the exogenous risk-free interest rate can cause large (discontinuous) changes in the allocation of credit and the efficiency of the market equilibrium.These conclusions suggest a role for government as the lender of last resort.
Handle: RePEc:nbr:nberwo:1786
Template-Type: ReDIF-Paper 1.0
Title: Monopolistic Competition, Relative Prices and Output Adjustment in the Open Economy
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 1787
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1787
File-URL: http://www.nber.org/papers/w1787.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Vol. 8, pp. 5-28, (March 1989).
Abstract: The purpose of this paper is to explain price and output dynamics in an open economy characterized by a monopolistic 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 price and output effects of monetary and real shocks.
Handle: RePEc:nbr:nberwo:1787
Template-Type: ReDIF-Paper 1.0
Title: The Equity Premium and the Concentration of Aggregate Shocks
Author-Name: N. Gregory Mankiw
Note: EFG ME
Number: 1788
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1788
File-URL: http://www.nber.org/papers/w1788.pdf
File-Format: application/pdf
Publication-Status: published as Mankiw, N. Gregory. "The Equity Premium and the Concentration of Aggregate Shocks," Journal of Financial Economics, Vol. 17, (1986), pp. 211-219.
Abstract: This paper examines an economy in which aggregate shocks are not dispersed equally throughout the population. Instead, while these shocks affect all individuals ex ante, they are concentrated among a few ex post.The equity premium in general depends on the concentration of these aggregate shocks; it follows that one cannot estimate the degree of risk aversion from aggregate data alone. These findings suggest that the empirical usefulness of aggregation theorems for capital asset pricing models is limited.
Handle: RePEc:nbr:nberwo:1788
Template-Type: ReDIF-Paper 1.0
Title: Long-Term Behavior of Yield Curves
Author-Name: Charles R. Nelson
Author-Person: pne247
Author-Name: Andrew F. Siegel
Note: ME
Number: 1789
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1789
File-URL: http://www.nber.org/papers/w1789.pdf
File-Format: application/pdf
Publication-Status: published as Nelson, Charles R. and Andrew F. Seigel. "Long-Term Behavior of Yield Curves," Journal of Financial and Quantitative Analysis, Vol. 23, No. 1, March 1988, pp. 105-110.
Abstract: The flattening of yield curves at long-term maturities is proven to be approximately proportional to the reciprocal of the time to maturity under general conditions. This is a consequence of the persistence of earlier forward rates in the averaging process which produces yields from forward rates. This relationship suggests the use of a"reciprocal maturity yield curve" which significantly facilitates the interpretation of the behavior of long-term yields by linearizing them for display over a shorter interval. This is illustrated using a yield curve for U.S.Treasury bills.
Handle: RePEc:nbr:nberwo:1789
Template-Type: ReDIF-Paper 1.0
Title: U.S. Budget Deficits and the European Economies: Resolving the Political Economy Puzzle
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 1790
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1790
File-URL: http://www.nber.org/papers/w1790.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin "U.S. Budget Deficits and the European Economies: Resolving the Political Economy Puzzle." American Economic Review, Vol. 76, No. 2, (May 1986), pp. 342-346.
Publication-Status: published as "the Export Performance of U.S. and Swedish Multinationals" Review of Income and wealth, series 35, vol. 3, Sept. 1989.
Abstract: This paper, prepared for the annual meetings of the American Economic Association, discusses how the increases in the U.S. budget deficits since 1980 have affected the economies of Western Europe. The analysis emphasizes that U.S. deficits have not only affected these economies directly but have also induced them to adopt more restrictive monetary and fiscal policies than they would otherwise have chosen. This induced shift in domestic policies is the primary reason why European governments have pressed for a reduction in the U.S. budget deficits despite the favorable impact of those deficits on European trade surpluses.
Handle: RePEc:nbr:nberwo:1790
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Federal Tax Deductibility on State and Local Taxes and Spending
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Gilbert Metcalf
Note: PE
Number: 1791
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1791
File-URL: http://www.nber.org/papers/w1791.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin and Gilbert Metcalf. "The Effect of Federal Tas Deductibility on State and Local Taxes and Spending," Journal of Political Economy, Vol. 95, No. 4, pp. 710-736, August 1987.
Abstract: This paper examines the effect of federal deductibility of state and local taxes on the fiscal behavior of state and local governments. The primary finding is that deductibility affects the way that state-local governments finance their spending as well as the overall level of spending. More specifically, in states where federal deductibility implies a relatively low cost of using deductible personal taxes (including income,sales and property taxes), there is greater reliance on those taxes and less reliance on business taxes and other revenue sources.The effect of deductibility on the state-local financial mix implies that deductibility has a much lower cost to the federal government than has previously been assumed. Indeed, if deductibility causes a large enough shift of financing from business taxes to personal taxes, deductibility may actually raise federal tax receipts. The analysis also implies that deductibility is likely to be a more cost-effective way than direct grants for raising the general level of state-local government spending. The present study uses the individual tax return data in the NBER TAXSIM model to calculate federal tax prices for itemizers and other taxpayers in each state. The econometric analysis recognizes that the federal tax price is endogenous (because it reflects the state-local spending decisions) and therefore uses a consistent instrumental variable procedure. This use of instrumental variable estimation exacerbates the difficulty of making precise estimates from the data. The relatively large standard errors indicate the need for caution in interpreting the point estimates.
Handle: RePEc:nbr:nberwo:1791
Template-Type: ReDIF-Paper 1.0
Title: Supply Side Economics: Old Truths and New Claims
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 1792
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1792
File-URL: http://www.nber.org/papers/w1792.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Supply Side Economics: Old Truths and New Claims." American Economic Review, Vol. 76, No. 2, (May 1986), pp. 26-30.
Abstract: This paper, prepared for the annual meetings of the American Economic Association, examines the claims that were made at the beginning of the decade by the "new" supply-siders and contrasts their views with the traditional supply-side economics that has been a prominent part of economics since Adam Smith. The analysis gives particular attention to the pace of recovery and growth and to the revenue effects of the 1981 tax cut.
Handle: RePEc:nbr:nberwo:1792
Template-Type: ReDIF-Paper 1.0
Title: A Reformulation of the Economic Theory of Fertility
Author-Name: Gary S. Becker
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 1793
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1793
File-URL: http://www.nber.org/papers/w1793.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. CIII, No. 412, pp. 1-25,(February 1988).
Abstract: When parents are altruistic toward children, the choices of fertility and consumption come from the maximization of a dynastic utility function. The maximization conditions imply first, an arbitrage condition for consumption across generations, and second, the equation of the benefit from an extra child to the net cost of rearing that child. These conditions imply that fertility in open economies depends positively on the world interest rate, on the degree of altruism, and on the growth of child-survival probabilities; and negatively on the rate of technical progress and the growth rate of social security. The growth of consumption across generations depends on changes in the net cost of rearing children, but not on interest rates or tirne preference. Even when we include life-cycle elements, we conclude that the growth of aggregate consumption per capita depends in the long run on the growth of consumption across generations. Thereby we show that real interest rates and growth rates of consumption per capita would be unrelated in the long run.
Handle: RePEc:nbr:nberwo:1793
Template-Type: ReDIF-Paper 1.0
Title: Reputation in a Model of Monetary Policy with Incomplete Information
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 1794
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1794
File-URL: http://www.nber.org/papers/w1794.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J. "Reputation in a Model of Monetary Policy with Incomplete Information." Journal of Monetary Economics, Vol. 17, No. 1, (January 1986) , pp. 3-20.
Abstract: Previous models of rules versus discretion are extended to include uncertainty about the policymaker's "type." When people observe low inflation, they raise the possibility that the policymaker is committed to low inflation (type 1). This enhancement of reputation gives the uncommitted policymaker (type 2) an incentive to masquerade as the committed type. In the equilibrium the policymaker of type 1 delivers surprisingly low inflation -- with corresponding costs to the economy -- over an extended interval. The type 2 person mimics this outcome for awhile, but shift seventually to high inflation. This high inflation is surprising initially, but subsequently becomes anticipated.
Handle: RePEc:nbr:nberwo:1794
Template-Type: ReDIF-Paper 1.0
Title: Discontinuities in Pension Benefit Formulas and the Spot Model of the Labor Market: Implications for Financial Economists
Author-Name: James E. Pesando
Author-Person: ppe278
Note: ME
Number: 1795
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1795
File-URL: http://www.nber.org/papers/w1795.pdf
File-Format: application/pdf
Publication-Status: published as Pesando, James E. "Discontinuties in Pension Benefit Formulas and the Spot Model of the Labor Market: Implications for Financial Economists," Economic Inquiry, Vol. XXV, No. 2, April 1987, pp. 215-238.
Abstract: When analyzing tax and related issues, financial economists typically invoke the simplest and the most tractable model of the labor market. This is the spot model, in which the worker's cash wage plus accruing pension benefit must equal the value of the worker's marginal product in each and every period. This paper first identifies the discontinuities in a worker's cash wage that must occur under the spot model if the pension plan has typical"cliff" vesting and early retirement provisions. The paper then calculates the pension benefits actually accrued, at and around the dates of eligibility for these benefits, by members of five pension plans in Canada. Both exercises serve to discredit the spot model. The paper reviews the underfunding puzzle, the measurement of pension liabilities, and the recapture of surplus assets in overfunded plans in light of these findings.
Handle: RePEc:nbr:nberwo:1795
Template-Type: ReDIF-Paper 1.0
Title: Money in the Utility Function: An Empirical Implementation
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Note: EFG ME
Number: 1796
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1796
File-URL: http://www.nber.org/papers/w1796.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James M. and Julio J. Rotemberg."Money in the Utility Function: An Empirical Implementation," New Approaches to Monetary Economics, eds. W. Barnett and K. Singleton, Cambridge University Press, 1987. pp219-240
Publication-Status: published as New Approaches to Monetary Economics, edited by William A. Barnett and Kenneth J. Singelton, pp. 219-240 New York: Cambridge University Press, 1987.
Abstract: This paper studies household asset demands by allowing certain assets to contribute directly to utility. It estimates the parameters of an aggregate utility function which includes both consumption and liquidity services.These liquidity services depend on the level of various asset stocks. We apply these estimates to investigate the long- and short-run interest elasticities of demand for money, time deposits, and Treasury bills. We also examine the impact of open market operations on interest rates, and present new estimates of the welfare cost of inflation.
Handle: RePEc:nbr:nberwo:1796
Template-Type: ReDIF-Paper 1.0
Title: 1944, 1963 and 1985: Modiglianiesque Macro Models
Author-Name: Stanley Fischer
Note: EFG
Number: 1797
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1797
File-URL: http://www.nber.org/papers/w1797.pdf
File-Format: application/pdf
Publication-Status: published as in "Macroeconomics and Finance: Essays in Honor of Franco Modigliani", MIT Press, 1986, pp. 229-256.
Abstract: In 1944 Franco Modigliani published a famous article summarizing the Keynesian model; in 1963 he extended the 1944 framework. This paper,written for a conference in honor of Modigliani, asks how the earlier papers would be modified in the light of recent developments in macroeconomics. The attempt is not to summarize modern macroeconomics, but rather to describe the structure modern macroeconomists should have in mind in thinking about the way the economy and macroeconomic policy work. The paper argues that the basic structure of the 1963 model still stands, with modifications. The 1985 version is an extended Phillips-curve-augmented IS-LM model. The major modifications to the 1963 model are in the treatment of the Phillips curve and aggregate supply, in the analysis of expectations, and in the openness of the economy.
Handle: RePEc:nbr:nberwo:1797
Template-Type: ReDIF-Paper 1.0
Title: The Invariance of R&D to the Number of Firms in the Industry
Author-Name: Raaj Kumar Sah
Author-Person: psa736
Author-Name: Joseph E. Stiglitz
Note: PR
Number: 1798
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1798
File-URL: http://www.nber.org/papers/w1798.pdf
File-Format: application/pdf
Publication-Status: published as Sah, Raaj Kumar and Joseph E. Stiglitz. "The Invariance of Market Innovation to the Number of Firms," Rand Journal of Economics, Vol. 18, No. 1, Spring 1987, pp. 98-108.
Abstract: Thi spaper presents certain remarkably simple results concerning market's allocation to R&D and its comparison to socially efficient allocations. We posit that a firm can undertake more than one project aimed at the same innovation, and consider a product market characterized by Bertrand competition. Among the results we obtain is that the market R&D (that is, the number of projects undertaken, and the effort spent on different projects) is invariant to the number of firms. We also examine the effects of the number of firms on the gains from innovation to consumers, firms, and society, and show, in particular, that the market undertakes less R&D than is socially desirable.
Handle: RePEc:nbr:nberwo:1798
Template-Type: ReDIF-Paper 1.0
Title: The International Transmission and Effects of Fiscal Policies
Author-Name: Jacob A. Frenkel
Author-Name: Assaf Razin
Author-Person: pra388
Note: ITI IFM
Number: 1799
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1799
File-URL: http://www.nber.org/papers/w1799.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. and Assaf Razin. "The International Transmission and Effects of Fiscal Policies," American Economic Review, Vol. 76, no. 2, May 1986, pp. 330-335.
Publication-Status: published as Frenkel, Jacob A. and Assaf Razin. "Real Exchange Rates, Interest Rates, and Fiscal Policies," Economic Studies Quarterly, Vol. 37, No. 2, (June 1986), pp. 99-113.
Abstract: In recent years the world economy has been subject to large and unsyncronized changes in fiscal policies, high and volatile real rates of tnterest, large fluctuations in real exchange rates, and significant variations in private-sector spending. This paper reviews some of the key facts characterizing the effects of fiscal policies during the first half of the 1980s and provides a simple analytical framework suitable for the interpretation of these facts. The analytical framework builds on a two-country model of the world economy which is applied to the analysis of the transmission and effects of various changes in the time profile of taxes and of government spending. Generally, the predictions of the model concerning the relation among the intercountry patterns of consumption, long and short-term real rates of interest, real exchange rates and fiscal policies are consistent with the stylized facts.
Handle: RePEc:nbr:nberwo:1799
Template-Type: ReDIF-Paper 1.0
Title: Coordination of Monetary and Fiscal Policies in the OECD
Author-Name: Warwick J. McKibbin
Author-Person: pmc14
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 1800
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1800
File-URL: http://www.nber.org/papers/w1800.pdf
File-Format: application/pdf
Publication-Status: published as McKibbin, Warwick and Jeffrey D. Sachs "Coordination of Monetary and Fiscal Policies in the OECD," International Aspects of Fiscal Policies, ed. J. Frenkel, Chicago: UCP, 1988.
Abstract: Discontent with the functioning of the world monetary system has led to many proposals for international monetary reform. These proposals range from enhanced consultations under the current regime of floating exchange rates to a regime of fixed exchange rates, as proposed by Ronald McKinnon. In this paper we examine the implications of several alternative monetary arrangements for fiscal policy in the world economy. In particular we focus upon two issues. The first is the effects of alternative monetary arrangements on the international transmission of fiscal policy. The second is the implications of the alternative regimes for strategic aspects of fiscal policymaking.As is generally the case in the discussion of exchange regimes we find that the choice of the monetary system is crucially dependent upon the source and nature of the shocks hitting the world economy. In this paper we show that the monetary regime also has important implications for the transmission offiscal policy in the world economy and for the nature of the strategic games played by fiscal authorities. Rigid rules of the game, as under fixedexchange rates, do not necessarily eliminate the inefficient equilibriathat can occur when fiscal authorities behave non-cooperatively.
Handle: RePEc:nbr:nberwo:1800
Template-Type: ReDIF-Paper 1.0
Title: Sectorial Wages and the Real Exchange Rate
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Jacob A. Frenkel
Note: EFG ITI IFM
Number: 1801
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1801
File-URL: http://www.nber.org/papers/w1801.pdf
File-Format: application/pdf
Publication-Status: published as Aizenman, Joshua and Jacob A. Frenkel. "Sectorial Wages and the Real Exchange Rate," Journal of International Economics, Vol. 24, pp. 69-91, (1988).
Abstract: Consider a multi-sector economy subject to an exogenous demand shock that alters the equilibrium structure of relative prices. How should the structure of sectorial wages adjust in response to such a shock? This question is addressed in the context of a multi-sector model of an open-economy producing internationally tradable and non-tradable goods. In order to focus on intersectorial wage structure without abandoning the competitive neoclassical paradigm we assume that workers differ from each other in their absolute and relative skills. Such differences result in equilibrium wage differentials which are affected by the exogenous real shock. Cost of negotiations result in labor market contracts which set nominal wages in advance of the realization of the stochastic shocks. The analysis provides formulae for the optimal sectorial wage-indexation rules. The optimal rules alter both the absolute and the relative structure of sectorial nominal wages. We examine the dependence of the optimal wage adjustments on the degree of heterogeneity of the skill distribution and on the degree to which the economy is open to international trade; we also study the effects of various shocks and policies on the real exchange rate, real wages and the distribution of income.
Handle: RePEc:nbr:nberwo:1801
Template-Type: ReDIF-Paper 1.0
Title: Nutrition and the Decline in Mortality Since 1700: Some Additional Preliminary Findings
Author-Name: Robert W. Fogel
Note: DAE
Number: 1802
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1802
File-URL: http://www.nber.org/papers/w1802.pdf
File-Format: application/pdf
Abstract: This paper is an extensive revision and expansion of Working Paper No.1402. It centers on a new time series of life expectations in the U.S. since 1720, which has been constructed from the NBER/CPE pilot sample of genealogies. Native-born Americans achieved remarkably long life expectations toward the end ofthe eighteenth century but then experienced a 70-year decline. A new rise began late in the 1850s 'out it was not until 1930 that the Americans again achieved the level of life expectation that was attained c.1790. Second, time series on average adult stature of national populations in North America and Europe are used as indexes of nutritional status (not diet alone but diet net of prior claims). These series are shown to be highly correlated with the series on e10 and other measures of mortality. It is estimated that improvements in nutritional status may have accounted for as much as four-tenths of the secular decline in mortality rates, but nearly all of this effect was concentrated in the reduction of infant mortality. Additional results include an assessment of the effect of toxic substances on the mortality rates of the English peerage; an estimate of the distribution of shortfalls in English supplies of food between 1540 and 1871, which reveals that famines were due primarily to social misallocations of food rather than to large declines in supply; and adjustments of conventional estimates of U.S. per capita income for the increase in mortality, which reduce the rate of economic growth between1790 and 1860 by nearly 40 percent.
Handle: RePEc:nbr:nberwo:1802
Template-Type: ReDIF-Paper 1.0
Title: Tax Reform, Investment, and the Value of the Firm
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: James R. Hines Jr.
Author-Person: phi111
Note: PE
Number: 1803
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1803
File-URL: http://www.nber.org/papers/w1803.pdf
File-Format: application/pdf
Abstract: The taxation of corporate assets is well understood to influence investment and firm valuation. This paper explores the consequences of postwar U.S. tax changes in a dynamic model which incorporates costs of adjustment and investor expectations of future tax reforms and macroeconomic variability.When viewed in a dynamic context, the tax code can have very different incentives than those implied by the usual static analysis. Simulation results suggest that investment is sensitive to future tax changes and business-cycle movements. The paper also illustrates the implications of this analysis for the design of tax reforms.
Handle: RePEc:nbr:nberwo:1803
Template-Type: ReDIF-Paper 1.0
Title: Implications of the U.S. Net Capital Inflow
Author-Name: Benjamin M. Friedman
Note: ME
Number: 1804
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1804
File-URL: http://www.nber.org/papers/w1804.pdf
File-Format: application/pdf
Publication-Status: published as Hafer, R. W. (ed.) How Open is the U.S. Economy? Lexington, MA and Toronto: Heath, Lexington Books, 1986.
Publication-Status: published as Benjamin M. Friedman, 1986. "Implications of the U.S. Net Capital Inflow," Review, vol 68.
Abstract: The rapidly growing net inflow of capital from abroad, mirroring the extraordinary deterioration of the U.S. export-import balance, has played a major role in equilibrating overall saving and investment in the United States in the face of unprecedentedly large and persistent federal goverriment budget deficits during the 1980s. As a result of this capital inflow, the share of U.S. financial assets held by foreign investors is also growing rapidly. If the inflow continues, the increasing relative importance of foreign investors will in general change the equilibrium price and yield relationships determined in U.S. markets. In particular, because foreign investors, on average, hold far less of their portfolios in long-term debt instruments than do American investors, the increasing share of foreign ownership of U.S. financial assets is likely to raise the expected return premium on long-term debt, and hence to shift the composition of U.S. financial activity away from capital formation. Nevertheless, the foreign capital inflow -- and with it the U.S.export-import balance -- may change in response to a variety of possible influences, including U.S. fiscal and monetary policies. Empirical estimates based on reduced-form equations indicate that a tightening of U.S. fiscal policy would significantly stimulate U.S. capital formation, and would shrink the U.S. capital inflow (that is, improve the U.S. export-import balance) by even more. Analogous estimates indicate that an easing of U.S. money policy would also significantly stimulate capital formation and shrink the capital inflow, but with the relative magnitudes of the two effects approximately reversed.
Handle: RePEc:nbr:nberwo:1804
Template-Type: ReDIF-Paper 1.0
Title: Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis
Author-Name: John Y. Campbell
Author-Person: pca54
Note: EFG
Number: 1805
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1805
File-URL: http://www.nber.org/papers/w1805.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, John. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Vol. 55, No. 6 , pp. 1249-1273, (November 1987)
Abstract: The permanent income hypothesis implies that people save because they rationally expect their labor income to decline; they save "for a rainy day". It follows that saving should be at least as good a predictor of declines in labor income as any other forecast that can be constructed from publicly available information.The paper tests this hitherto ignored implication of the permanent income hypothesis, using quarterly aggregate data for the period 1953-84 in the U.S. A vector autoregression for saving and changes in labor income is used to generate an unrestricted forecast of declines in labor income. In the VAR, saving Granger causes labor income changes as one would expect if the PIH is true. The mean of the unrestricted forecast is far from the mean of saving, but the dynamics of the two series are quite similar.The paper presents both formal test statistics and an informal evaluation of the "fit" of the permanent income hypothesis. By contrast with most of the recent literature, the results here are valid when income is nonstationary.
Handle: RePEc:nbr:nberwo:1805
Template-Type: ReDIF-Paper 1.0
Title: Money Announcements, the Demand for Bank Reserves and the Behavior of the Federal Funds Rate Within the Statement Week
Author-Name: John Y. Campbell
Author-Person: pca54
Note: ME
Number: 1806
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1806
File-URL: http://www.nber.org/papers/w1806.pdf
File-Format: application/pdf
Publication-Status: published as From Journal of Money, Credit and Banking, Vol. 19, No. 1, pp. 56-67,(February 1987).
Abstract: The effect of money stock announcements on the Federal funds rate has been attributed informally to the information conveyed by the announcements about aggregate reserve demand. This "Aggregate Information Hypothesis" explains the effect without reference to Federal Reserve intervention in the funds market. In this paper I provide a formal model of the Aggregate Information Hypothesis under lagged reserve accounting.The model relies on imperfect information in the funds market, and on imperfect bank arbitrage of reserve demand between days of the week. Some stylized facts are presented about funds rate behavior in the period 1980-1983.
Handle: RePEc:nbr:nberwo:1806
Template-Type: ReDIF-Paper 1.0
Title: The Economic Performance of Survivors after Layoffs: A Plant-Level Study
Author-Name: Casey Ichniowski
Note: LS
Number: 1807
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1807
File-URL: http://www.nber.org/papers/w1807.pdf
File-Format: application/pdf
Abstract: This study tests for the empirical relationship between layoffs and the economic performance of workers who remain after the layoffs. Previous studies performed in laboratory settings have often found increases in the efficiency of workers after layoffs. This analysis is the first to test for this relationship using operating data from a set of similar establishments. Within the framework of a modified Cobb-Douglas production function, layoffs do not influence subsequent productivity in the establishments in this study's sample. It is also suggested that the seniority systems governing layoffs and the highlevels of capital intensity in these establishments may help explain the difference between the findings in the laboratory studies and those obtained in this analysis.
Handle: RePEc:nbr:nberwo:1807
Template-Type: ReDIF-Paper 1.0
Title: Public Sector Recognition Strikes: Illegal and Ill-Fated
Author-Name: Casey Ichniowski
Note: LS
Number: 1808
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1808
File-URL: http://www.nber.org/papers/w1808.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Research, vol. 9, no. 2, pp. 183-197, Spring 1988.
Abstract: This study investigates the relationship between strike activity by nonunion public employees and unionization. Examining the strike activity and unionization rates of some 600 nonunion municipal police departments from 1972 to 1978, this study finds that recognition strikes are concentrated where bargaining laws provide little or no protection of bargaining rights for municipal police. However, these strikes do not increase the unionization propensities of these police departments.
Handle: RePEc:nbr:nberwo:1808
Template-Type: ReDIF-Paper 1.0
Title: Public Sector Union Growth and Bargaining Laws: A Proportional Hazards Approach with Time-Varying Treatments
Author-Name: Casey Ichniowski
Note: LS
Number: 1809
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1809
File-URL: http://www.nber.org/papers/w1809.pdf
File-Format: application/pdf
Publication-Status: published as When Public Sector Workers Unionize. (eds)Richard Freeman and C. Ichniowski University of Chicago Press: 1988.
Publication-Status: published as Public Sector Union Growth and Bargaining Laws: A Proportional Hazards Approach with Time-Varying Treatments, Casey Ichniowski. in When Public Sector Workers Unionize, Freeman and Ichniowski. 1988
Abstract: This study uses a Cox proportional hazards model to estimate ther elationship between state-level collective bargaining policies and union growth in the public sector. The proportional hazards analysisis performed with data on approximately eight hundred municipal police departments. The timing of unionization in these departments clearly indicates that unionization rarely precedes the enactment of a statute. Where bargaining laws have not been enacted, formal collective bargaining between municipalities and their police is virtually nonexistant. Moreover, the proportional hazards analysis that controls for the effects of other state-level and municipal-level covariates indicates that the bargaining laws and policies are the most important determinant of unionization among police. Among different types of bargaining policies, "duty-to-bargain" provisions lead to higher unionization rates than do statutes that permit, but do not require, employers to bargain with police. However, after controlling for for the effects of other covariates, there appears to be no difference in the unionization rates between the states that have duty-to-bargain provisions along with an interest arbitration mechanism and those states that have duty-to-bargain provisions without such a dispute resolution mechanism.
Handle: RePEc:nbr:nberwo:1809
Template-Type: ReDIF-Paper 1.0
Title: Stopping Hyperinflations Past and Present
Author-Name: Rudiger Dornbusch
Author-Name: Stanley Fischer
Note: EFG ITI IFM
Number: 1810
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1810
File-URL: http://www.nber.org/papers/w1810.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger and Stanley Fischer. "Stopping Hyperinflations Past and Present," Review of World Economics (Weltwirtschaftliches Archiv), Vol. 122, no. 1, (March 1986), pp. 1-47.
Abstract: We examine four successful stabilizations from high inflation -- Germany in 1923,Austria in 1922, in Poland 1924-27, Italy 1947 --and the two ongoing attempted stabilization in Israel and Argentina, with the aim of identifying general lessons from those episodes. The key issues in a stabilization are the budget, the exchange rate, and money. Budget deficits were significantly reduced in each case , but were not in all cases completely removed. The exchange rate was pegged in each case , through in all but the Italian case, each stabilization was also preceded by at least one episode in which attempted stabilization through exchange rate pegging was unsuccessful. As pointed out by Sargent and others , money growth rates were high after each stabilization, suggesting that any stabilization that strictly controls the growth of money will produce serious recession. A common feature of stabilizations is a period of extremely high real interest rates.
Handle: RePEc:nbr:nberwo:1810
Template-Type: ReDIF-Paper 1.0
Title: Inflation and Wage Dispersion
Author-Name: Allan Drazen
Author-Person: pdr25
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 1811
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1811
File-URL: http://www.nber.org/papers/w1811.pdf
File-Format: application/pdf
Publication-Status: published as Drazen, Allan and Daniel S. Hamermesh. "Inflation and Wage Dispersion," Economic Letter, vol. 25 (1987), pp. 225-231
Abstract: A large body of empirical work has demonstrated that higher inflation, especially when it is unexpected, leads to greater dispersion in the distribution of price changes across subaggregates. A sparse and more recent literature suggests exactly the opposite effects on the distribution of wage changes. This study first reconciles these apparently opposite results using a model in which shocks to the economy can affect both wages and prices and the demand for indexing. If the positive effect of shocks on the demand for indexing is sufficiently large, the dispersion of changes in wages or prices will be reduced even though the shocks' direct effect is to increase this dispersion. Implicitly from the evidence, this offset is large enough in wage-setting, but not so large in price determination. Additional evidence on the relationship between inflation and the dispersion of wage changes is provided by empirical work for 14 Israeli manufacturing industries, 1956-82. The results suggest that in Israel, just as in the United States (on which previous work has been conducted) with its much less rapid and variable inflation, dispersion also decreased with unexpected price inflation.
Handle: RePEc:nbr:nberwo:1811
Template-Type: ReDIF-Paper 1.0
Title: The Response of Interest Rates to Money Announcements under Alternative Operating Prosedures and Reserve Requirement Systems
Author-Name: V. Vance Roley
Note: ME
Number: 1812
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1812
File-URL: http://www.nber.org/papers/w1812.pdf
File-Format: application/pdf
Publication-Status: published as Roley, V. Vance. "The Effects of Money Announcements Under Alternative Monetary Control Procedures, Vol. 19, No. 3, August 1987.
Abstract: The response of interest rates to money announcement surprises is examined both theoretically and empirically in this paper. In the theoretical models developed, not only changes in operating procedures, but also reserve requirement systems, are found to potentially affect the response. Moreover, under the current two-week contemporaneous reserve requirements (CRR) adopted in February 1984, the responses in the first and second weeks of the two-week reserve maintenance period may differ. The empirical results generally conform to the predictions of the theoretical models. The response of the Treasury bill yield to money announcement surprises changed significantly following changes in either operating procedures or reserve requirement systems in October 1979, October 1982, and February 1984.
Handle: RePEc:nbr:nberwo:1812
Template-Type: ReDIF-Paper 1.0
Title: The Rigidity of Prices
Author-Name: Dennis W. Carlton
Author-Person: pca14
Note: EFG
Number: 1813
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1813
File-URL: http://www.nber.org/papers/w1813.pdf
File-Format: application/pdf
Publication-Status: published as Carlton, Dennis W. "The Rigidity of Prices," American Economic Review,Vol . 76, No. 4, (September 1986), pp. 637-658.
Abstract: This paper presents evidence on the amount of price rigidity that exists in individual transaction prices. Using the Stigler-Kindahi data, I examine the behavior of individual buyers' prices for certain products used in manufacturing. My most important findings are: 1.The degree of price rigidity in many industries is significant. It is not unusual in some industries for prices to individual buyers to remain unchanged for several years. 2.Even for what appear to be homogeneous commodities, the correlation of price changes across buyers is very low. 3.There is no evidence that there is an asymmetry in price rigidity. In particular, prices are not rigid down-ward. 4.The fixed costs of changing price at least to some buyers seem trivial. There are plenty of instances where small price changes occur. 5.The level of industry concentration is strongly correlated with rigid prices. The more concentrated the industry, the longer is the average spell of price rigidity. 6.There appears to be a relationship between price rigidity, size of price change, and the length of time a buyer and seller deal with each other.I interpret the findings as evidence that it is erroneous to focus attention on price as the exclusive mechanism to allocate resources. Nonprice rationing is not a fiction, it is a reality of business and may be the efficient response to economic uncertainty.
Handle: RePEc:nbr:nberwo:1813
Template-Type: ReDIF-Paper 1.0
Title: Estimated Macroeconomic Effects of Deficit Targeting
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: EFG
Number: 1814
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1814
File-URL: http://www.nber.org/papers/w1814.pdf
File-Format: application/pdf
Abstract: Somemacroeconomic effects of deficit targeting are estimated in thispaper using my U.S. econometric model. The response of the economy to realand price shocks is examined in a number of cases. Each case corresponds toa particular assumption about fiscal policy and a particular assumptionabout monetary policy. Estimates are also presented of the size of thegovernment spending cuts that are needed to meet a given deficit goal underdifferent assumptions about monetary policy.
Handle: RePEc:nbr:nberwo:1814
Template-Type: ReDIF-Paper 1.0
Title: Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits and Market Value
Author-Name: Adam B. Jaffe
Author-Person: pja49
Note: PR
Number: 1815
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1815
File-URL: http://www.nber.org/papers/w1815.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vo. 76, no. 5, pp. 984-999, December 1986.
Abstract: This paper presents evidence that firms' patents, profits and market value are systematically related to the"technological position" of firms' research programs. Further, firms are seen to "move" in technology space in response to the pattern of contemporaneous profits at different positions. These movements tend to erode excess returns."Spillovers" of R&D are modelled by examining whether the R&D of neighboring firms in technology space has an observable impact on the firm's R&D success. Firms whose neighbors do much R&D produce more patents per dollar of their own R&D,with a positive interaction that gives high R&D firms the largest benefit from spillovers. In terms of profit and market value, however, their are both positive and negative effects of nearby firms' R&D. The net effect is positive for high R&D firms, but firms with R&D about one standard deviation below the mean are made worse off overall by the R&D of others.
Handle: RePEc:nbr:nberwo:1815
Template-Type: ReDIF-Paper 1.0
Title: Variation in Employment Growth in Canada: The Role of External, National, Regional and Industrial Factors
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: John C. Ham
Author-Person: pha1028
Note: EFG LS
Number: 1816
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1816
File-URL: http://www.nber.org/papers/w1816.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, vo. 8, no. 1, pp. s198-s236, January 1990.
Abstract: This paper presents a method for assessing the impact of external, national, and sectoral shocks on Canadian employment fluctuations at the national, industry, and provincial levels. Special attention is given to the contribution of sectoral shocks to aggregate employment fluctuations. Shocks which initially affect specific industries and provinces can induce aggregate fluctuations not only because national employment is the sum of employment in various sectors but also because of feedback across sectors.The analysis is based on an econometric model relating employment growh in each province and industry to the current and lagged change in U.S. output, the lags of employment growth at the national, industry, and provincial levels, a Canadian national shock, and shocks affecting specific industries, specific provinces, and specific province-industry pairs. The model is estimated using annual data on Canadian employment at the province-industry level.The results suggest that U.S. shocks are responsible for two-thirds of the steady-state variance in the growth of Canadian national employment, while the Canadian national shock accounts for approximately one quarter of this variance.Taken together, industry specific, province specific and province-industry spe-cific shocks account for about one-tenth of the variance of Canadian national employment growth. Although U.S. shocks are the dominant influence on aggregate employment growth in Canada, sectoral shocks account for about thirty percent of the variance in national employment due to Canadian sources. Estimates of the contribution of U.S., Canadian national, industry, and provincial shocks to the variance of employment in specific industries and provinces are also provided.
Handle: RePEc:nbr:nberwo:1816
Template-Type: ReDIF-Paper 1.0
Title: Fixed Price Versus Spot Price Contracts: A Study in Risk Allocation
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Note: EFG
Number: 1817
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1817
File-URL: http://www.nber.org/papers/w1817.pdf
File-Format: application/pdf
Publication-Status: published as Polinsky, A. Mitchell. "Fixed Price versus Spot Price Contracts: A Study in Risk Allocation," Journal of Law, Economics, and Organization, Vol. 3, No. 1, (Spring 1987), pp. 27-46.
Abstract: Thi spaper is concerned with the risk-allocation effects of alternative types of contracts used to set the price of a good tobe delivered in the future. Under a fixed price contract, the price is specified in advance. Under a spot price contract, the price is the price prevailing in the spot market at the time of delivery.These contract forms are examined in the context of a market in which sellers have uncertain production costs and buyers have uncertain valuations. The paper derives and interprets a general condition determining which contract form would be preferred when the seller and/or the buyer is risk averse. In addition, an example is provided in which a spot price contract with a floor price is superior both to a "pure" spot price contract and a fixed price contract.
Handle: RePEc:nbr:nberwo:1817
Template-Type: ReDIF-Paper 1.0
Title: A Time-Series Model of Housing Investment in the U.S.
Author-Name: Sherwin Rosen
Author-Name: Robert H. Topel
Author-Person: pto111
Note: EFG
Number: 1818
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1818
File-URL: http://www.nber.org/papers/w1818.pdf
File-Format: application/pdf
Publication-Status: published as Rosen, Sherwin and Robert H. Topel. "Housing Investment in the United States," from Journal of Political Economy, Vol. 96, No. 4, August 1988, pp. 71 8-740.
Abstract: A decentralized market theory of investment based on rising supply price is formulated and explained. Asset prices embody all available information in a competitive market and serve as "sufficient statistics" for future market conditions. Construction is determined myopically by marginal cost pricing: rising supply price constrains aggregate investment. Market dynamics imply that anticipated pulses in demand and interest rates lead to "bubbles" in prices, rentals and construction, because it pays to "build ahead of demand" in the presence of rising supply price. This model, similar to q-theory, assumes that long and short run elasticities of supply are identical. Short-run supply is less elastic than long-run supply when internal adjustment costs are superimposed on rising supply price. Then the current construction decision is no longer myopic and current price (or current q) is no longer sufficient for investment. Instead, builders must anticipate the future path of asset prices for current construction decisions. This enriched model is estimated under the hypothesis of rational expectations. The short-run elasticity is found to be 1.0 inquarterly data. The long-run elasticity is 3.0. The long-run is achieved within one year, indicating substantial built-in flexibility in the industry to accomodate great volatility in housing construction. Elastic supply helps account for the large fluctuations in output and employment observed in this industry. The data also show that prices alone do not clear the market. Other nonprice dimensions, including expected time-to-sale and overall transactions volume play independent roles which remain to be explained.
Handle: RePEc:nbr:nberwo:1818
Template-Type: ReDIF-Paper 1.0
Title: Job Duration, Seniority, and Earnings
Author-Name: Katharine G. Abraham
Author-Person: pab32
Author-Name: Henry S. Farber
Note: LS
Number: 1819
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1819
File-URL: http://www.nber.org/papers/w1819.pdf
File-Format: application/pdf
Publication-Status: published as Abraham, Katharine G. and Henry S. Farber. "Job Duration, Seniority, and Earnings," American Economic Review, Vol. 77, No. 3, (June 1987), pp. 278-29 7.
Abstract: The stylized fact that seniority and earnings in a cross-section are positively related, even after controlling for total labor market experience, has served as the basis for theoretical analyses of implicit labor contracts suggesting that workers post bonds in the form of deferred compensation in order to ensure their continued performance at an adequate level. An alternative interpretation is that good workers or workers in good jobs or good matches both earn more throughout the job and have longer job durations. Another stylized fact, that labor market experience and earnings in a cross section are positively related, has been taken as evidence of the importance of general human capital accumulation. An alternative interpretation of this evidence is that workers with more experience have had more time to find good jobs and/or good matches, resulting in higher earnings. Earnings functions are estimated including a measure of the completed duration of jobs in order to distinguish between the competing hypotheses regarding both seniority and experience. These yield three main results. First, workers in longer jobs earn significantly more in every year of the job than do workers in shorter jobs. Second, controlling for completed job duration eliminates most of the apparent return to seniority found in standard cross-section models. Thus, it appears that implicit contracts that provide for workers posting bonds through deferred wage payments are less important than has been believed. Third, for blue collar workers there is evidence thata part of the small observed (cross-sectional) return to labor market experience is due to sorting of workers into better jobs over time. There is no evidence of sorting for white collar workers.
Handle: RePEc:nbr:nberwo:1819
Template-Type: ReDIF-Paper 1.0
Title: Work Rules, Featherbedding, and Pareto-Optimal Union Management Bargaining
Author-Name: George E. Johnson
Note: LS
Number: 1820
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1820
File-URL: http://www.nber.org/papers/w1820.pdf
File-Format: application/pdf
Publication-Status: published as Johnson, George E, 1990. "Work Rules, Featherbedding, and Pareto-optimal Union-Management Bargaining," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages S237-59, January.
Abstract: The recent literature on the economic behavior of unions is dominated by a controversy over whether or not bargaining is Pareto optimal. If unions care about employment as well as wages, efficient bargains between unions and management "should" involve both these variables rather than only wages. In fact, explicit bargaining over employment levels is virtually unknown. There is, however, implicit bargaining over employment in the form of rules concerning the labor/capital ratio, job assignment, work speeds, and the like.This paper examines a model of "semi-efficient" bargaining in which the unionand the firm bargain over wages and various types of work rules. The results are compared to the outcomes that are associated with fully efficient bargaining (i.e, over wages and the level of employment) and bargaining solely over wages. Of particular interest is the case in which the union and the firm mutually consent to "feather bedding" agreements (requiring the hiring of workers with zero marginal product). The major conclusion of the paper is that the outcome of collective bargaining is different in the case of negotiations over work rules and wages than in both the cases of fully efficient bargaining and of bargaining solely over wages. In general, however, the outcome of this "partially efficient" bargaining process is closer to the outcome of bargaining solely over wages than to that associated with fully efficient bargaining over both wages and employment.
Handle: RePEc:nbr:nberwo:1820
Template-Type: ReDIF-Paper 1.0
Title: Explorations in Monetary History: A Survey of the Literature
Author-Name: Michael D. Bordo
Author-Person: pbo243
Note: EFG ME
Number: 1821
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1821
File-URL: http://www.nber.org/papers/w1821.pdf
File-Format: application/pdf
Publication-Status: published as Bordo, Michael. "Explorations in Monetary History: A Survey of the Literature," Explorations in Economic History, Vol. 23, No. 4, October 1986.
Abstract: Explorationsin Monetary History: A Survey of the Literature Monetary economists have long been interested in economic history asa laboratory for the testing of theory. This paper surveys recent work in monetary history within the context of the modern quantity theory of money and the new classical macroeconomics. Topics surveyed include: the development of historical monetary statistics and the determinants of money supply and money demand; historical uses of Granger-Sims causality tests of the relationships between money, prices, and output; historical studies of the secular behavior of velocity; the Great Depression; financial crises; historical evidence for the long-run and short-run neutrality of money; the domestic and international aspects of monetary standards. The paper concludes with an evaluation and an agenda for future research.
Handle: RePEc:nbr:nberwo:1821
Template-Type: ReDIF-Paper 1.0
Title: Generating a Sharp Disinflation: Israel 1985
Author-Name: Michael Bruno
Note: ITI IFM
Number: 1822
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1822
File-URL: http://www.nber.org/papers/w1822.pdf
File-Format: application/pdf
Publication-Status: published as Economic Policy, vol. 2, pp 379-402, 1986.
Abstract: On July 1 the Israeli government adopted a comprehensive emergency program for stabilization and recovery which has had dramatic consequences, at least in the very short-run. Within a few months inflation was down to 1-2 percent a month, foreign exchange reserves were rising rapidly andin spite of rather harsh contractionary fiscal and monetary policy measures average unemployment did not rise by more than 2 percentage points abovethe pre-July level.This paper deals with the background to the acute crisis of the Israeli economy and the conceptual underpinnings of the stabilization plan and with the first six months of its implementation. Apart from the more conventional fiscal and monetary policy measures, with partial deindexation, special emphasis is put on stabilization of the exchange rate, as a central nominal anchor for the price system, along with a wage policy package. Further budget restraint as well as wage moderation are considered the key for continued success of the stabilization effort. Both of these conditions will be tested in the new fiscal year starting April 1986.
Handle: RePEc:nbr:nberwo:1822
Template-Type: ReDIF-Paper 1.0
Title: The New Protectionism: A Response to Shifts in National Economic Power
Author-Name: Robert E. Baldwin
Note: ITI IFM
Number: 1823
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1823
File-URL: http://www.nber.org/papers/w1823.pdf
File-Format: application/pdf
Publication-Status: published as Baldwin, Robert E. "The New Protectionism: A Response to Shifts in National Economic Power," The New Protectionist Threat to World Welfare, ed. by Dominick Salvatore, North-Holland, 1986.
Abstract: The new protectionism threatening the international trading regime is related to significant structural changes in world production that have brought about a decline in the dominant economic position of the United States, a concomitant rise of the European Community and Japan to international economic prominence, and the emergence of a highly competitive group of newly industrializing countries. For the United States, the adjustment process has been difficult. Government and business leaders have gradually adopted the view that unfair foreign trading practices are the main cause of the country's competitive problems. By focussing on a more vigorous enforcement of US. statutes and GATT rules on fair trade, they are able to press for import protection and still maintain that they support the type of open trading regime the United States did so much to establish after World War II. While it is possible that particular protectionism will continue to spread and lead to an essentially closed international trading order, a more sanguine outcome, supported of the three major trading powers, seems possible. This is the emergence of a regime characterized by more trade-distorting government interventions than at the height of American hegemonic influence and by the existence of a significant group of industries receiving government assistance. However, while new industries will be added to this group, assistance will be withdrawn from others as they lose political influence so that on balance the list need not increase over time or, if it does, only very slowly. Such a regime will not yield the growth and efficiency benefits of an open trading system, but at least itwill not lead to the disastrous economic and political consequences brought about by the trading order that prevailed in the 1930's.
Handle: RePEc:nbr:nberwo:1823
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policies in Interdependent Economies with Stochastic Disturbances: A Strategic Approach
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Author-Name: Vasco d'Orey
Note: ITI IFM
Number: 1824
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1824
File-URL: http://www.nber.org/papers/w1824.pdf
File-Format: application/pdf
Publication-Status: published as Turnovsky, Stephen J., and Vasco d'Orey. "Monetary Policies in Interdependent Economies with Stochastic Disturbances: A Strategic Approach," Economic Journal, Vol. 96, No. 3, Sept. 1986, pp. 696-721.
Abstract: This paper analyzes strategic monetary policies using a standard two country stochastic macro model. Three noncooperative equilibria, namely Cournot, Stackelberg, and Consistent Conjectural Variations, are considered.The Pareto Optimal equilibrium, where aggregate joint costs are minimizedis also considered, and all strategic equilibria are compared to the perfectly fixed and flexible exchange rate regimes. The main conclusions obtained are:(i) Demand shocks are much less problematical than supply disturbances from the viewpoint of macro stabilization; (ii) the gains from cooperation are typically small; (iii) the strategic equilibria all show substantial margins of superiority over the fixed and flexible regimes.
Handle: RePEc:nbr:nberwo:1824
Template-Type: ReDIF-Paper 1.0
Title: Layoffs, Recall and the Duration of Unemployment
Author-Name: Lawrence F. Katz
Author-Person: pka266
Note: LS
Number: 1825
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1825
File-URL: http://www.nber.org/papers/w1825.pdf
File-Format: application/pdf
Publication-Status: published as (With Bruce D. Meyer) Published as "The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment", Journal of Public Economics, Vol. 41, no. 1 (1990): 45-72.
Abstract: This paper shows that the prospect of recall to previous employer is important for a significant number of the unemployed in the United States and that taking into account the possibility of recalls has important implications for the study of unemployment spell durations. A job search model that allows for recalls is shown to lead naturally to a competing risks specification of the distribution of layoff unemployment spell durations in which recall and the taking of a new job are alternate routes for leaving unemployment. A large sample of individual layoff unemployment spell observations derived from the Panel Study of Income Dynamics is analyzed. The common finding for samples containing individuals with nonnegligible recall prospects of an escape rate from unemployment that declines with spell duration is shown to almost entirely result from a declining recall rate. The apparent declining recall rate may be indicative of important uncontrolled heterogeneity rather than true negative duration dependence. Strong positive duration dependence in the new job finding rate is uncovered for UI recipients. Factors raising the likelihood and value of recall appear to depress the new job finding rate. Substantial differences in the distribution of unemployment spell durations are found for UI recipients and nonrecipients. Large positive jumps in both the recall rate and new job finding rate are apparent around the point of UI benefits exhaustion for UI recipients. The results indicate that the potential duration of UI benefits plays an important role in the timing of recalls and of new job acceptances.
Handle: RePEc:nbr:nberwo:1825
Template-Type: ReDIF-Paper 1.0
Title: Savings and Bequests
Author-Name: Michael D. Hurd
Author-Person: phu137
Note: AG
Number: 1826
Creation-Date: 1986-01
Order-URL: http://www.nber.org/papers/w1826
File-URL: http://www.nber.org/papers/w1826.pdf
File-Format: application/pdf
Publication-Status: published as NOTE: WP1826 is also the basis for reprint 905 (08/01/87), "Saving of the Elderly and Desired Bequests." From The American Economic Review, Vol. 77, No. 3, pp. 298-312, (June 1987).
Publication-Status: published as "Mortality Risk and Bequests." From Econometrica, Vol. 57, No. 4, pp. 779- 813, (July 1989).
Abstract: Empirical studies have indicated that the elderly seem to accumulate wealth after retirement, and that the desire to leave bequests is an important determinent of saving behavior, both kinds of results have cast doubt on the validity of the life cycle hypothesis of consumption. In the first part of this paper, a model of bequests is specified, and the implications for consumption and wealth trajectories are derived. The main result is that, even with a bequest motive, consumption generally decreases with age after retirement, and that wealth will also decrease for all but wealthy households. In the empirical part of the paper, wealth changes of retired households are reported over 10 years of panel data. Contrary to many results from cross-section data, the elderly do dissave: over 10 years the wealth of the elderly in the sample decreases by about 27 real. A test for a bequest motive is proposed. There is no evidence whatsoever for abequest motive.
Handle: RePEc:nbr:nberwo:1826
Template-Type: ReDIF-Paper 1.0
Title: The Contribution of Intergenerational Transfers to Total Wealth: A Reply
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE AG
Number: 1827
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1827
File-URL: http://www.nber.org/papers/w1827.pdf
File-Format: application/pdf
Publication-Status: published as Kotlikoff, Laurence J. and Lawrence H. Summers. "The Contribution of Intergenerational Transfers to Total Wealth": A Reply," Modelling the Accumulation and Distribution of Wealth, eds. D.Kessler and A. Masson, Oxford Press, 1987.
Abstract: This paper responds to Franco Modigliani's recent critique of our 1981 paper on the importance of intergenerational transfers for U.S. savings. Modigliani's paper is the latest salvo in a long running debate over the importance of intergenerational transfers in explaining savings behavior. While Modigliani corrects an algebraic error of minor consequences in our earlier paper, its correction does not, in our view, call into question the fundamental conclusion that life cycle considerations can account for only a small part of aggregate capital accumulation. Inevitably, it is possible to challenge aspects of any complex empirical calculation. Modigliani's attacks seem to us incorrect in most cases and generally fail to address our primary method of determining the importance of intergenerational transfers. Many considerations at least as important as those raised by Modigilani suggest that our method produces an overestimate of the importance of life cycle wealth.
Handle: RePEc:nbr:nberwo:1827
Template-Type: ReDIF-Paper 1.0
Title: The Term Structure of Interest Rates: Evidence and Theory
Author-Name: Angelo Melino
Author-Person: pme69
Note: ME
Number: 1828
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1828
File-URL: http://www.nber.org/papers/w1828.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Surveys, vol 2, no. 4, pp 335-366. (1988)
Abstract: The term structure of interest rates is an old topic. Over the years, both the hypotheses debated and the research techniques used have changed considerably. Two fairly recent developments which distinguish current research are the widespread adoption of rational expectations and the integration of the term structure with the general theory of asset pricing. This survey reviews previous work from this perspective. The main objective is to catalog available evidence about term premia and to interpret this evidence in light of alternative models of term premia determination.
Handle: RePEc:nbr:nberwo:1828
Template-Type: ReDIF-Paper 1.0
Title: The "Youth Problem": Age or Generational Crowding?
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 1829
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1829
File-URL: http://www.nber.org/papers/w1829.pdf
File-Format: application/pdf
Publication-Status: published as "The Labour-Market Consequences of Generational Crowding." From European Journal of Population, Vol. 3, pp. 131-176, (1987).
Abstract: This paper attempts to distinguish between two alternative views of the labor market problems faced by young workers in a number of industrialized countries in the 1970s and early 1980s. The first view is that the low relative earnings and high unemployment rates experienced by these workers were largely "age" related. Although this view carries the implication that the problems will disappear for recent youth cohorts as they grow older, it also implies that the problems will be "handed over" to successive waves of youth cohorts as they enter the labor market. The second view is that the labor market problems of recent youth cohorts are a consequence of their large size. This view has very different implications since generational crowding can permanently or temporarily depress the economic position of large cohorts but need not have an adverse effect on later waves of smaller youth cohorts. On the basis of a multicountry empirical analysis of patterns ofcohort size, earnings, unemployment, and the distribution of young workers across industries, we have four main sets of findings to report. First, the baby-boom was not uniformly experienced across OECD economies - in terms of either its timing or magnitude. While some countries, such as Canada, the U.S., and Belgium had large increases in the youth share ofthe population from 1965 to 1980, others, notably Japan and Switzerland, had large decreases. Second, our empirical results indicate that large cohort size tends to have a negative effect on the "expected relative earnings" of the cohort, where expected relative earnings is defined as the product of the earnings and the employment-to-labor force ratio of a young cohort relative to the same product for an older cohort. There is, moreover, a marked trade-off betweenthe relative earnings effect and the relative employment effect with large cohort sizes reducing relative earnings in some countries and reducing reiative employment in others. Third, at least for the U.S., the relatively low wages and high unemployment of the "unlucky cohorts" tend to converge to the patterns that would have resulted had the cohorts been more "normal" in size, with the convergence occurring within a decade or so. Fourth, our results show that baby-boom cohorts were absorbed inthe U.S. and other OECD economies quite evenly across a wide range of industries. This finding contradicts the popular belief that large youth cohorts were absorbed primarily through expansion of those industries that have been traditionally youth-intensive.
Handle: RePEc:nbr:nberwo:1829
Template-Type: ReDIF-Paper 1.0
Title: High Unemployment in Europe: Diagnosis and Policy Implications
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 1830
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1830
File-URL: http://www.nber.org/papers/w1830.pdf
File-Format: application/pdf
Publication-Status: published as Unemployment in Europe, C-H Siven ed, September 1985, SAF, Stockholm, SWEDE N
Abstract: Econometric evidence suggests that the non-accelerating inflation rate of unemployment (the NAIRU) has risen sharply in Europe in the past fifteen years. In the first section of this paper, I review the recent proliferation of supply-side models that say interesting things about why the NAIRU hasincreased so substantially in Europe. In the second section of the paper, I employ a simple example to show how aggregate demand should optimally be managed in response to transitory and permanent supply shocks, especially those shocks that cause a persistent rise in the NAIRU. Also, I discuss some policy implications of the increasingly popular "hysteresis hypothesis, that the NAIRU itself is influenced by the time path of actual unemployment.
Handle: RePEc:nbr:nberwo:1830
Template-Type: ReDIF-Paper 1.0
Title: Intertemporal Labor Supply and Long Term Employment Contracts
Author-Name: John M. Abowd
Author-Person: pab175
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 1831
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1831
File-URL: http://www.nber.org/papers/w1831.pdf
File-Format: application/pdf
Publication-Status: published as Abowd, John and David Card. "Intertemporal Labor Supply and Long Term Employment Contracts," American Economic Review, Vol. 77, No. March 1987, pp. 50-68.
Abstract: In this paper we compare the implications of a symmetric information contracting model and a dynamic labor supply model for changes in individual earnings and hours over time. The critical distinction between these models is whether earnings represent optimal consumption or payment for current labor services. We develop a simple test between labor supply and contracting models based on the relative variability of earnings and hours with respect to changes in productivity. If earnings represent consumption then changes in productivity generate smaller changes in earnings than hours. The opposite is true in the labor supply model. We apply our test to longitudinal data on male household heads fran the Panel Study of Income Dynamics and the National Longitudinal Survey of Older Men, focusing on individuals who do not change employers during the survey period. Neither model fits the data well. In both surveys, however, the contrihition of changes in productivity to changes in earnings is greater than the contribution to changes in hours. The data are more consistent with a labor supply interpretation, although the estimated labor supply elasticities suggest that changes in hours occur at fixed wage rates.
Handle: RePEc:nbr:nberwo:1831
Template-Type: ReDIF-Paper 1.0
Title: On the Covariance Structure of Earnings and Hours Changes
Author-Name: John M. Abowd
Author-Person: pab175
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 1832
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1832
File-URL: http://www.nber.org/papers/w1832.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, vol.57, no.2, pp 411-446, March 1989.
Abstract: This paper presents an empirical analysis of changes in individual earnings and hours over time. Using longitudinal data from three panel surveys,we catalogue the main features of the covariance structure of changes in earnings and hours. We then present an interpretation of these features in terms of both a life-cycle labor supply model and a fixed-wage labor contract model. Our major findings are:(1) there is a remarkable similarity in the covariance structure of earnings and hours changes across the three surveys; and (2) apart from simple measurement error, the major component of variance in earnings and hours affects earnings and hours equi-proportionately.
Handle: RePEc:nbr:nberwo:1832
Template-Type: ReDIF-Paper 1.0
Title: Dividend Innovations and Stock Price Volatility
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: EFG
Number: 1833
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1833
File-URL: http://www.nber.org/papers/w1833.pdf
File-Format: application/pdf
Publication-Status: published as "Dividend Innovations and Stock Price Volatility." Econometrica, Vol. 56, No. 1, pp. 37-61, (January 1988).
Abstract: This paper establishes an inequality that may be used to test the null hypothesis that a stock price equals the expected present discounted value of its dividend stream, with a constant discount rate. The inequality states that if this hypothesis is true, the variance of the innovation in the stock price is bounded above by a certain function of the variance in the innovation in the dividend. The bound is valid even if prices and dividends are nonstationary.The inequality is used to test the null hypothesis, for some long term annual U.S. stock price data. The null is decisively rejected, with the stock price innovation variance exceeding its theoretical upper bound by a factor of as much as twenty. The rejection is highly significant statistically. Regression diagnostics and some informal analysis suggest that the results are more consistent with there being speculative bubbles in the U.S. stock market than with a failure of the rational expectations or constant discount rate hypothesis.
Handle: RePEc:nbr:nberwo:1833
Template-Type: ReDIF-Paper 1.0
Title: The Welfare Implications of Costly Litigation in the Theory of Liability
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Author-Name: Daniel L. Rubinfeld
Note: LE
Number: 1834
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1834
File-URL: http://www.nber.org/papers/w1834.pdf
File-Format: application/pdf
Publication-Status: published as Polinsky, A. Mitchell and Daniel L. Rubinfeld. "The Welfare Implications of Costly Litigation for the Level of Liability,". From The Journal of Legal Studies, Vol. XVII, No. 1, pp. 151-164, (January 1988).
Abstract: One of the principal results in the economic theory of liability is that, assuming litigation is costless, the rule of strict liability with compensatory damages leads the injurer to choose the socially appropriate level of care. This paper reexamines this result when litigation is costly. It is shown that strict liability with compensatory damages generally leads to a socially inappropriate level of care and to excessive litigation costs. Social welfare can be increased by adjusting compensatory damages upward or downward, with the desired direction depending on the effect of changes in the level of liability on the injurer's decision to take care and on the victim's decision to bring suit.
Handle: RePEc:nbr:nberwo:1834
Template-Type: ReDIF-Paper 1.0
Title: Targeting Nominal Income: A Note
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: EFG
Number: 1835
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1835
File-URL: http://www.nber.org/papers/w1835.pdf
File-Format: application/pdf
Publication-Status: published as West, Kenneth D. Economic Journal, Vol. 96, December 1986, pp. 1077-1083.
Abstract: This paper compares nominal income and monetary targets in a standard aggregate demand - aggregate supply framework. If the desirability of policies is measured by their effect on the unconditional variance of output, nominal income targeting is preferable if and only if the aggregate elasticity of demand for real balances is greater than one. This is precisely the opposite of the condition that in Bean (1984) is sufficient to make nominal income targeting preferable.This points out the importance of specification of supply and of objective function in work on nominal income targeting.
Handle: RePEc:nbr:nberwo:1835
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Responses by Developing Countries to Changes in External Economic Conditions
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ITI IFM
Number: 1836
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1836
File-URL: http://www.nber.org/papers/w1836.pdf
File-Format: application/pdf
Abstract: The paper presents a non-technical survey of some of the issues involved in the design of stabilization policy 10 developng countries with special emphasis on policy responses to external shocks. First, the six imost imortant external economic parameters of developing countries are reviewed; I) the terms of trade, 2) the growth of world markets, 3) the cost and availability of private external finance, 4) the cost and availability of official and other concessional finance, including aid, 5) the world rate of inflation and 6) the exchange rates between the currencies of the major industrial countries. The paper then reviews the macroeconomic policy arsenal and the demand and supply effects of the various policy instruments (monetarv and credit poiicy, the entire array ot fiscal instruments, exchange rate policy, the use of exchange and capital controls and incomes policy). Finally, there is a discussion of stabilization responses to four esternal shocks: a deterioration in the terms of trade, a slowdown in the rate of qrowth of export demand, an increase in the interest rate at which developing countries borrow abroad and an increase in the external rate of inflation. The prevalence of repressed financial markets and credit rationing makes effective demand and effectitie supply responses to monetery fiscal and exchange rate policy quite difterent from what they are in most of the industrial world.
Handle: RePEc:nbr:nberwo:1836
Template-Type: ReDIF-Paper 1.0
Title: Population Growth, Labor Supply, and Employment in Developing Countries
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 1837
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1837
File-URL: http://www.nber.org/papers/w1837.pdf
File-Format: application/pdf
Publication-Status: published as Bloom, David E. and Richard B. Freeman. "The Effects of Rapid Population Growth on Labor Supply and Employment in Developing Countries," Population and Development Review, September 1986, pp. 381-414.
Abstract: The economies of the less developed countries are about to face perhaps the greatest challenge in their histories: generating a sufficient number of jobs at reasonable wages to absorb their rapidly growing populations into productive employment. In terms of absolute magnitude, this challenge has no precedent in human history. In some respects, this challenge is also unprecedented in terms of its nature, given, on the one hand, the limited availability of natural resources in many countries and, on the other hand,the widespread availability of advanced technology.This paper examines the nature and magnitude of the principal effects of population growth on labor supply and employment in the developing economies of the world. On the supply side of labor markets, we discuss key features of the interrelations between population growth and the labor force. These include the lags between population growth and labor force participation; the independent effects on labor supply of accelerated population growth due to changes in fertility, mortality, and migration; patterns and trends in labor force participation rates; and gender differences in labor supply behavior. On the demand side, we describe and analyze the nature of labor markets in developing economies and attempt to identify the key factors that condition their labor absorption capacity. Descriptive statistics on the characteristics of developing country labor markets and on the relationships between population growth, labor supply, employment shifts, and growth of output per worker are presented and discussed.The key result of our analysis is that, despite the unprecedented magnitude of population growth and the existence of imperfections in labor markets, developing economies tended to shift between 1960 and 1980, from low-productivity agriculture to the higher productivity service and industrial sectors and, albeit with some exceptions, to raise real income per capita. With respect to their prospects for the remainder of this century, we also conclude that Malthusian disasters will not necessarily be the result of forecasted population growth, provided the developing economies can generate human and physical capital investments of comparable relative magnitudes to the past two decades. However, on the basis of past history, the middle-income developing countries are likely to perform better in this respect than the low-income countries, some of whom may need considerable help if they are to absorb increased population while shifting labor to more productive sectors and raising output per worker.
Handle: RePEc:nbr:nberwo:1837
Template-Type: ReDIF-Paper 1.0
Title: Elections and Macroeconomic Policy Cycles
Author-Name: Kenneth Rogoff
Author-Person: pro164
Author-Name: Anne Sibert
Author-Person: psi80
Note: EFG
Number: 1838
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1838
File-URL: http://www.nber.org/papers/w1838.pdf
File-Format: application/pdf
Publication-Status: published as Rogoff, Kenneth and Anne Sibert. "Elections and Macroeconomic Policy Cycles." From Review of Economic Studies, Vol. LV (55), No. 181, pp. 1-16, January 1988.
Abstract: There is an extensive empirical literature on political business cycles, but its theoretical foundations are grounded in pre-rational expectations macroeconomic theory. Here we show that electoral cycles in taxes, government spending and money growth can be modeled as an equilibrium signaling process. The cycleis driven by temporary information asymmetries which can arise if, for example,the government has more current information on its performance in providing for national defense. Incumbents cheat least when their private informationis either extremely favorable or extremely unfavorable. An exogenous increase in the incumbent partyts popularity does not necessarily imply a damped policy cycle.
Handle: RePEc:nbr:nberwo:1838
Template-Type: ReDIF-Paper 1.0
Title: Plant Closings, Labor Demand and the Value of the Firm
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 1839
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1839
File-URL: http://www.nber.org/papers/w1839.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. LXX, No. 4, (November 1988), pp. 580-586.
Abstract: This study postulates an internal labor market in which workers accumulate firm-specific human capital that raises the value of the firm and insulates it to some extent from the vagaries of product demand that might result in its closing. Negative product-market shocks reduce wage growth and increase the probability of the firm closing. The model also predicts a U-shaped relation between the probability of the plant closing and the length of a worker's tenure, a proxy for firm-specific human investment. PSID data for 1977 through 1981 are used to produce weighted-probit estimates of the parameters of an equation describing the probability of displacement. The results support most of the predictions of the model, but similarly specified equations describing the probability of permanent layoff indicate that a theory of plant closings must differ from that of layoffs. The parameter estimates are used to infer an analogue to the firm's elasticity of demand for labor and to deduce the wage reduction necessary to avoid an increase in the probability of a plant closing when a negative demand shock occurs.
Handle: RePEc:nbr:nberwo:1839
Template-Type: ReDIF-Paper 1.0
Title: Why Have Unemployment Rates in Canada and the U.S. Diverged?
Author-Name: Orley Ashenfelter
Author-Person: pas9
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 1840
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1840
File-URL: http://www.nber.org/papers/w1840.pdf
File-Format: application/pdf
Publication-Status: published as Ashenfelter, Orley and David Card. "Why Have Unemplo yment Rates in Canadaand the U.S. Diverged?" Economia, Vol. 53, No. 210 (Supplement), S171-S195, July 1986.
Abstract: Throughout the post-war period, U.S. and Canadian unemployent rates moved in tandem, but this historical link apparently ended in 1982. During the past three years, Canadian unemployment rates have been some three percentage points higher than their U.S. analogues, and this gap shows no sign of diminishing. This paper is an empirical evaluation of a variety of explanations for this new unemployment gap. We first show that the demographic and industrial composition of the two countries is remarkably similar, so that no simple mechanical hypothesis explain the basic puzzle. It is also evident that the increase in Canadian unemployment relative to U.S. unemployment can not be fully attributed to output movements. We find that the gap between actual and predicted Canadian output, based on U.S. output, has fallen dramatically since 1982 while the unemployment gap has widened. We also find that unemployment in Canada was 2 to 3 percentage points higher in 1983 and 1984 than predicted by Canadian output. We have investigated a variety of hypotheses to explain the slow growth of employment in Canada after 1982. These hypotheses attribute the slow growth of employment to rigidities in the labor market that raise employers' costs and restrict the flow of workers between sectors. The evidence does not support the notion that the growth in relative unemployment in Canada is due to differences in the regulation of the labor market in the two countries. Minimum wage laws and unemployment benefits are fairly similar in Canada and the U.S., and neither has changed relative to the other in the last decade. Unionization rates have increased in Canada relative to US. since 1970. Most of this divergence occured before 1980, however, and does not seem to have created an unemployment gap prior to 1980. Finally,the hypothesis that differential real wage rates are a major determinant of relative employment in the U.S. and Canada is soundly rejected by the data. Real wage rates have been essentially uncorrelated with employment movements within each country and between the two countries.
Handle: RePEc:nbr:nberwo:1840
Template-Type: ReDIF-Paper 1.0
Title: Empirical Models of Arbitrator Behavior Under Conventional Arbitration
Author-Name: David E. Bloom
Author-Person: pbl79
Note: LS
Number: 1841
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1841
File-URL: http://www.nber.org/papers/w1841.pdf
File-Format: application/pdf
Publication-Status: published as Bloom, David E. "Empirical Models of Arbitrator Behavior Under Conventional Arbitration," Review of Economics and Statistics, 1986.
Abstract: This study analyzes a new set of data on the decisions of conventional arbitrators. The main goal is to draw inferences about the extent to which conventional arbitration decisions are fashioned as mechanical compromises of the parties' final offers, without reference to the exogenous facts involved, in different disputes. The results of the analysis are remarkably clear : conventional arbitrators tend to split-the-difference between the parties' final offers with virtually no evidence of systematic reference to the facts of the cases. However, since there is a substantial amount of unexplained variance in the arbitration decisions, this evidence of mechanical compromise behavior should be viewed as characterizing the overall operation of conventional arbitration mechanisms and not the behavior of individual arbitrators in any particular case. Indeed, the results are consistent with the view that individual arbitrators pay close attention to the facts of the cases, but that there is considerable variation in the structure of different arbitrators' preference functions.
Handle: RePEc:nbr:nberwo:1841
Template-Type: ReDIF-Paper 1.0
Title: Alternative Explanations of the Money-Income Correlation
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Note: EFG ME
Number: 1842
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1842
File-URL: http://www.nber.org/papers/w1842.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
Publication-Status: published as Bernanke, Ben S. "Alternative Explanations of the Money-Income Correlation," Real Business Cycles, Real Exchange Rates, and Actual Policies, Carnegie- Rochester Conference Series on Public Policy,Vol. 25, Autumn 1986, pp. 49-9 9. eds. Karl Brunner and Allan Meltzer. Amsterdam: North-Holland.
Abstract: Standard explanations of the bivariate correlation of money and income attribute this correlation to an inability of agents to discriminate in the short run between real and nominal sources of price shocks. This paper is an empirical comparison of the standard explanation with two alternatives: 1) the"credit view", which focuses on financial market imperfections rather than real-nominal confusion; and 2) the real business cycle approach, which argues that the money-income correlation reflects a passive response of money to income. The methodology, which is a variant of the Sims VAR approach, follows Blanchard and Watson (1984) in using an estimated, explicitly structural model to orthogonalize the VAR residuals. (This variant methodology, I argue, is the more appropriate for structural hypothesis testing.) The results suggest that the standard explanations of the money-income relation are largely, but perhaps not completely, displaced by the alternatives.
Handle: RePEc:nbr:nberwo:1842
Template-Type: ReDIF-Paper 1.0
Title: Content Protection and Oligopolistic Interactions
Author-Name: Kala Krishna
Author-Person: pkr26
Author-Name: Motoshige Itoh
Note: ITI IFM
Number: 1843
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1843
File-URL: http://www.nber.org/papers/w1843.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. LV, pp. 107-125, January 1988.
Abstract: In oligopolistic situations content protection can have unexpected effects as it changes the nature of interactions between input suppliers. With a duoply, it does so in a manner that makes the foreign firm wish to match price increases and decreases of the domestic firm. Domestic input suppliers can therefore lose from such policies, even when set at free trade levels. The relation between input demands, the form of protection, and the degree of substitution between inputs is shown to define the effects of content protection and to provide the basis for understanding who might lobby for protection in different environments.
Handle: RePEc:nbr:nberwo:1843
Template-Type: ReDIF-Paper 1.0
Title: Borrowing to Defend the Exchange Rate and the Timing and Magnitude of Speculative Attacks
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ITI IFM
Number: 1844
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1844
File-URL: http://www.nber.org/papers/w1844.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. "Borrowing to Defend the Exchange Rate and the Timing and Magnitude of Speculative Attacks," Journal of International Economics, Vol . 23, No. 1/2, August 1987.
Abstract: The paper extends the recent literature on collapsing managed exchange rate regimes by allowing explicitly for the qovernment budget constraint and the interest cost of servicing the public debt. The policy experivent that is analysed is the decision by a government to replenish its stock of foreign exchange reserve through a once-off open market sale of bonds. Without a fundanental fiscal correction (i.e. a decision to reduce the primary (non-interest) deficit by an amount equal to the increase in the interest cost of servicing the debt) the conseqinces are as follows. In a deterministic model the timing of the speculative attack is brought forward (delayed) if the borrowing takes place long before (close to) the date at which without borrowing the collapse would have occurred. The magnitude of the attack (the final loss of reserves) always increases because of borrowing. In a stochastic model, borrowing reduces the probability of an early collapse and increases the likelihood of a later collapse. Under mild conditions, the expected length of the time interval until the collapse occus is increased by borrowing.
Handle: RePEc:nbr:nberwo:1844
Template-Type: ReDIF-Paper 1.0
Title: Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Note: ME
Number: 1845
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1845
File-URL: http://www.nber.org/papers/w1845.pdf
File-Format: application/pdf
Publication-Status: published as Miron, Jeffrey A. "Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption," Journal of Political Economy, Vol. 94, No. 6, (1986), pp. 1258-1279.
Abstract: Recent empirical work has found that both aggregate and micro data reject the rational expectations version of the Life Cycle-Permanent Income model of consumption. This paper examines a new possible explanation for the rejections: the treatment of seasonal fluctuations. There are substantial seasonal fluctuations in consumption purchases, but no previous paper has determined whether these fluctuations are consistent with the Life Cycle-Permanent Income model. The results in this paper show that when the seasonal fluctuations in consumption purchases are included in an analysis of the Life Cycle-Permanent Income model there is no evidence in the aggregate data against the model. The estimates of the parameters of agents' utility functions obtained here are plausible, and the data do not reject the overidentifying restrictions on the model.
Handle: RePEc:nbr:nberwo:1845
Template-Type: ReDIF-Paper 1.0
Title: Detrebling versus Decoupling Antitrust Damages: Lessons from the Theory of Enforcement
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Number: 1846
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1846
File-URL: http://www.nber.org/papers/w1846.pdf
File-Format: application/pdf
Publication-Status: published as Polinsky, A. Mitchell. "Detrebling versus Decoupling Antitrust Damages: Lessons from the Theory of Enforcement," Georgetown Law Journal, Vol. 74, No. 4, (April 1986), pp. 1231-1236.
Abstract: This continent compares two alternative systems of private antitrust enforcement. In one (referred to as the "damage multiplier approach"), the plaintiff receives what the defendant pays; in the other (the"decoupling approach"), this constraint is not imposed. Reducing treble damages to single damages("detrebling") would be an example of the first approach. Making the defendant pay treble damages while only giving the plaintiff single damages would be an example of the second approach. It is shown, using the principles of the the economic theory of enforcement, that the decoupling approach is preferable to the damage multiplier approach, and that the optimal system of decoupling could award the plaintiff more or less than what the defendant pays. Several additional issues are raised that need to be considered before decoupling can be recommended in practice.
Handle: RePEc:nbr:nberwo:1846
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Deregulation on the Employment and Wages of Airline Mechanics
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 1847
Creation-Date: 1986-02
Order-URL: http://www.nber.org/papers/w1847
File-URL: http://www.nber.org/papers/w1847.pdf
File-Format: application/pdf
Publication-Status: published as Card, David. "The Impact of Deregulation on the Employment and Wages of Airline Mechanics," Industrial and Labor Relations Review, Vol. 39, No. 4, July 1986.
Abstract: This paper describes the effects of deregulation on negotiated wage rates and employment levels of aircraft mechanics in the scheduled airline industry. Firm-specific data for the incumbent trunk airlines show relatively small changes in real wage rates since deregulation,and only recent increases in interfirm wage differentials. Employment growth rates, on the other hand, have varied widely among the incumbents, and between the incumbent trunks and the local service and new-entrant airlines. The data suggest that deregulation resulted in a transfer of 5000-7000 maintenance jobs from the incumbent trunks to the smaller airlines. This shift in employment reduced mechanics' earnings in the industry by as much as 5 percent.
Handle: RePEc:nbr:nberwo:1847
Template-Type: ReDIF-Paper 1.0
Title: Productivity Growth and Changes in the Terms of Trade in Japan and the U.S.
Author-Name: Catherine J. Morrison
Author-Name: W. Erwin Diewert
Author-Person: pdi117
Note: PR
Number: 1848
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1848
File-URL: http://www.nber.org/papers/w1848.pdf
File-Format: application/pdf
Publication-Status: published as Diewert, W.E. and Catherine J. Morrison. "Adjusting Output and Productivity Indexes for Changes in the Terms of Trade," Economic Journal, Vol. 96, September 1986, pp. 659-679.
Publication-Status: published as "Productivity Growth in Japan and the United States," Studies in Income and Wealth, Vol. 53, ed. Charles R. Hulten, pp. 201-227. Chicago: Universityof Chiacgo Press, 1991.
Abstract: In this paper we employ a recently proposed procedure (Dlewert and Morrison[1985]) for adjusting real domestic product and productivity for changes in a country's terms of trade. We apply this procedure to a comparison of two major industrialized countries, the U.S. and Japan. The approach is based on assessing the impact on, alternatively, production or final sales to domestic purchasers, of changes in terms of trade and the balance of payments deficit in a consistent accounting framework. This treatment of international trade allows for comparative statics analysis based only on production theory. The comparison is carried out for a relatively open economy, Japan, with an economy that may not be as vulnerable to terms of trade changes, the U.S. for the years 1967 to 1982.
Handle: RePEc:nbr:nberwo:1848
Template-Type: ReDIF-Paper 1.0
Title: The Extent and Sources of Cost and Efficiency Differences Between U.S. and Japanese Automobile Producers
Author-Name: Melvyn A. Fuss
Author-Name: Leonard Waverman
Note: PR
Number: 1849
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1849
File-URL: http://www.nber.org/papers/w1849.pdf
File-Format: application/pdf
Publication-Status: published as "The Extent and Sources of Cost and Efficiency Differences between U.S. and Japanese Motor Vehicle Producers." From Journal of the Japanese and International Economies, Vol. 4, pp. 219-256, (1990).
Abstract: In this paper we present for the first time estimates of cost and efficiency differences between U.S. and Japanese producers based on an econometric cost function methodology rather than the accounting frameworks previously used. We demonstrate that the cost difference estimates for 1979 which were influential in the debate that resulted in the Voluntary Restraints Agreements of 1981-85 were substantial over estimates of the Japanese advantage. While our estimate of the Japanese cost advantage for 1980 is similar to previous estimates, we attribute most of this advantage to short-run phenomena -underutilization of U.S. production capacity and an undervalued yen. In a previous paper we have shown that the Japanese TFP growth rate was much faster than the U.S. rate during the 1970's. However we estimate the long-run underlying Japanese efficiency advantage as of 1980 to have been only 1-2%, much less than previously estimated. This results from the fact that Japan began the 1970's with a long-run efficiency disadvantage of over 20%, and the decade of the 1970's represented a catch-up period for Japanese producers.
Handle: RePEc:nbr:nberwo:1849
Template-Type: ReDIF-Paper 1.0
Title: Comparison and Analysis of Productivity Growth and R&D Investment in theElectrical Machinery Industries of the United States and Japan
Author-Name: M. Ishaq Nadiri
Author-Name: Ingmar R. Prucha
Author-Person: ppr355
Note: PR
Number: 1850
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1850
File-URL: http://www.nber.org/papers/w1850.pdf
File-Format: application/pdf
Publication-Status: published as Productivity Growth in Japan and the United States, edited by Charles R. Hulten, pp. 109-133. Chicago: University of Chicago Press, 1990.
Publication-Status: published as Comparison and Analysis of Productivity Growth and R&D Investment in the Electrical Machinery Industries of the United States and Japan, M. Ishaq Nadiri, Ingmar R. Prucha. in Productivity Growth in Japan and the United States, Hulten. 1991
Abstract: This paper presents a comparative analysis of productivity growth in the U.S. and Japanese electrical machinery industries in the postwar period. This industry has experienced rapid growth in output and productivity and high rates of capital formation in both countries. A substantial amount of R&D resources of the total manufacturing sectors in both countries is concentrated In the electrical machinery industry. Also, this industry has an active export orientation in both countries. The analysis of the paper is based on dynamic factor demand models describing the production structure and the behavior of factor inputs as well as the determinants of productivity growth in the U.S. and Japanese electrical machinery industry. The analysis shows that the production structure of the industry in both countries is characterized by increasing returns to scale; the factors of production do respond to changes in factor prices; and the existence of a pattern of substitution and complementarity among the inputs. The main sources of productivity growth are: growth in materials; technical change; and capital accumulation. R&D expenditures have also contributed significantly to growth of labor and productivity while the most important source of total factor productivity in this industry for both countries has been the scale effect followed by changes in technical progress.
Handle: RePEc:nbr:nberwo:1850
Template-Type: ReDIF-Paper 1.0
Title: Survey Evidence on Diffusion of Investment Among Institutional Investors
Author-Name: Robert J. Shiller
Author-Person: psh69
Author-Name: John Pound
Note: ME
Number: 1851
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1851
File-URL: http://www.nber.org/papers/w1851.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Behavior and Organization vol. 12, p. 47-66 1989
Abstract: Contagion or epidemic models of financial markets are proposed in which interest in or attention to individual stocks is spread by word of mouth. The models give alternative interpretations of the random walk character of stock prices. A questionnaire survey of institutional investors was undertaken to ascertain the relevance of such models. Questions elicited what fraction of these investors were unsystematic and allowed themselves to be influenced by word-of-mouth communications or other salient stimuli. Rough indications of the infection rate and removal rate were produced. Investors in stocks whose price had recently increased dramatically to a high P/E ratio were contrasted with a control group of investors.
Handle: RePEc:nbr:nberwo:1851
Template-Type: ReDIF-Paper 1.0
Title: Effects of Alcoholic Beverage Prices and Legal Drinking Ages on Youth Alcohol Use
Author-Name: Douglas Coate
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 1852
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1852
File-URL: http://www.nber.org/papers/w1852.pdf
File-Format: application/pdf
Publication-Status: published as Coate, Douglas and Michael Grossman. "Effects of Alcoholic Beverage Pricesand Legal Drinking Ages on Youth Alcohol Use,". From Journal of Law and Economics, Vol. 31, No. 1012, pp. 145-171, (April 1988).
Abstract: Based on an analysis of the second National Health and Nutrition Examination Survey, conducted between 1976 and 1980, we find that the frequency of the consumption of beer, the most popular alcoholic beverage among youths, is inversely related to the real price of beer and to the minimum legal age for its purchase and consumption. The negative price and legal drinking age effects are by no means limited to reductions in the fraction of youths who consume beer infrequently (less than once a week). Instead, the fractions of youths who consume beer fairly frequently (1-3times a week) and frequently (4-7 times a week) fall more in absolute or percentage terms than the fraction of infrequent drinkers when price or the drinking age rises. These are striking findings because frequent and fairly frequent drinkers are likely to be responsible for a large percentage of youth motor vehicle accidents and deaths. Simulations suggest that, if reductions in youth alcohol use and abuse are desired, both a uniform drinking age of 21 and an increase in the Federal excise tax rate on beer are effective policies to accomplish this goal. They also suggest that the tax policy may be more potent than the drinking age policy.
Handle: RePEc:nbr:nberwo:1852
Template-Type: ReDIF-Paper 1.0
Title: News from the U. S. and Japan: Which Moves the Yen/Dollar Exchange Rate?
Author-Name: Takatoshi Ito
Author-Name: V. Vance Roley
Note: ME
Number: 1853
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1853
File-URL: http://www.nber.org/papers/w1853.pdf
File-Format: application/pdf
Publication-Status: published as Ito, Takatoshi and V. Vance Roley. "News from the U.S. and Japan: Which Moves the Yen/Dollar Exchange Rate?" Journal of Monetary Economics, Vol. 19, No. 2, 1987, pp. 255-277.
Abstract: Intra-daily movements in the yen/dollar exchange rate were examined in four non-overlapping segments within each business day from January1980 to September 1985. The empirical results yielded several conclusions. First, most depreciation of the yen (appreciation of the dollar) from late 1982 to early 1984 occurred in the New York market. The direction of the yen was mostly neutral in the Tokyo market. Also, the volatility of the exchange rate decreased considerably in the Tokyo market. The volatility in the New York market, on the other hand, did not decrease untilvery recently. Second, market efficiency was examined in terms of the random-walk behavior of short-run movements in the yen/dollar rate. Information on the preceding segments within a day was sometimes significant in predicting the exchange rate movement in a market. Third, there is evidence of the "profit-taking" behavior, or overshooting, in that a large jump (more than 3 absolute yen) in any market tends to be reversed by a fifth of the jump during the same day in the next market. Finally,the relative effects of news from the U.S. and Japan were examined explicitly both with respect to possible major events behind large jumps andthe response of the yen/dollar rate to particular economic announcements in both countries. Over the entire sample period, news concerning the U.S. money stock had the only significant effects.
Handle: RePEc:nbr:nberwo:1853
Template-Type: ReDIF-Paper 1.0
Title: The Dollar as Speculative Bubble: A Tale of Fundamentalists and Chartists
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Note: ITI IFM
Number: 1854
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1854
File-URL: http://www.nber.org/papers/w1854.pdf
File-Format: application/pdf
Publication-Status: published as From The Marcus Wallenberg Papers on International Finance, Vol. 1, No. 1, pp. 27-55, (1986).
Publication-Status: published as Frankel, Jeffrey A. and Kenneth A. Froot "Understanding the Dollar in the Eighties: Rates of Return, and Chartists and Fundamentalists," Economic Record, December 1986, pp. 24-38.
Publication-Status: published as Reprinted in Greek Economic Review, June 1988, v.10
Publication-Status: published as Reprinted in Spanish in Cuadernos Economicos de ICE, no. 38, Madrid 1988.
Abstract: Several recent developments have inspired us to consider a non-standard model of the dollar as a speculative bubble without the constraint of fully rational expectations: (1) the dollar continued to rise in 1984 after real interest rate differentials and other fundamentals began moving the wrong way; (2) the results of market efficiency tests imply, that the rationally expected rate of dollar depreciation has been less than the forward discount; (3) Krugman-Marris current account calculations suggest that the rationally expected rate of depreciation is greater than the forward discount; (4) survey data show an expected rate of depreciation that is also greater than the forward discount; (5) the hypothesis of a "safe-haven" shift into U.S. assets and a decrease in the U.S. risk premium, which would explain some of the foregoing, is contradicted by a decline in the differential between off shore interest rates (covered) and U.S. interest rates. Our model features three classes of actors: fundamentalists, chartists and portfolio managers. Fundamentalists forecast a depreciation of the dollar based on an overshooting model that would be rational if there were no chartists. Chartists extrapolate recent trends based on an information set that includes no fundamentals. Portfolio managers take positions in the market, and thus determine the exchange rate, based on expectations that area weighted average of the fundamentalists and chartists. The first stage of the dollar appreciation after 1980 is explained by increases in real interest differentials. The second stage is explained by the endogenous takeoff of a speculative bubble when the fundamentalists have mis-forecast for so long that they have lost credibility. In 1985, the dollar may have entered a third stage in which an ever-worsening current account deficit begins a reversal of the bubble.
Handle: RePEc:nbr:nberwo:1854
Template-Type: ReDIF-Paper 1.0
Title: Taxes and the Merger Decision: An Empirical Analysis
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: David Reishus
Note: PE
Number: 1855
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1855
File-URL: http://www.nber.org/papers/w1855.pdf
File-Format: application/pdf
Publication-Status: published as Coffee, J., L. Lowenstein, and S. Rose-Ackerman (eds.) Knights, Raiders and Targets. New York, NY: Oxford University Press, 1988.
Abstract: One motive that is often cited for merger activity is the avoidance of federal income taxes by corporations and their shareholders. Yet there is little empirical evidence on the tax consequences of merger activity, or on the postmerger effects on firm policies of tax motivated mergers. In this paper, we present some initial results based on a large sample of mergers and acquisitions that occurred over the period 1968-83. We find that, in about one fifth of all mergers, there was a potential gain from the transfer of unused tax losses and credits, with an average value of approximately ten percent of the acquired company's market value. Other tax incentives to merge are also measured, but found to be less important quantitatively.
Handle: RePEc:nbr:nberwo:1855
Template-Type: ReDIF-Paper 1.0
Title: Wages, Employment and the Threat of Collective Action by Workers
Author-Name: William T. Dickens
Note: LS
Number: 1856
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1856
File-URL: http://www.nber.org/papers/w1856.pdf
File-Format: application/pdf
Abstract: For many reasons a group of workers may have sufficient bargaining power to claim for themselves some share of any monopoly surplus earned by an enterprise and (in the short run) a share of the return on fixed assets. This paper explores the effect of the threat of collective action on wages and employment in firms which wish to avoid collective bargaining with their employees.The threat of collective action analyzed here is a stylized representation of the institutional situation created by U.S. labor laws. If a firm wishes to avoid collective bargaining it must choose wages and employment so that no coalition greater than or equal to a fixed fraction of its workforce can be formed around a feasible bargaining agreement. The constraint this implies on employment and wages is analyzed for several assumptions about how bargained surplus is distributed among workers.It is found that the threat may affect only employment, or both wages and employment. For a firm with monopoly power a threat may either increase or decrease employment. Effects on wages and employment are found to be possible even in a market with price competition and free entry if firms must make fixed investments to produce output. Even when union contracts are efficient a threat of collective action can be expected to distort employment and investment decisions.If a threat causes firms to pay a wage above the reservation wage there will be an excess supply of labor to the firm. Under certain conditions this may manifest itself as involuntary unemployment. Further, unemployed workers will be unable to bid wages down. Like efficiency wage models, the threat of collective action provides an explanation for industry wage differences and the dual structure of the labor market. The model may also be able to provide some insight into the reasons for the stability of nominal and real wages over the business cycle.
Handle: RePEc:nbr:nberwo:1856
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Tax Rules on Nonresidential Fixed Investment: Some Preliminary Evidence from the 1980s
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Joosung Jun
Note: PE
Number: 1857
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1857
File-URL: http://www.nber.org/papers/w1857.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) The Effects of Taxation on Capital Accumulation. Chicago: University of Chicago Press, 1987.
Publication-Status: published as The Effects of Tax Rules on Nonresidential Fixed Investment: Some Preliminary Evidence from the 1980s, Martin Feldstein, Joosung Jun. in The Effects of Taxation on Capital Accumulation, Feldstein. 1987
Abstract: The evidence presented in this study confirms that tax-induced changes in the profitability of investment have had a powerful effect on the share of GNP devoted to nonresidential fixed investment. More specifically, we have reestimated two models of aggregate investment initially presented in Feldstein, "Inflation, Tax Rules and Investment: Some Econometric Evidence,"(Econometrica, 1982). The present study extends the previous analysis byusing revised national income accounts, by improving the estimation of the effective tax rate and the profitability of new investments, and by extending the sample to include the years 1978 through 1984. Despite these changes, the new statistical estimates are remarkably close to the previous results. The statistical estimates are also very robust with respect to sample period, estimation method, and the presence of other variables.The first model relates the investment-GNP ratio to the real net-of-tax rate of return received by the providers of debt and equity capital to the nonfinancial corporate sector and to the rate of capacity utilization. Our estimates imply that each percentage point increase in the real net return raises the investment-GNP ratio by 0.4 percentage points. A one percent age point increase in the net return is equivalent to a ten percentage point reduction in the overall effective tax rate. Since the net nonresidential fixed investment averaged 3 percent of GNP during the past three decades, a ten percentage point tax reduction induces a 13 percent rise in the investment-GNP ratio.Our second model relates the investment-GNP ratio to the difference between the maximum potential net return that firms can support by investing in a "standard investment project" and the net cost of debt and equity capital. The statistical estimates imply that each percentage point change in this measure of the rate of return over cost raises the investment-GNP ratio by 0.3 percentage points or 10 percent of its three-decade average.The estimates imply that the 1985 tax bill passed by the House of Representatives would reduce the investment-GNP ratio by between 10 percentand 15 percent of its average value, depending on the model used to make the calculation. Such reductions would represent between one-half and three-fourths of the rise in the investment-GNP ratio since the 1981 investment incentives were adopted.
Handle: RePEc:nbr:nberwo:1857
Template-Type: ReDIF-Paper 1.0
Title: U.S. Monetary Policy Regimes and U.S.-Japan Financial Relations
Author-Name: V. Vance Roley
Note: ME
Number: 1858
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1858
File-URL: http://www.nber.org/papers/w1858.pdf
File-Format: application/pdf
Publication-Status: published as Roley, V. Vance. U.S. Money Announcements and Covered Interest Parity: The Case of Japan." Journla of International Money and Finance, Vol. 6, (1987) , pp. 55-70.
Abstract: This paper examines the pervasiveness of the effects of U.S. monetary policy regime shifts and unanticipated changes in money on international financial markets. Four potential regimes from October 1977 to May 1985 are examined in terms of the response of yen-denominated securities in the Tokyo market to U.S. money surprises. The rationality of the responses in domestic and foreign on shore financial markets is further examined by testing whether the responses of dollar-denominated securities, yen-dominated securities, the spot yen/dollar exchange rate,and the forward yen/dollar exchange rate violate covered interest parity.The use of yen-denominated assets and the yen/dollar exchange rate allows further tests of the effects of the liberalization of restrictions on capital mobility in Japan since the late 1970s on market efficiency.
Handle: RePEc:nbr:nberwo:1858
Template-Type: ReDIF-Paper 1.0
Title: Search Method Use by Unemployed Youth
Author-Name: Harry J. Holzer
Author-Person: pho162
Note: LS
Number: 1859
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1859
File-URL: http://www.nber.org/papers/w1859.pdf
File-Format: application/pdf
Publication-Status: published as Holzer, Harry J. "Search Method Use by Unemployed Youth," Journal of Labor Economics, 1988, Vol. 6, No. 1, January 1988, pp. 1-20.
Abstract: In this paper I investigate the use of different search methods by unemployed youth. I present a job search model which shows that search method choices should be related to their costs and expected productivities, as well as other factors such as nonwage income and wage offer distributions. I then present empirical evidence on the use of these methods and their effects on employment outcomes. These results show that the most frequently used search methods, which are friends and relatives and direct applications without referral, are also the most productive in generating job offers and acceptances. Econometric evidence then shows that the number of methods used is affected by factors which presumably reflect market opportunities as well as income sources and needs. While the use of specific search methods respond differently to these factors, they are chosen in a manner which generates positive average effects on employment outcomes for those who use them. The results are thus consistent with the search model presented here.
Handle: RePEc:nbr:nberwo:1859
Template-Type: ReDIF-Paper 1.0
Title: Informal Job Search and Black Youth Unemployment
Author-Name: Harry J. Holzer
Author-Person: pho162
Note: LS
Number: 1860
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1860
File-URL: http://www.nber.org/papers/w1860.pdf
File-Format: application/pdf
Publication-Status: published as Holzer, Harry J. "Informal Job Search and Black Youth Unemployment," American Economic Review, Vol. 77, No. 3, June 1987, pp. 446-452.
Abstract: In this paper I analyze how young black and white unemployed jobseekers use various methods of search, and the employment outcomes which result from their use.The focus is on distinguishing informal search methods (i.e.,friends and relatives or direct application without referral) from more formal ones in analyzing racial differences.The results show that the two informal methods of search account for about 90% of the difference in employment probabilities between white and black youth. This also accounts for 57-71% of the difference in unemployment rates between the two. Furthermore, most of these results reflect differences in the ability of these methods to generate job offers, as opposed to differences in search effort or job acceptance rates. However, our ability to explain these differences through personal, family, and household characteristics was generally quite limited.
Handle: RePEc:nbr:nberwo:1860
Template-Type: ReDIF-Paper 1.0
Title: Employed and Unemployed Job Search: A Comparison of Choices and Outcomes among Youth
Author-Name: Harry J. Holzer
Author-Person: pho162
Note: LS
Number: 1861
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1861
File-URL: http://www.nber.org/papers/w1861.pdf
File-Format: application/pdf
Publication-Status: published as Holzer, Harry J. "Job Search by Employed and Unemployed Youth,"L Industrial and Labor Relations Review, Vol. 40, No. 4, July 1987, pp. 601-611.
Abstract: This paper presents evidence that young unemployed job seekers choose higher levels of search effort (as measured by numbers of methods used and time spent per method) and lower relative reservation wages than do comparable employed seekers. The unemployed also have higher probabilities of gaining new employment, which reflect higher probabilities of receiving offers and especially higher probabilities of accepting them; as well as slightly lower wages.These differences in outcomes between the two groups are at least partly explained by differences in their respective search choices.The evidence thus suggests that unemployed job seekers have higher costs of search (from foregone earnings) than do the employed, causing the former to seek new jobs more eagerly.
Handle: RePEc:nbr:nberwo:1861
Template-Type: ReDIF-Paper 1.0
Title: New Results on the Effects of Tax Policy on the International Location of Investment
Author-Name: Michael J. Boskin
Author-Name: William G. Gale
Author-Person: pga40
Note: PE
Number: 1862
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1862
File-URL: http://www.nber.org/papers/w1862.pdf
File-Format: application/pdf
Publication-Status: published as Boskin, Michael J. and William G. Gale. "New Results on the Effects of Tax Policy on the International Location of Investment," The Effects of Taxation on Capital Accumulation,ed. by Martin Feldstein, Chicago: UCP, 1987.
Publication-Status: published as New Results on the Effects of Tax Policy on the International Location of Investment, Michael J. Boskin, William G. Gale. in The Effects of Taxation on Capital Accumulation, Feldstein. 1987
Abstract: We study the effects of tax laws on foreign direct investment (FDI) and direct investment abroad (DIA), distinguishing in each case between investment financed by retained earnings and investment financed by transfers from abroad. We find that tax policy, through its effect on the rate-of-return available in the U.S., has an important effect on the international location of investment. FDI in the U.S. is very sensitive to after-tax rates-of-return available here. U.S. direct investment abroad is also affected, although to a lesser extent. We use these estimates to examine the effects of the 1981-82 tax changes on the international location of investment. We estimate that the tax changes lowered annual DIA by $0.5 billion to $1.0 billion (2% to 4% of its 1980 value), and raised annual FDI by $2 billion to $4 billion (11% of 20% of its 1980 value). We also discuss the welfare effects of tax policy toward international investment. Our results suggest that the tax effects on the international location of investment are important. Tax policies, such as ACRS andthe ITC, which raise the after tax rate-of-return on new investment without losing revenue from previous investment, not only stimulate domestic fixed investment, but also attract additional investment from abroad. The additional investment supplements the domestic investment impact on productivity and raises corporate tax revenue. However, our results should be taken as preliminary estimates, not as definitive statements about the long-run impacts of tax policy.
Handle: RePEc:nbr:nberwo:1862
Template-Type: ReDIF-Paper 1.0
Title: Tax Loss Carryforwards and Corporate Tax Incentives
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 1863
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1863
File-URL: http://www.nber.org/papers/w1863.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. and James M. Poterba. "Tax Loss Carryforwards and Corporate Tax Incentives," The Effects of Taxation on Capital Accumulation, ed. by Martin Feldstein, pp. 305-342. Chicago: UCP, 1987.
Publication-Status: published as Tax Loss Carryforwards and Corporate Tax Incentives, Alan J. Auerbach, James M. Poterba. in The Effects of Taxation on Capital Accumulation, Feldstein. 1987
Abstract: This paper investigates the extent to which loss-offset constraints affect corporate tax incentives. Using data gathered from corporate annual reports, we estimate that in 1984 fifteen percent of the firms in the nonfinancial corporate sector had tax loss carryforwards. When weighted by their market value, however, these firms account for less than three percent of this sector, suggesting that loss carryforwards are concentrated among small firms and affect relatively few large corporations. For those firms with loss carryforwards, however, the incentive effects of the corporate income tax may differ significantly from those facing taxable firms. We demonstrate this by calculating the effective tax rates on equipment and structures for both types of firms. Our results suggest that firms which are currently taxable have a substantially greater incentive for equipment investment than firms with loss carryforwards, but that loss carryforwards have a relatively smaller effect on the tax incentive for investing in structures. Overall, firms with loss carryforwards receive a smaller investment stimulus than taxable firms.
Handle: RePEc:nbr:nberwo:1863
Template-Type: ReDIF-Paper 1.0
Title: Tax Incidence
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 1864
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1864
File-URL: http://www.nber.org/papers/w1864.pdf
File-Format: application/pdf
Publication-Status: published as Kotlikoff, Laurence J. and Lawrence H. Summers. "Tax Incidence," The Handbook of Public Economics, edited by Alan J. Auerbach and Martin Feldstein,(1987), pp. 1043-1092.
Abstract: This paper surveys major issues in the theory of tax incidence. These include the incidence of taxes in dynamic as well as static economies and open as well as closed economies. The survey does not represent a comprehensive review of the literature, rather it is offered to the reader as a pedoqogical piece that may be of use in teaching the theory of tax incidence.
Handle: RePEc:nbr:nberwo:1864
Template-Type: ReDIF-Paper 1.0
Title: International Borrowing to Finance Investment
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: Kenneth M. Kletzer
Note: ITI IFM
Number: 1865
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1865
File-URL: http://www.nber.org/papers/w1865.pdf
File-Format: application/pdf
Abstract: The motives of a small country for borrowing to purchase capital equipment on international markets are studied. The country produces tradable capital and a nontradable consumption good and borrows or lends capital to achieve higher levels of welfare. A shift in time-preference favoring future over current consumption has an ambiguous impact effect on foreign debt. Whether the country lends or borrows immediately depends upon whether the consumption goods sector is capital or labor intensive. The dynamic behavior of the current account for an initially capital-poor country is also derived. Our results contrast with those of previous studies of optimal indebtedness in which consumables are borrowed directly.
Handle: RePEc:nbr:nberwo:1865
Template-Type: ReDIF-Paper 1.0
Title: Internal Non-Price Competition, Pricing, and Incentive Systems in the Cooperative Service Firm: The Case of US Medical Group Practice
Author-Name: Martin Gaynor
Author-Person: pga1
Note: EH
Number: 1866
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1866
File-URL: http://www.nber.org/papers/w1866.pdf
File-Format: application/pdf
Publication-Status: published as "Competition within the Firm: Theory Plus Some Evidence from Medical Group Practice." From Rand Journal of Economics, Vol. 20, No. 1, pp. 59-76,(Spring 1989).
Abstract: The model developed in this paper is a model of internal non-price competition among members of a cooperative firm. Members take price arid income distribution method as given, but perceive a positive relationship between their own production of quality and the flow of consumers to them, when constrained by demand. At an internal Nash equilibrium, each member may be producing "too much" quality, yet will not reduce production for fear of losing customers. In this paper, the focus is on the price and income distribution method, which serve as an incentive mechanism for coordinating behavior. An unusual feature of this model is the switching behavior generated as members of the firm move form the unconstrained to the constrained regime. This feature is incorporated for empirical testing by specifying the model to be estimated as a spline function. The empirical testing is possible due to the existence of a unique data set for American medical group practice.The estimation results of this study confirm the hypotheses of switching behavior and a positive relationship between price and the strength of the link between reward and productivity. This provides strong evidence to support the contention that internal non-price competition is present in cooperative service firms, and that it increases as members' rewards are linked more closely with their own productivity.
Handle: RePEc:nbr:nberwo:1866
Template-Type: ReDIF-Paper 1.0
Title: Asset Price Volatility, Bubbles, and Process Switching
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Robert J. Hodrick
Author-Person: pho115
Note: ME
Number: 1867
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1867
File-URL: http://www.nber.org/papers/w1867.pdf
File-Format: application/pdf
Publication-Status: published as From Journal of Finance, Vol. 41, No. 4, pp. 831-842, (September 1986).
Abstract: Evidence of excess volatilities of asset prices compared with those of market fundamentals is often attributed to speculative bubbles. This study examines the sense in which speculative bubbles could in theory lead to excess volatility, hut it demonstrates that some of the variance hounds evidence reported to date precludes bubbles as a reason why asset prices might violate such hounds. The findings must represent some other model misspecffication or market inefficiency. One important misspecification occurs when there searcher incorrectly specifies the time series properties of market fundamentals. A bubble-free example economy characterized by a potential switch in government policies produces paths of asset prices that would appear, to an unwary researcher, to contain bubbles.
Handle: RePEc:nbr:nberwo:1867
Template-Type: ReDIF-Paper 1.0
Title: The General Theory of Tax Avoidance
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 1868
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1868
File-URL: http://www.nber.org/papers/w1868.pdf
File-Format: application/pdf
Publication-Status: published as Stiglitz, Joseph E. "The General Theory of Tax Avoidance," National Tax Journal, Volume XXXVIII, No. 3, September 1985, pp. 325-338.
Abstract: This paper outlines a general set of principles for tax avoidance. Most of at least the common tax avoidance schemes can be reinterpreted as making use of one or more of these principles. Four such methods are described. In a perfect capital market, these methods would enable the astute taxpayer to eliminate all taxation on capital income. The fact that the tax system raises revenue is attributed to lack of astuteness of the taxpayer and/or lack of perfection of the capital market. Accordingly, models which attempt to analyze the effects of taxation assuming rational, maximizing taxpayers working within a perfect capital market may give misleading results.A full analysis of tax avoidance cannot be conducted within a partial equilibrium model; transactions which reduce one individual's tax liability may at the same time increase another's.We delineate tax avoidance schemes which reduce the aggregate tax liabilities of the participants. Much of the"general equilibrium" gain from tax avoidance arises from differences in tax rates, both across individuals and across classes of income. Our analysis is shown to have implications both for patterns of ownership of assets and the timing of transfers.
Handle: RePEc:nbr:nberwo:1868
Template-Type: ReDIF-Paper 1.0
Title: Tariffs, Saving and the Current Account
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: Kenneth Kletzer
Note: ITI IFM
Number: 1869
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1869
File-URL: http://www.nber.org/papers/w1869.pdf
File-Format: application/pdf
Publication-Status: published as (With Robert P. Flood) Published as "Exchange Rate Dynamics, Sticky Prices,and the Current Account", Journal of Money, Credit and Banking, Vol. 17,no. 3 (1985): 312-327.
Abstract: We investigate the effects of higher tariffs on the current account.Tariffs may increase or decrease investment depending on the capital intensity of the sector protected. We find that ther esponse of saving to tariffs issensitive to the modelling of saving behavior. In a model in which Consumers' discount rate varies endogenously (in the Uzawa preference form), saving fallswith higher tariffs. This result may, however, be reversed in the Blanchard-Yaarj type model in which consumers have uncertain lifetimes. We find that in both models the response of saving depends on a production distortion effect which changes steady-state income and an effect on steady-state expenditures.
Handle: RePEc:nbr:nberwo:1869
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Test of an Asymmetric Information Model of Strikes
Author-Name: Joseph S. Tracy
Author-Person: ptr23
Note: LS
Number: 1870
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1870
File-URL: http://www.nber.org/papers/w1870.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 5, No. 2, April 1987.
Abstract: Recent developments in the thoery of strategic bargaining demonstrate howinformational asymmetries can lead to prolonged and costly bargaining. These models can be applied to contract negotiations between unions and firms yielding an economic theory of strikes. To date, however, few empirical tests of these models have been carried out. This paper presents some evidence supporting this view of strikes. A set of predictions concerning the incidence and unconditional duration of strikes is derived from a simple bargaining model where the union is uncertain about the firm's future profitability. These predictions are then tested on a micro data set of major U.S. contract negotiations which took place from 1973 to 1977.
Handle: RePEc:nbr:nberwo:1870
Template-Type: ReDIF-Paper 1.0
Title: How Burdensome are Capital Gains Taxes?
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 1871
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1871
File-URL: http://www.nber.org/papers/w1871.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James M. "How Burdensome are Capital Gains Taxes?" Journal of Public Economics, Vol. 33, No. 2, (1987), pp. 157-172.
Abstract: Several recent and provocative studies have described portfolio trading strategies which permit investors to avoid all taxes on capital gains and to shelter a substantial part of their ordinary income as well. Other studies adopt the more traditional view that the capital gains tax raises the effective tax burden on capital income. This paper uses capital gain realization data from the 1982 IRS Individual Tax Model in an effort to distinguish between these views. It shows that for about one-fifth of the investors who realize gains or losses, the ordinary income loss-offset limitations are binding constraints. Since additional gain realizations do not affect these investors' current tax liability, they may be effectively untaxed on capital gains. Another significant group escapes taxation by not reporting realized gains. However, the largest group of investors trades in a less elaborate and more honest manner, realizing and reporting gains without offsetting losses. The capital gains tax may reduce the after-tax return earned by these investors.
Handle: RePEc:nbr:nberwo:1871
Template-Type: ReDIF-Paper 1.0
Title: Optimal Tariffs in Consistent Conjectural Variations Equilibrium
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 1872
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1872
File-URL: http://www.nber.org/papers/w1872.pdf
File-Format: application/pdf
Publication-Status: published as Turnovsky, Stephen J. "Optimal Tariffs in Consistent Conjectural Variations Equilibrium," Journal of International Economics, Vol. 21, No. 3, (November 1986), pp. 301-312.
Abstract: This paper analyzes the determination of the optimal tariff under the assumption of Consistent Conjectural Variations (CCV). A general characterization of the CCV equilibrium is given. We show that (i) there are, in general, a multiplicity of such equilibria, and (ii) under certain restrictions, the Cournot equilibrium, which is based on the assumption of no retaliation can also be a CCV equilibrium. By contrast, free trade is never a CCV equilibrium. Finally the CCV equilibrium is solved explicitly in a simple example.
Handle: RePEc:nbr:nberwo:1872
Template-Type: ReDIF-Paper 1.0
Title: Aggregate Savings in the Presence of Private and Social Insurance
Author-Name: Andrew B. Abel
Author-Person: pab10
Note: EFG AG
Number: 1873
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1873
File-URL: http://www.nber.org/papers/w1873.pdf
File-Format: application/pdf
Publication-Status: published as Abel, Andrew B. "Aggregate Savings in the Presence of Private and Social Insurance," Macroeconomics and Finance: Essays in Honor of Franco Modigliani , edited by R. Dornbusch, Stanley Fischer and John Bossons. Cambridge, MA: MIT Press, 1987, pp. 131-157.
Abstract: In the presence of uncertain lifetimes, social security has the characteristics of an annuity: a consumer pays a tax when young in exchange for receiving a social security benefit if he survives to be old. If consumers have identical ex ante mortality probabilities, then a fully funded social security system would offer a rate of return equal to the actuarially fair rate available on competitively supplied private annuities. In this case fully funded social security would be a redundant asset and would have no effect on consumption or national saving. In this paper, consumers have different (publicly known) ex antemortality probabilities and consequently can buy actuarially fair private annuities offering different rates of return. If the social security system does not discriminate on the basis of ex ante mortality probabilities, then the introduction of social security induces a redistribution of income from consumers with a high probability of dying young to consumers with a low probability of dying young. Under homothetic utility this redistribution reduces aggregate bequests and aggregate consumption of young consumers in the steady state; the steady state national capital stock can either increase or decrease. If consumers display at least as much risk a version as the logarithmic utility function, then average steady state welfare is increased by the introduction of fully funded social security.
Handle: RePEc:nbr:nberwo:1873
Template-Type: ReDIF-Paper 1.0
Title: The October 1979 Change in the Monetary Regime: Its Impact on the "Forecastability" of Interest Rates
Author-Name: James E. Pesando
Author-Person: ppe278
Author-Name: Andre Plourde
Note: ME
Number: 1874
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1874
File-URL: http://www.nber.org/papers/w1874.pdf
File-Format: application/pdf
Publication-Status: published as Pesando, James E. "The Impact of the Conversion Loan on the Term Structure of Interest Rates in Canada: Some Additional Evidence." The Canadian Journal of Economics / Revue canadienne d'Economique. Vol. 8, No. 2 (May, 1975) (pp. 281-288)
Publication-Status: published as Journal of Finance, 1988, vol. 43, issue 1, pages 217-39
Abstract: Subsequent to the October 1979 shift in monetary policy in the United States, interest rates in North America not only reached unprecedented levels,but also exhibited unprecedented volatility. This paper shows that the anticipated quarterly changes in long-term rates associated with the rational expectations model have remained small during this post-shift period. Recorded forecasts of long-term interest rates in Canada continue to prove inferior to the no-change prediction of the martingale model. The "perverse" relationship between the slope of the yield curve and the subsequent movementin long-term rates exists in the Canadian data, but is of only modest value in a forecasting context. The excess return on long-term bonds implicit in the recorded forecasts of the level of interest rates varies sharply, yet there is no evidence that forecasters have identified a predictable component of a time-varying term premium.
Handle: RePEc:nbr:nberwo:1874
Template-Type: ReDIF-Paper 1.0
Title: The Theory and Measurement of Macroeconomic Disequilibrium in Centrally Planned Economies
Author-Name: Richard Portes
Author-Person: ppo132
Note: ITI IFM
Number: 1875
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1875
File-URL: http://www.nber.org/papers/w1875.pdf
File-Format: application/pdf
Publication-Status: published as From Models of Disequilibrium and Shortage in Centrally Planned Economies,edited by C. Davis and W. Charemza, pp. 27-47. London: Chapman and Hall Ltd., 1989.
Publication-Status: published as Portes, Richard and Richard E. Quandt. "Macroeconomic Disequilibrium In Centrally Planned Economies: Comment," Journal of Comparative Economics, 1989, v13(4), 576-579.
Abstract: The paper considers issues in recent research on macroeconomic equilibrium in centrally planned economies. I defend the explicit aggregative , macroeconomic approach in theory, institutional relationships and measurement. It has offered a fresh, coherent framework for analysis of many CPE phenomena, opened up a range of possibilities for empirical investigation, and generated several important spinoffs: work of planners' behavior, insights into CPE policy problems of the 1970s and early 1980s, which centred on macroeconomic equilibrium and threats to it; and some developments in market economy macro theory and econometrics. The quantity-rationing macro model and disequilibrium econometrics give a more useful as well as a more nuanced view of macroeconomic reality in CPEs than the conventional wisdom characterizing them as perpetual "shortage economies".
Handle: RePEc:nbr:nberwo:1875
Template-Type: ReDIF-Paper 1.0
Title: Counterfeit-Product Trade
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Carl Shapiro
Author-Person: psh275
Note: ITI IFM
Number: 1876
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1876
File-URL: http://www.nber.org/papers/w1876.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 78, No. 1, March 1988, pp. 59-75.
Abstract: We analyze a two-country model of trade in both legitimate and counterfeit products. Domestic firms own trademarks and establish reputations for delivering high-quality products in a steady-state equilibrium. Foreign suppliers export legitimate low-quality merchandise and counterfeits of domestic brand-name goods. Heterogeneous home consumers either purchase low-quality imports or buy brand-name products, rationally expecting some degree of counterfeiting of the latter. We characterize a counterfeiting equilibrium and explore its properties. We describe the positive and normative effects of counterfeiting in comparison with a no-counterfeiting benchmark. Finally, we provide a welfare analysis of border inspection policy and of policy regarding the disposition of counterfeit goods that are confiscated at the border.
Handle: RePEc:nbr:nberwo:1876
Template-Type: ReDIF-Paper 1.0
Title: Models of Firm Behavior Under Minimum Wage Legislation
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Gilles Grenier
Author-Person: pgr424
Note: LS
Number: 1877
Creation-Date: 1986-03
Order-URL: http://www.nber.org/papers/w1877
File-URL: http://www.nber.org/papers/w1877.pdf
File-Format: application/pdf
Abstract: This paper sets out three simple models of firm behavior under minimum wage legislation. The key feature of these models is that they account for important aspects of the government's mechanism for monitoring and enforcing compliance with the minimum wage law. The major results of the paper are (1) that minimum wage legislation does not generally lead to upward movements along labor demand curves but rather, that it often leads to movements off, and to the left, of the labor demand curve; (2) that minimum wage legislation is likely to have a positive effect on the distribution of wages paid to workers who would earn less than the minimum in the absence of the legislation, but is not likely to bring all of those workers up to the minimum; and (3) that imposing additional penalties on second offenders promotes compliance by firms with no previous violations. The paper considers the implications of these results for empirical work on the adverse employment effects of minimum wage legislation andfor the design of government compliance mechanisms.
Handle: RePEc:nbr:nberwo:1877
Template-Type: ReDIF-Paper 1.0
Title: Bonuses and Employment in Japan
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Martin L. Weitzman
Note: LS
Number: 1878
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1878
File-URL: http://www.nber.org/papers/w1878.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the Japanese and International Economies, Vol. 1, pp. 168-194,(1987).
Abstract: Japan has a relatively unique system of labor compensation. Most Japanese workers are paid large bonuses twice a year. This paper examines the cyclical movement of bonuses compared with wages and the relation of bonuses to employment in the context of the Weitzman "share economy." The paper makes three basic points:(1) The Japanese bonus is much more pro-cyclical than Japanese base wages,but not as cyclically variable as profits. Bonuses can be interpreted as containing a quantitatively significant revenue or profit-sharing component.(2) Bonuses have quite different employment consequences than do base wages. Even after controlling for other economic factors, bonuses are positively related to employment, whereas base wages are negatively related to employment.(3) The bonus system of paying workers, while far from explaining the whole macroeconomic story in Japan, seems to play a role in helping to stabilize Japanese unemployment at comparatively low levels.
Handle: RePEc:nbr:nberwo:1878
Template-Type: ReDIF-Paper 1.0
Title: IRAs and Saving
Author-Name: Steven F. Venti
Author-Name: David A. Wise
Author-Person: pwi45
Note: PE AG
Number: 1879
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1879
File-URL: http://www.nber.org/papers/w1879.pdf
File-Format: application/pdf
Publication-Status: published as Venti, Steven and David A. Wise. "IRAs and Saving," The Effects of Taxationon Capital Accumulation, ed. by Martin Feldstein. Chicago: UCP, 1987.
Publication-Status: published as Venti, Steven F. and David A. Wise. "Have IRAs Increased U.S. Saving? Evidence From Consumer Expenditure Surveys," Quarterly Journal of Economics, 1990, v105(3), 661-698.
Publication-Status: published as IRAs and Saving, Steven F. Venti, David A. Wise. in The Effects of Taxation on Capital Accumulation, Feldstein. 1987
Abstract: Increasing current Individual Retirement Account (IRA) limits would lead to substantial increases in tax-deferred saving according to evidence in the paper, based on the 1983 Survey of Consumer Finances. For example, the recentTreasury Plan would increase IRA Contributions by about 30 percent. The primary focus of the paper, however, is the effect of limit increases on othersaving. How much of the IRA increase would be offset by reduction in non-tax-deferred saving? The weight of the evidence suggests that very little of the increase would be offset by reduction in other financial assets,possibly 10 to 20 percent. The estimates suggest that 45 to 55 percent of the IRA increase would be funded by reduction in expenditure for other goods and services, and about 35 percent by reduced taxes. The analysis rests on a savings decision structure recognizing the constraint that the IRA limit places on the allocation of current income; it is a constrained optimization model with the IRA limit the principle constraint. The evidence also suggests substantial variation in saving behavior among segments of the population. In addition, it appears that IRAs do not serve as a substitute fo rprivate pension plans. Thus the legislative goal of disproportionately increasing retirement saving among persons without pension plans is apparently not being realized. But the more general goal of increasing general saving is.
Handle: RePEc:nbr:nberwo:1879
Template-Type: ReDIF-Paper 1.0
Title: Country Risk, Asymmetric Information and Domestic Policies
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 1880
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1880
File-URL: http://www.nber.org/papers/w1880.pdf
File-Format: application/pdf
Publication-Status: published as "Country Risk, Incomplete Information, and Taxes on International Borrowing." From Economic Journal, Vol. 99, No. 394, pp. 147-161,(March 1989).
Abstract: This paper describes an economy where incomplete information regarding the default penalty can result in an upward-sloping supply of credit.We evaluate the role of partial information and other related factors in determining the elasticity of supply of credit and the credit ceiling facing the economy. We identify conditions under which the presence of country risk induces a domestic distortion. Next, we derive the cost-minimizing domestic policies needed in the presence of such a distortion. It is shown that cost-minimizing policies for a country that wishes to service its debt in the presence of country risk calls for a combination of borrowing taxes and time varying consumption taxes. If all consumers have access to the domestic capital market, the two policies are equivalent. If domestic consumers are subject to liquidity constraints, cost-minimizing policies call for a combination of time varying consumption taxes and product subsidies that will mimic the consumption distribution achieved by cost-minimizing policies in the absenceof liquidity constraints. The policies derived in the paper are formulated interms of the country risk, as embodied in the elasticity of supply of credit facing the borrower. In a mixed economy, where some consumers are subject to credit rationing whereas others have full access to the domestic credit market, there is a need for taxes on borrowing as well as time varying consumption and production tax cum subsidies. The analysis also shows that if the level of external borrowing is substantial, cost-minimizing domestic policies call for instituting a two-tier exchange rate system.
Handle: RePEc:nbr:nberwo:1880
Template-Type: ReDIF-Paper 1.0
Title: Targeting Rules for Monetary Policy
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Jacob A. Frenkel
Note: EFG
Number: 1881
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1881
File-URL: http://www.nber.org/papers/w1881.pdf
File-Format: application/pdf
Publication-Status: published as Aizenman, Joshua and Jacob A. Frenkele."Targeting Rules for Monetary Policy ," Economics Letters, Vol. 21, No. 2, (1986), pp. 183-187.
Abstract: This paper develops an analytical framework for the analysis of targeting rules for monetary policy. We derive the optimal money supply rule and analyze the implications of other monetary rules including rules that target nominal GNP, the price level, the monetary growth rate and the interestrate. An explicit welfare criterion is used in order to rank the alternative rules. In the model monetary policy is needed because labor market contracts set nominal wages in advance of the realization of the stochastic shocks. The principal result is that the welfare ranking of alternative targeting rules depends on whether the elasticity of labor demand exceeds or falls short of the elasticity of labor supply. Specifically, it is shown that if the demand for labor is more elastic than the supply, then targeting nominal GNP produces a smaller welfare loss than targeting the CPI which in turn produces a smaller welfare loss than interest rate targeting.
Handle: RePEc:nbr:nberwo:1881
Template-Type: ReDIF-Paper 1.0
Title: Structural Changes in Unionization: 1973-1981
Author-Name: William T. Dickens
Author-Name: Jonathan S. Leonard
Author-Person: ple190
Note: LS
Number: 1882
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1882
File-URL: http://www.nber.org/papers/w1882.pdf
File-Format: application/pdf
Abstract: This paper presents a decomposition of the decline in union density into structural and within sector components using CPS data for private sector workers. We find that 58 to 68 percent of the decline in private sector unionization between 1973 and 1981 can be accounted for by structural changes in the economy, particularly in the occupational, educational and gender distribution of the workforce. This is a large impact, but we find that while structural change is important, its importance was not appreciably greate during the 1970s than during previous decades. At the same time, we find that the decline of private sector unionization within sectors has been pervasive, accounting for 32 to 42 percent of union decline. As part of this analysis we find that the decline in union density has been greater in those sectors of the economy where employment decline has been greater. This fact can help reconcile previous divergent findings on the importance of structural change.
Handle: RePEc:nbr:nberwo:1882
Template-Type: ReDIF-Paper 1.0
Title: Labor Market Segmentation and the Union Wage Premium
Author-Name: William T. Dickens
Author-Name: Kevin Lang
Author-Person: pla83
Note: LS
Number: 1883
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1883
File-URL: http://www.nber.org/papers/w1883.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 26, No. 3, pp. 527-530, August 1988.
Abstract: Studies of the earnings of union workers have consistently shown that they earn considerably more than nonunion workers. This paper considers whether part of this observed union/nonunion differential is due to unions organizing high paying primary sector jobs. We extend our earlier work on the dual labor market in which we used an unknown regime switching regression to identify two labor market sectors --a high wage primary sector and a low wage secondary sector. Here we estimate a model where worker's wages are determined by one of three wage equations: a union wage equation, a nonunion primary equation or a nonunion secondary equation. If individuals are in the union sector their sector is treated as known. If they are not then their sector is treated as unknown. Parameter estimates for this model suggest that union/nonunion differences are very large for average workers even when comparing union and nonunion primary workers. We continue to find distinct primary and secondary sectors with wage equations similar to those that would be expected from the dual market perspective. Since it appears that union workers may be receiving large wage premiums it seems likely that there is non-price rationing of union jobs. If there is, our finding inprevious papers of non-price rationing of primary sector jobs may have been due only to the rationing of union jobs. We test for the existence of non-price rationing of nonunion primary sector employment in this three sector model and continue to find evidence that at least black workers find it difficult to secure primary sector employment.
Handle: RePEc:nbr:nberwo:1883
Template-Type: ReDIF-Paper 1.0
Title: Crime and Punishment Again: The Economic Approach with a Psychological Twist
Author-Name: William T. Dickens
Note: LS
Number: 1884
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1884
File-URL: http://www.nber.org/papers/w1884.pdf
File-Format: application/pdf
Publication-Status: published as Dickens, William T. "Crime and Punishment Again: The Economic Approach with a Psychological Twist," Journal of Public Economics, Vol. 30, (1986), pp. 97-107.
Abstract: Akerlof and Dickens (1982) suggested that in a model of criminal behavior which considered the effects of cognitive dissonance, increasing the severity of punishment could increase the crime rate. This paper demonstrates that that conjecture was correct. With cognitive dissonance, people may have to rationalize not committing crimes under normal circumstances if punishment is not severe. The rationalization may lead them to underestimate the expected utility of committing crimes when opportunities present themselves. If punishment is severe, then rationalization may not be necessary and people may be more likely to commit crimes when opportunities arise.
Handle: RePEc:nbr:nberwo:1884
Template-Type: ReDIF-Paper 1.0
Title: Cointegration and Tests of Present Value Models
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 1885
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1885
File-URL: http://www.nber.org/papers/w1885.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, John and Robert J. Shiller. "Cointegration and Tests of Present Value Models," Journal of Political Economy, Vol. 95, No. 5, October 1987, pp. 1062-1088.
Abstract: In a model where a variable Y[sub t] is proportional to the present value, with constant discount rate, of expected future values of a variable y[sub t] the "spread" S[sub t]= Y[sub t] - [theta sub t] will be stationary for some [theta] whether or not y[sub t]must be differenced to induce stationarity. Thus, Y[sub t] and y[sub t] are cointegrated. The model implies that S[sub t] is proportional to the optimal forecast of [delta Y{sub t+1}] and also to the optimal forecast of S*[sub t], the present value of future [delta y{sub t}]. We use vector autoregressive methods, and recent literature on cointegrated processes, to test the model. When Y[sub t] is the long-term interest rate and y[sub t] the short-term interest rate, we find in postwar U.S. data that S[sub t] behaves much like an optimal forecast of S*[sub t] even though as earlier research has shown it is negatively correlated with [delta Y{sub t+1}]. When Y[sub t] is a real stock price index and y[sub t] the corresponding real dividend, using annual U.S. data for 1871-1986 we obtain less encouraging results for the model, al-though the results are sensitive to the assumed discount rate.
Handle: RePEc:nbr:nberwo:1885
Template-Type: ReDIF-Paper 1.0
Title: Anticipated Tax Changes and the Timing of Investment
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: James R. Hines Jr.
Author-Person: phi111
Note: PE
Number: 1886
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1886
File-URL: http://www.nber.org/papers/w1886.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) The Effects of Taxation on Capital Accumulation. Chicago: University of Chicago Press, 1987.
Publication-Status: published as Anticipated Tax Changes and the Timing of Investment, Alan J. Auerbach, James R. Hines, Jr.. in The Effects of Taxation on Capital Accumulation, Feldstein. 1987
Abstract: This paper analyzes the short-run and long-run effects of corporate tax changes over the last three decades and the likely consequences of proposed future tax changes. Consideration of short-run effects of tax reform on investment and market value requires a careful analysis of three elements of behavior that are normally omitted from long run analyses: the state of investor expectations, the time lags involved in putting new capital in place, and the tax law's distinctions between new and old capital. The model described in this paper considers investment in equipment and investment in plant separately, and does so under different specifications of investor expectations. Our results for the period 1954-1985 suggest that investors did take account of fluctuations in profitability, real interest rates, and the tax code in making their investment plans. We examine the consequences of the nonindexation of depreciation benefits as well as the introduction of the investment tax credit and the Accelerated Cost Recovery System by simulating the corporate sector's performance in the absence of these features. In addition, we analyze the effects of changing the tax code in 1986 along the lines proposed in the Bradley-Gephardt "Fair Tax" plan, the Treasury II plan, and the Rostenkowski plan, H.R. 3838. The simulation results suggest that all three plans would reduce fixed investment in the short run, with the reduction coming primarily in equipment. At the same time, the simulations predict large wind-falls for existing capital assets under all three reform proposals.
Handle: RePEc:nbr:nberwo:1886
Template-Type: ReDIF-Paper 1.0
Title: Compensating Wage Differentials and the Duration of Wage Loss
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Author-Name: John R. Wolfe
Note: LS
Number: 1887
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1887
File-URL: http://www.nber.org/papers/w1887.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 8, No. 1, Pt. 2, pp. S175-S197, (January 1990).
Abstract: Several reasons are offered why workers will receive larger compensating wage differentials for increases in the duration of wage losses than for increases in the probability of loss that produce the same expected loss. A formal model of occupational choice is developed that shows the extent to which the compensation for increased duration exceeds that for increased risk. Using Panel Study of Income Dynamics data linked to industry data on injuries and unemployment, we find:1) Nearly all the compensating wage differential for losses due to workplace injuries is compensation for increases in the duration of loss; 2) Similarly, nearly all the compensation for losses due to cyclical unemployment is compensation for increases in duration, especially for increases in duration beyond the 26 weeks of unemployment that are usually compensated by unemployment insurance. The compensating differentials for risk of injury are larger for union than for nonunion workers, while those for cyclical unemployment are smaller for union workers.
Handle: RePEc:nbr:nberwo:1887
Template-Type: ReDIF-Paper 1.0
Title: The Earnings Gap Between Male and Female Workers: An Historical Perspective
Author-Name: Claudia Goldin
Author-Person: pgo601
Note: DAE
Number: 1888
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1888
File-URL: http://www.nber.org/papers/w1888.pdf
File-Format: application/pdf
Publication-Status: published as Portions reprinted in "The Gender Gap in Historical Perspective, 1800 to 1980." "Quantity and Quiddity: Essays in U.S. Economic History" ed. Peter Kirby, Wesleyan, CT: Wesleyan University Press, 1987.
Abstract: Has economic progress increased the relative earnings of females to males over the long run? Evidence on trends in the earnings gap for the last four decades appears to run counter to this hypothesis. Numerous data sources are used in this paper to piece together a 170-year history of the earnings of females relative to those of males and the variables that determine earnings in the market place. In brief, the constancy of the earnings gap from the 1950s is a short-run phenomenon and cannot be extrapolated into the more distant past.The ratio of female to male earnings in the economy as a whole rosefrom just over 0.45 to just under 0.60 during 1890 to 1930. It rose to just over 0.60 by 1950 but has been virtnally stable from then, declining somewhat during the early to mid-fifties and rising after 1981. The ratio in the manufacturing sector rose from about 0.35 in 1820, to 0.50 in 1850, and to 0.58 in 1930. Advances in the labor market experience of the female working population account for 24 percent of the increase in the earnings ratio over the 1890 to 1940 period. Increases in the returns to education and, to a lesser extent, in educational attainment, account for about 40 percent of the increase from 1890 to 1970. It is also possible that the decreased return to physical attributes (such as strength) accounts for another 28 percent of the increase in the female to male earnings ratio. The various factors considered account for about 85 percent of the entire increase in the ratio from 1890 to 1970 (some factors served to decrease the ratio). The constancy of the gender gap from the 1950s is a function of the increased labor force participation of women which served to stabilize the work experience of the working population of women and to make the future lightly unpredictable for many cohorts.
Handle: RePEc:nbr:nberwo:1888
Template-Type: ReDIF-Paper 1.0
Title: The Illusion of Stabilization Policy?
Author-Name: Steven L. Green
Author-Name: Herschel I. Grossman
Note: EFG ME
Number: 1889
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1889
File-URL: http://www.nber.org/papers/w1889.pdf
File-Format: application/pdf
Publication-Status: published as Green, Steven L. and Herschel I. Grossman."The Illusion of Stabilization Policy," Carnegie-Rochester Conference Series on Public Policy, Vol. 25, Autumn 1986.
Abstract: For the period 1959-1972 money growth in the United States was positively correlated with past inflation and negatively correlated with past unemployment, whereas for the period 1973-1984 this correlation pattern was reversed. International data, moreover, show that the eight largest western economies exhibit a wide variety of patterns for these correlations, and these patterns seem to be unrelated to average inflation. Theoretical analysis reveals that a model in which the monetary authority is concerned only with controlling inflation is consistent with any pattern of sample correlations of money growth with past inflation and past unemployment. This analysis suggests that international differences in these sample correlations result from differences in the sample variances of disturbances to productivity growth and to aggregate demand. Specifically, the analysis suggests that the critical difference between the pre-1973 and post-1973 periods for the United States was a decrease in the importance of transitory disturbances to aggregate demand relative to permanent disturbances to productivity growth. More generally, these results imply that we cannot readily infer the objectives of the monetary authority from observed patterns of monetary policy.
Handle: RePEc:nbr:nberwo:1889
Template-Type: ReDIF-Paper 1.0
Title: Inside Money and Monetary Neutrality
Author-Name: Peter R. Hartley
Author-Name: Carl E. Walsh
Author-Person: pwa23
Note: ME
Number: 1890
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1890
File-URL: http://www.nber.org/papers/w1890.pdf
File-Format: application/pdf
Publication-Status: published as Hartley, Peter R. and Carl E. Walsh, "Inside Money and Monetary Neutrality," Journal of Macroeconomics, Vol. 13, no. 3 (Summer 1991), pp. 395-416.
Abstract: This paper examines the interaction between the financial and real sectors of the economy within the framework of a stochastic, rational expectation model that distinguishes between inside and outside money. The model also can be used to study the impact of variations in the degree of intermediation, measured by the elasticity of bank deposit supply. In contrast to earlier work which emphasized confusion between monetary and real shocks, we focus on the role played by confusion between inside and outside money and temporary and permanent base money disturbances. Financial sector disturbances, as well as temporary shocks tothe monetary base, are shown to have real effects even when private agents have complete information. When contemporaneous information on economic disturbances is incomplete, permanent shocks to the monetary base also have real effects. If our model is correct, it is invalid to reject equilibrium models of the business cycle on the grounds that anticipated money affects output. We argue that this result is robust in the sense that many "reasonable" models which incorporate inside money would yield a non-neutrality of portfolio and temporary base money supply shocks.
Handle: RePEc:nbr:nberwo:1890
Template-Type: ReDIF-Paper 1.0
Title: Social Security: A Financial Appraisal Across and Within Generations
Author-Name: Michael J. Boskin
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Douglas J. Puffert
Author-Name: John B. Shoven
Note: PE AG ED
Number: 1891
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1891
File-URL: http://www.nber.org/papers/w1891.pdf
File-Format: application/pdf
Publication-Status: published as Boskin, Michael J., Laurence J. Kotlikoff, Douglas J. Puffert and John B. Shoven. "Social Security: A Financial Appraisal Across and Within Generations," The National Tax Journal, Vol. XL, No. 1, (March 1987), pp. 19-34.
Abstract: This paper computes the expected present value of Social Security retirement benefits and taxes for households of different marital circumstances, incomes, and age cohorts. Also computed are the net gain or loss from participation in the system and the expected internal rate of return it offers various participants. The paper calculates the marginal linkage between benefits and contributions, and also examines how the age of entry into the covered workforce affects the participant. All computations are made for the 1985 Social Security and income tax laws. The general results are that Social Security offers vastly different terms to households in different circumstances. The net gain or loss varies by $200,000 and the real internal rate of return on contributions ranges from negative numbers to 6.6% for households of different ages, income levels, and marital status. These differences are far greater than the widely debated distributional affects of relevant income tax alternatives. We also find that there is a great deal of variance in the marginal linkage of benefits and taxes with many households facing a situation where the present value of benefits increases from 0 to 30 cents per extra dollar of taxes paid.
Handle: RePEc:nbr:nberwo:1891
Template-Type: ReDIF-Paper 1.0
Title: The Optimal Inflation Rate in an Overlapping-Generations Economy with Land
Author-Name: Bennett T. McCallum
Note: EFG ME
Number: 1892
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1892
File-URL: http://www.nber.org/papers/w1892.pdf
File-Format: application/pdf
Publication-Status: published as Barnett, William and Kenneth J. Singleton (eds.) New Approaches to Monetary Economics: Proceedings of the Second International Symposium in Economic Theory and Econometrics. New York: Cambridge University Press, 1987.
Publication-Status: published as "The Optimal Inflation Rate in an Overlapping-Generations Economy with Land ." From New Approaches to Monetary Economics, edited by William A. Barnett and Kenneth J. Singleton, pp. 325-339, New York: Cambridge University Press, 1987.
Abstract: This paper is concerned with the optimal inflation rate in an overlapping-generations economy in which (i) aggregate output is constrained by a standard neoclassical production function with diminishing marginal products for both capital and labor and (ii) the transaction-facilitating services of money are represented by means of a money-in-the-utility-function specification. With monetary injections provided by lump-sum transfers, the famous Chicago Rule prescription for monetary growth is necessary for Pareto optimality but a competitive equilibrium may fail to be Pareto optimal with that rule in force because of capital over accumulation. The latter possibility does not exist, however, if the economy includes an asset that is productive and non-reproducible--i.e., if the economy is one with land. As this conclusion is independent of the monetary aspects of the model, it is argued that the possibility of capital over accumulation should not be regarded as a matter of theoretical concern, even in the absence of government debt, intergenerational altruism, and social security systems or other "social contrivances."
Handle: RePEc:nbr:nberwo:1892
Template-Type: ReDIF-Paper 1.0
Title: Capital Gains: Rates Realizations and Revenues
Author-Name: Lawrence B. Lindsey
Note: PE
Number: 1893
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1893
File-URL: http://www.nber.org/papers/w1893.pdf
File-Format: application/pdf
Publication-Status: published as Lindsey, Lawrence B."Capital Gains Rates, Realizations and Revenues," The Effects of Taxation on Capital Accumulation, ed. by Martin Feldstein. Chicago: UCP, 1987.
Publication-Status: published as "Capital Gains Rates, Realizations, and Revenues." From The Effects of Taxation on Capital Accumulation, edited by Martin Feldstein, pp. 69-97, Chicago: University of Chicago Press, 1987.
Abstract: This paper examines the effect of capital gains tax rates on the level of capital gains realizations and the resulting amount of tax revenues. It concludes that capital gains tax revenues are maximized at a rate at the current 20 percent rate or lower, with a central estimate of 16 percent. Some of any gain in revenue due to a rate reduction is likely to be temporary, but the data suggest that even in the long run about 5.4 percent more capital gains will be realized for every one percentage point reduction in the capital gains tax rate.The study uses detailed tabulation data of personal income tax returns for the period 1965-82. It carefully estimates the effect of a number of tax provisions on the marginal tax rate on capital gains. These include the Alternative Tax Computation, Additional Minimum Tax, Maximum Tax on Earned Income, and the Alternative Minimum Tax. In many cases these special provisions had unintended consequences. Household wealth data is used to estimate the stock of unrealized capital gains in taxpayer's portfolios. The study finds a significant difference: between tradeable assets such as real estate and common stock, and non-traded forms of household wealth such as cash and checking accounts. As expected, capital gains realizations closely track changes in traded wealth but are inversely related to changes in non-traded wealth.
Handle: RePEc:nbr:nberwo:1893
Template-Type: ReDIF-Paper 1.0
Title: The Pure Theory of Country Risk
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Mark Gersovitz
Author-Name: Joseph E. Stiglitz
Note: ITI IFM
Number: 1894
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1894
File-URL: http://www.nber.org/papers/w1894.pdf
File-Format: application/pdf
Publication-Status: published as Eaton, Jonathan, Mark Gersovitz and Joseph E. Stiglitz. "The Pure Theory of Country Risk," European Economic Review: International Seminar on Macroeconomics, Vol. 30, No. 3, pp. 481-514, June 1986.
Publication-Status: published as The Pure Theory of Country Risk, Jonathan Eaton, Mark Gersovitz, Joseph E. Stiglitz. in International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, de Ménil and Gordon. 1991
Abstract: This paper attempts to survey, and to put into perspective, recent lterature that has analyzed the nature of credit relations between developed and developing countries.This analysis has made use of recent advances in the economics of information and strategic interaction. Traditional concepts of solvency and liquidity are of little help in understanding problems of soverign debt. Creditors do not have the means to seize the assets of a borrower in default. Hence the borrower who is expected eventually to repay his debts should be able to borrow to meet any current debt-service obligations. A problem that is essential to a theory of international lending is that of enforcement. The difficulty is one of ensuring that the two sides of a loan contract adhere to it, in particular that the borrower repays the lender and the lenders can commit themselves to penalize the borrower if he does not.
Handle: RePEc:nbr:nberwo:1894
Template-Type: ReDIF-Paper 1.0
Title: Job Characteristics and Hours of Work
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: Christina H. Paxson
Author-Person: ppa335
Note: LS
Number: 1895
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1895
File-URL: http://www.nber.org/papers/w1895.pdf
File-Format: application/pdf
Publication-Status: published as Research in Labor Economics, vo. 8, Part A, pp. 1-55, 1986
Abstract: This paper provides evidence that hours of work are heavily influenced by the particular job which a person holds. The empirical work consists of a comparison of the variance in the change in work hours across time intervals containing a job change with the variance in the change in hours across time periods when the job remains the same. To the extent that workers choose hours and these hours choices are influenced by shifts in individual preferences and resources, the variance in the time change of hours should not depend upon whether the worker has switched jobs. The desire to reduce or increase hours could be acted upon in the current job. On the other hand, if hours are influenced by employer preferences or if job specific characteristics dominate the labor supply decision, then hours changes should be larger when persons change jobs than when they do not. Using the Panel Study of Income Dynamics and the Quality of Employment Survey, we find that hours changes are typically two to four times more variable across jobs than within jobs. This result holds for both men and women and for both quits and layoffs, is obtained for weeks per year, hours per week, and annual hours, andis not sensitive to the use of controls for a set of job characteristics (including the wage) which might influence the level of hours persons wish to supply. The findings are also inconsistent with the view that workers may costlessly adjust hours by changing jobs.The finding that the job has a large influence on work hours suggests that much greater emphasis should be given to demand factors and to job specific labor supply factors in future research on hours of work. The overwhelming emphasis upon the wage and personal characteristics inconventional labor supply analyses of work hours may in part be misplaced.
Handle: RePEc:nbr:nberwo:1895
Template-Type: ReDIF-Paper 1.0
Title: Notes on the Tax Treatment of Structures
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: James R. Hines Jr.
Author-Person: phi111
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 1896
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1896
File-URL: http://www.nber.org/papers/w1896.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Roger H., James R. Hines Jr. and Lawrence H. Summers. "Notes on the Tax Treatment of Structures, The Effects of Taxation on Capital Accumulation, ed. by Martin Feldstein, p. 223-254, Chicago: University of Chicago Press, 1987
Publication-Status: published as Notes on the Tax Treatment of Structures, Roger H. Gordon, James R. Hines, Jr., Lawrence H. Summers. in The Effects of Taxation on Capital Accumulation, Feldstein. 1987
Abstract: More than three quarters of the United States tangible capital stock represents structures. Tax policies potentially have a major impact on both the level and composition of investment in structures and equipment. This point is explicitly recognized in most discussions of the effects of capital income taxation. Two aspects of the taxation of structures --the relative burden placed on structures as opposed to equipment investment and the non-taxation of owner occupied housing under the income tax -- have attracted substantial attention in recent years. This paper explores these two aspects of the taxation of structures investments. While the tax system may well have a potent impact on the level and composition of structures investment, this paper argues that conventional analyses of these effects are very misleading. We reach two main conclusions. First,under current tax law, certain types of structures investment are very highly tax favored. Structures can be transferred and therefore depreciated more than once, and structures may be readily financed with tax-favored debt. Overall, itis unlikely that a significant bias towards equipment and against structures exists under current law. Second, the conventional view that the tax system is biased in favor of homeownership is wrong. Because of the possibility of "tax arbitrage" between high bracket landlords and low bracket tenants, the tax system has long favored rental over ownership for most households. The 1981 reforms by reducing the top marginal tax rate reduced this bias somewhat.
Handle: RePEc:nbr:nberwo:1896
Template-Type: ReDIF-Paper 1.0
Title: Asset Prices in a Time Series Model with Disparately Informed, Competative Traders
Author-Name: Kenneth J. Singleton
Author-Person: psi735
Note: EFG
Number: 1897
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1897
File-URL: http://www.nber.org/papers/w1897.pdf
File-Format: application/pdf
Publication-Status: published as Singleton, Kenneth J. "Asset Prices in a Time Series Model with Disparately Informed, Competitive Traders," New Approaches to Monetary Economics, eds. W. Barnett and K.J. Singleton. Cambridge, MA: Cambridge University Press, 1987.
Abstract: This paper examines the time series properties of the price of a risky asset implied by a model in which competitive traders are heterogeneously informed about the underlying sources of uncertainty in the economy.Traders do not observe the shocks in the period they occur. However, traders are imperfectly and heterogeneously informed about these shocks for three reasons:(1) the shocks are serially correlated arid hence partially forecast able from their past history, (2) each trader receives private signals about the current values of a subset of the shocks, and (3) the equilibrium price conveys information about the private signals and beliefs of other traders. Since prices convey information in this economy, traders will face an infinite regress problem in expectations associated with their desire to forecast the beliefs of others, the beliefs of others about average beliefs, etc.The equilibrium time series representation for the price of the risky security is deduced in various imperfect information environments. Then the volatility and autocorrelations of prices in this model are compared to the corresponding statistics for a model in which agents are homogeneously informed.
Handle: RePEc:nbr:nberwo:1897
Template-Type: ReDIF-Paper 1.0
Title: The Budget Deficit and the Dollar
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: EFG PE
Number: 1898
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1898
File-URL: http://www.nber.org/papers/w1898.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley (ed.) NBER Macroeconomics Annual 1986. Cambridge, MA: MIT Press, 1986.
Publication-Status: published as The Budget Deficit and the Dollar, Martin S. Feldstein. in NBER Macroeconomics Annual 1986, Volume 1, Fischer. 1986
Abstract: This study examines the reasons for changes in the real exchange rate between the dollar and the German mark from the beginning of the floating rate regime in 1973 through 1984. The econometric analysis focuses on the effects of anticipated structural budget deficits and monetary policy in the United States and Germany and the changes in U.S. profitability induced by changes in tax rules. The possible impact of a number of other variables is also examined. The evidence indicates that the rise in the expected future deficits in the budget of the U.S. government has had a powerful effect on the exchangerate between the dollar and the German mark. Each one percentage point increase in the ratio of future budget deficits to GNP increased the exchange rate by about 30 percentage points. Changes in the growth of the money supply also affect the exchange rate. Changes in the tax rules and in the inflation-tax interaction that altered the corporate demand for funds did not have any discernible effect on the exchange rate. A separate analysis confirms that there is an equilibrium structural relation between the dollar-DM rates in the United States and Germany. An increase of one percentage point in the real interestrate differential has been associated with a rise in the DM-dollar ratio of about five percent.
Handle: RePEc:nbr:nberwo:1898
Template-Type: ReDIF-Paper 1.0
Title: The Dynamic Demand for Capital and Labor
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Note: EFG
Number: 1899
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1899
File-URL: http://www.nber.org/papers/w1899.pdf
File-Format: application/pdf
Publication-Status: published as Shapiro, Matthew D."The Dynamic Demand for Capital and Labor," Quarterly Journal of Economics, Vol. 101, No. 3, August 1986, pp. 513-542.
Abstract: A model of the dynamically interrelated demand for capital and labor is specified and estimated. The estimates are of the first-order conditions of the firm's problem rather than of the closed-form decision rules. This use of the first-order conditions allows a random rate of return and a flexible specification of the technology. The estimates do not imply the very slow rates of adjustment displayed in other, related estimates of the demand for capital. Because adjustment is estimated to be rapid, there is,contrary to the standard view, scope for factor-prices to affect investment at relatively high frequencies.
Handle: RePEc:nbr:nberwo:1899
Template-Type: ReDIF-Paper 1.0
Title: Capital Utilization and Capital Accumulation: Theory and Evidence
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Note: EFG
Number: 1900
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1900
File-URL: http://www.nber.org/papers/w1900.pdf
File-Format: application/pdf
Publication-Status: published as Shapiro, Matthew D. "Capital Utilization and Capital Accumulation: Theoryand Evidence," Journal of Applied Econometrics, Vol. 1, No. 3, (1986), pp. 211-234.
Abstract: A firm may acquire additional caoital input by purchasing new capital or by increasing the utilization of its current capital. The margin between capital accumulation and capital utilization is studied in a model of dynamic factor demand where the firm chooses capital, labor, and their rates of utilization. A direct measure of capital utilization --the workweek of capital--is incorporated into the theory and estimates. The estimates imply that capital stock is costly to adjust while the work week of capital is essentially costless to adjust. The estimated response of the capital stock to changes in its price and in the required rate of return is more rapid than found in other estimates.
Handle: RePEc:nbr:nberwo:1900
Template-Type: ReDIF-Paper 1.0
Title: The Efficiency of the Supply of Public Education
Author-Name: Theodore C. Bergstrom
Author-Name: Judith Roberts
Author-Name: Daniel L. Rubinfeld
Author-Name: Perry Shapiro
Number: 1901
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1901
File-URL: http://www.nber.org/papers/w1901.pdf
File-Format: application/pdf
Publication-Status: Published as "A Test for Efficiency in the Supply of Public Education", Journal of Public Economics, Vol. 35, no. 3 (1988): 289-308.
Abstract: The question of whether governments spend too much or too little has been a frequent subject of debate, but has been infrequently analyzed.This paper proposes and then applies a methodology which checks to see whether the "Samuelson condition" for the efficient provision of local public education is satisfied, i.e. whether the sum over the school district of individual marginal rates of substitution between public education and a private numeraire equals the marqinal rate of technical substitution between these two qoods. The econometric methodology uses a micro-based approach to the estimation of marginal rate of substitution functions which accounts for possible biases associated with the selection of school districts by individual households.
Handle: RePEc:nbr:nberwo:1901
Template-Type: ReDIF-Paper 1.0
Title: The Limited Viability of Dual Exchange-Rate Regimes
Author-Name: Jacob A. Frenkel
Author-Name: Assaf Razin
Author-Person: pra388
Note: ITI IFM
Number: 1902
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1902
File-URL: http://www.nber.org/papers/w1902.pdf
File-Format: application/pdf
Abstract: This paper examines the viability of dual exchange-rate regimes. Typically, under such a regime the exchange rates applicable to current-account(commercial) transactions and to capital-account (financial) transactions differ from each other. This difference may be determined in the free market if the authorities peg the commercial exchange rate and set a binding quota on external borrowing, or it may result from direct pegging of both exchange rates. The analysis starts with a specification of the characteristics of the distortion introduced by the exchange-rate premium (that is, the percentage discrepancy between the financial and the commercial exchange rates), and then provides explicit formula for the equilibrium premium, for its evolution over time and for the welfare cost induced by the distortion. The paper outlines the set of policy options consistent with sustaining a permanently viable dual exchange-rate system and highlights the severe constraints that intertemporal solvency requirements of the private sector and of the government impose on the long-run viability of the regime. The paper concludes with an analysis of the monetary changes associated with dual exchange-rate policies and draws the implications of such a regime for the intertemporal distribution of taxes and for the intergenerational distribution of welfare.
Handle: RePEc:nbr:nberwo:1902
Template-Type: ReDIF-Paper 1.0
Title: A "Gold Standard" Isn't Viable Unless Supported by Sufficiently FlexibleMonetary and Fiscal Policy
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ITI IFM
Number: 1903
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1903
File-URL: http://www.nber.org/papers/w1903.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem. "A Viable Gold Standard Requires Flexible Monetary And Fiscal Policy," from Review of Economic Studies, Vol. 56, pp. 101-117, (1989).
Abstract: The paper studies an idealized gold standard in a two-country setting. Without flexible national domestic credit expansion (dce)policies which offset the effect of money demand shocks on international gold reserves, the gold standard collapses with certainty in finite time through a speculative selling attack against one of the currencies.Various policies for postponing a collapse are considered. When a responsive dce policy eliminates the danger of a run on a country's reserves, the exogenous shocks disturbing the system which previously were reflected in reserve flows, now show up in the behaviour of the public debt. Unless the primary (non-interest) government deficit is permitted to respond to these shocks, the public debt is likely to rise (or fall) to unsustainable levels. For the idealized gold standard analysed in the paper, viability can be achieved only through the active and flexible use of monetary and fiscal policy.
Handle: RePEc:nbr:nberwo:1903
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Fundamental Tax Reform on the Allocation of Resources
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Yolanda K. Henderson
Note: PE
Number: 1904
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1904
File-URL: http://www.nber.org/papers/w1904.pdf
File-Format: application/pdf
Publication-Status: published as From The Effects of Taxation on Capital Accumulation, edited by Martin Feldstein, pp. 401-443. Chicago: The University of Chicago Press, 1987.
Publication-Status: published as The Impact of Fundamental Tax Reform on the Allocation of Resources, Don Fullerton, Yolanda Kodrzycki Henderson. in The Effects of Taxation on Capital Accumulation, Feldstein. 1987
Abstract: Recent proposals for fundamental tax reform differ in their relative emphasis on interasset, intersectoral, interindustry, and intertemporal distortions. The model in this paper addresses these multiple issues in the design of taxes on capital incomes. It is capable of measuring the net effects of changes in statutory rates, credits, depreciation allowances, and other features such as the indexation of interest and capital gains. It can compare costs of capital for individual assets, sectors, arid industries, and it weighs these together to evaluate the impact on total investment incentives. In a fully general equilibrium system, it can simulate alternative resource allocations and associated changes in welfare. For the overall evaluation of alternative tax reform proposals, the simultaneous consideration of these multiple effects is crucial. The model is used to compare current law, the Treasury tax reform plan of November 1984, and the Presidents proposal of May 1985. Under the "new view" that dividend taxes have a small effect on investment incentives, both reforms would reduce interasset distortions and the Presidents plan would reduce intersectoral distortions, but the Treasury plan would exacerbate intertemporal distortions. Still, for most parameters, both reforms generate net welfare gains even with slight declines in the capital stock. Under the "old view" that dividend taxes have a significant effect on investment incentives, both plans reduce corporate taxation through their partial deductions for dividends paid. They thus reduce intersectoral distortions as well as differences among assets. Under this view, the Treasury plan no longer increases intertemporal distortions. Even for the least favorable set of parameters in this case, these reforms raise both the capital stock and the real value of output above their baseline values. Finally, the paper shows alternative allocations of capital among assets, sectors, and industries.
Handle: RePEc:nbr:nberwo:1904
Template-Type: ReDIF-Paper 1.0
Title: A Disaggregate Equilibrium Model of the Tax Distortions Among Assets, Sectors, and Industries
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Yolanda K. Henderson
Note: PE
Number: 1905
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1905
File-URL: http://www.nber.org/papers/w1905.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Vol. 30, No.2, pp.391-413, (May 1989).
Abstract: This paper encompasses multiple sources of inefficiency introduced by the U.S. tax system into a single general equilibrium model. Using disaggregate calculations of user cost, we measure interasset distortions from the differential taxation of many types of assets. Simultaneously, we model the intersectoral distortions from the differential treatment of the corporate sector, noncorporate sector, and owner-occupied housing. Industries in the model have different uses of assets and degrees of incorporation. Results indicate that distortions between sectors are much smaller than those of the Harberger model. Distortions among industries arealso much smaller than those in models using average effective tax rates. Distortions among assets are larger, but the total of all these welfare costs is still below one percent of income.
Handle: RePEc:nbr:nberwo:1905
Template-Type: ReDIF-Paper 1.0
Title: Efficiency Wage Theories: A Partial Evaluation
Author-Name: Lawrence F. Katz
Author-Person: pka266
Note: LS
Number: 1906
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1906
File-URL: http://www.nber.org/papers/w1906.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley (ed.) NBER Macroeconomics Annual 1986. Cambridge, MA: MIT Press, 1986.
Publication-Status: published as Efficiency Wage Theories: A Partial Evaluation, Lawrence F. Katz. in NBER Macroeconomics Annual 1986, Volume 1, Fischer. 1986
Abstract: This paper surveys recent developments in the literature on efficiency wage theories of unemployment. Efficiency wage models have in common the property that in equilibrium firms may find it profitable to pay wages in excess of market clearing. High wages can help reduce turnover, elicit worker effort, prevent worker collective action, and attract higher quality employees. Simple versions of efficiency wage models can explain normal involuntary unemployment,segmented labor markets, and wage differentials across firms and industries for workers with similar productive characteristics. Deferred payment schemes andother labor market bonding mechanisms appear to be able to solve some efficiency wage problems without resultant job rationing and involuntary unemployment. A wide variety of evidence on inter-industry wage differences is analyzed. Efficiency wage models appear useful in explaining the observed pattern of wage differentials.The models also provide several potential mechanisms for cyclical fluctuations in response to aggregate demand shocks.
Handle: RePEc:nbr:nberwo:1906
Template-Type: ReDIF-Paper 1.0
Title: Wage Changes in Job Changes
Author-Name: Jacob Mincer
Note: LS
Number: 1907
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1907
File-URL: http://www.nber.org/papers/w1907.pdf
File-Format: application/pdf
Publication-Status: published as Mincer, Jacob. "Wage Changes in Job Changes," Research in Labor Economics, Vol. 8A, 1986.
Abstract: This is a study of short and longer-runwage gains observed in moving from one job (firm) to the next. Short-run wage gains are defined as wage changes over the survey year bracketing the move minus the opportunity cost of moving. The latter is measured by waqe growth of a subgroup of stayers whose mobility behavior and other charactristics are the same as of the current period movers. Longer-run wage gains are defined as the difference in wages between two successive jobs at the same tenure levels, net of experience, again net of opnortunity costs. Wage gains of movers are generally positive, except for layoffsof older workers. A large part of the gain is due to the lesser wage growth on the job of movers compared to (all) stayers. This is consistent with below average amounts of on the job training observed for movers compared to all workers. Wage gains of quits exceed those of layoffs, despite similar wage levels and wage growth on the preceding job. Wage gains of older movers are smaller compared to gains of younger movers, both in quits and in layoffs. Differences in search conditions and in the nature of separations help to explain these findings.
Handle: RePEc:nbr:nberwo:1907
Template-Type: ReDIF-Paper 1.0
Title: Residual Risk Revisited
Author-Name: Bruce N. Lehmann
Note: ME
Number: 1908
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1908
File-URL: http://www.nber.org/papers/w1908.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Econometrics, Vol. 45, pp. 71-97, (1990).
Abstract: The Capital Asset Pricing Model in conjunction with the usual market model assumptions implies that well-diversified portfolios should be mean variance efficient and ,hence, betas computed with respect to such indices should completely explain expected returns on individual assets. In fact, there is now a large body of evidence indicating that the market proxies usually employed in empirical tests are not mean variance efficient. Moreover, there is considerable evidence suggesting that these rejections are in part a consequence of the presence of omitted risk factors which are associated with nonzero risk premia in the residuals from the single index market model. Consequently, the idiosyncratic variances from the one factor model should partially reflect exposure to these omitted sources of systematic risk and,hence, should help explain expected returns. There are two plausible explanations for the inability to obtain statistically reliable estimates of a linear residual risk effect in the previous literature:(1) nonlinearity of the residual risk effect and (2) the inadequacy of the statistical procedures employed to measure it.The results presented below indicate that the econometric methods employed previously are the culprits. Pronounced residual risk effects are found in the whole fifty-four year sample and in numerous five year subperiods as well when weighted least squares estimation is coupled with the appropriate corrections for sampling error in the betas and residual variances of individual security returns. In addition, the evidence suggests that it is important to take account of the nonnormality and heteroskedasticity of security returns when making the appropriate measurement error corrections in cross-sectional regressions. Finally, the results are sensitive to the specification of the model for expected returns.
Handle: RePEc:nbr:nberwo:1908
Template-Type: ReDIF-Paper 1.0
Title: Tax Reform and the Slope of the Playing Field
Author-Name: Patric H. Hendershott
Note: PE
Number: 1909
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1909
File-URL: http://www.nber.org/papers/w1909.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. "Tax Reform and the Slope of the Playing Field," Taxes and Capital Formation, Feldstein (ed.), Chicago: UCP, 1987.
Publication-Status: published as Tax Reform and the Slope of the Playing Field, Patric H. Hendershott. in Taxes and Capital Formation, Feldstein. 1987
Abstract: Possible benefits of tax reform include faster economic growth and greater equity across households. A part of economic growth is the channeling of saving into the most productive real investments. The ability of various tax regimes to channel saving efficiently and independently of the inflation rate is the focus of the current paper. The tax regimes include current law, preERTA law, the Treasury and Administration reform proposals, HR 3838, and what seems likely to come out of the Senate Finance Committee.
Handle: RePEc:nbr:nberwo:1909
Template-Type: ReDIF-Paper 1.0
Title: Life-Cycle Models of Consumption: Is the Evidence Consistent with the Theory?
Author-Name: Angus Deaton
Author-Person: pde30
Note: EFG
Number: 1910
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1910
File-URL: http://www.nber.org/papers/w1910.pdf
File-Format: application/pdf
Publication-Status: published as Advances in Econometrics, Fifth World Congress, Vol. 2, Bewley, T., ed.,(1987): 121-148.
Abstract: The paper considers avariety of evidence that casts light on the validity of the life-cycle model of consumer behavior. In the first part of the paper, simple non-parametric tests are used to examine representative agent models of consumption and labor supply. It seems extremely unlikely that post-war United States evidence can usefully be explained by such a model, at least if the assumption of intertemporal separability is maintained. Changes in aggregate consumption bear little relationship to after tax real interest rates, and consumption has tended to grow even during periods of negative real interest rates. Joint consideration of consumption and labor supply does nothing to resolve the problems that arise when consumption is taken by itself. It is argued that these results cast doubt, not onlife-cycle theory itself, but on the representative agent assumption; there is little reason to suppose that changes inaggregate consumption should be related to the real interestrate.The second part of the paper is concerned with the time-series representation of disposable income and with it simplications for the behavior of consumption under the assumptions of the life-cycle model. If real disposable income is truly a first-order autoregressive process in first differences,a process that fits the data well and is becoming increasing popular in the macro time-series literature,then the life-cycle model implies that changes in consumption should be more variable than innovations in income, a prediction that is manifestly false. Various possible resolutions of this problem are reviewed, including habit formation and alternative representations of disposable income. The paper concludes with some evidence on the excess sensitivity question, why it is that consumption responds to anticipated changes in income. Monte Carlo evidence supports the suggestion made by Mankiw and Shapiro that the presence of time trends can cause severe problems of inference in models containing variables with unit roots, but the results makeit seem unlikely that this is the cause of the widespread excess sensitivity findings.
Handle: RePEc:nbr:nberwo:1910
Template-Type: ReDIF-Paper 1.0
Title: Tax Changes and Capital Allocation in the 1980s
Author-Name: Patric H. Hendershott
Note: PE
Number: 1911
Creation-Date: 1986-04
Order-URL: http://www.nber.org/papers/w1911
File-URL: http://www.nber.org/papers/w1911.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) The Effects of Taxation on Capital Accumulation. Chicago: University of Chicago Press, 1987.
Publication-Status: published as Tax Changes and Capital Allocation in the 1980s, Patric H. Hendershott. in The Effects of Taxation on Capital Accumulation, Feldstein. 1987
Abstract: The paper begins with presentation of a methodology for computing rental costs of capital under any tax regime.Tax law over the 1980-84 period is specified and the provisions of theTreasury and Administration tax reform proposals and HR 3838 are described. A model is then constructed to allow calculation of the impact of changes in tax regimes and/or expected inflation on interest rates and the allocation of real capital. The model allocates a fixed private capital stock among various classes of nonresidential and residential capital, depending upon the rental costs for the capital components, the price elasticities of demand with respect to the rental costs, and the elasticities of homeownership with respect to the cost of owning versus renting. The interest rate adjusts in response to tax/inflation changes so as to maintain the aggregate demand for capital at this initial level.The model is employed to deduce the efficiency of the allocation of real capital under various tax regimes at different inflation rates.
Handle: RePEc:nbr:nberwo:1911
Template-Type: ReDIF-Paper 1.0
Title: The Assessment of National Price Levels
Author-Name: Irving B. Kravis
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 1912
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1912
File-URL: http://www.nber.org/papers/w1912.pdf
File-Format: application/pdf
Publication-Status: published as Kravis, Irving B. and Robert E. Lipsey."The Assessment of National Price Levels," Real-Financial Linkages among Open Economies, eds. Sven W. Arndt & J . David Richardson, Cambridge, MA: MIT Press, Fall 1987.
Publication-Status: published as Kravis, Irving B. and Robert E. Lipsey. "National Price Levels And The Prices Of Tradables And Nontradables," American Economic Review, 1988, v78(2), 474-478.
Abstract: This paper attempts to find norms for long-run national price levels,and therefore, by implication, for exchange rates, that are superior to those implied by the absolute or relative versions of purchasing power parity theory. The structural variables we have found to determine these price levels, real income per capita, the openness of the economy, and the share of tradables in total output, are used to explain price levels in periods since 1960 and to some extent since 1950.The results suggest that there was a movement toward a more "orderly" alignment of price levels, especially in the period before the 1970's. That is,national price levels came to be explained to an increasing degree by our structural variables. The price levels implied by the structural equations appear to come closer to representing long-run equilibrium levels than do those implied by purchasing power parity. The deviations from the structural equations seem to have value inpredicting future changes in price levels or real exchange rates,in conbination with changes in the structural variables. And they also contribute to predicting changes in the balance of trade.
Handle: RePEc:nbr:nberwo:1912
Template-Type: ReDIF-Paper 1.0
Title: More on the Speed of Adjustment in Inventory Models
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 1913
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1913
File-URL: http://www.nber.org/papers/w1913.pdf
File-Format: application/pdf
Publication-Status: published as Blinder, Alan S. "More on the Speed of Adjustment in Inventory Models," Journal of Money, Credit, and Banking, Vol. 18, No. 3, (August 1986), pp. 355-365.
Abstract: When empirical stock-adjustment models of manufacturers' inventories of finished goods are estimated, there appear to be two local minima in the sum of squared residuals functions. At one local minimum, the estimated adjustment speed is typically quite high; at the other, it is typically quite low. Furthermore, finding two sets of estimates that fit the data almost equally well does not appear to be a quirk of this particular application. Rather, it stems from a fundamental identification problem that afflicts partial adjustment models of all kinds. In the specific context of manufacturers' inventories of finished goods, the estimation procedure employed by Maccini and Rossana seems to pick out the solution with rapid adjustment (and high serial correlation in the disturbances) whereas the solution with slow adjustment (and little serial correlation) is more often the global minimum.
Handle: RePEc:nbr:nberwo:1913
Template-Type: ReDIF-Paper 1.0
Title: Beer Taxes, the Legal Drinking Age, and Youth Motor Vehicle Fatalities
Author-Name: Henry Saffer
Author-Person: psa935
Author-Name: Michael Grossman
Author-Person: pgr107
Note: PE
Number: 1914
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1914
File-URL: http://www.nber.org/papers/w1914.pdf
File-Format: application/pdf
Publication-Status: published as Saffer, Henry and Michael Grossman."Beer Taxes, the Legal Drinking Age, and Youth Motor Vehicle Fatalities," Journal of Legal Studies, Vol. 16, No. 2, June 1987.
Abstract: Based on a time series of state cross sections for the period from 1975 through 1981, we find that motor vehicle accident mortality rates of youths ages 15 through 17, 18 through 20, and 21 through 24 are negatively related to the real beer excise tax. We also find that the death rate of 18 through 20 year olds is inversely related to the minimum legal age for the purchase of beer. Simulations suggest that the lives of 1,022 youths between the ages of 18 and 20 would have been saved in a typical year during the sample period if the Federal excise tax rate on beer, which has been fixed in nominal terms since 1951, had been indexed to the rate of inflation since 1951. This represents a 15 percent decline in the number of lives lost in fatal crashes. The simulations also suggest that the lives of 555 youths per year would have been saved if the drinking age had been 21 in all states of the U.S. These figures indicate that, if reductions in youth motor vehicle accident deaths are desired, both a uniform drinking age of 21 and an increase in the Federal excise tax rate on beerare effective policies to accomplish this goal. They also indicate that the tax policy may be more potent than the drinking age policy.
Handle: RePEc:nbr:nberwo:1914
Template-Type: ReDIF-Paper 1.0
Title: Foreign Counterfeiting of Status Goods
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Carl Shapiro
Author-Person: psh275
Note: ITI IFM
Number: 1915
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1915
File-URL: http://www.nber.org/papers/w1915.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Gene M. and Carl Shapiro. "Foreign Counterfeiting of Status Goods." From The Quarterly Journal of Economics, Vol. CIII, No. 412, pp. 79-10 0, (February 1988).
Abstract: We study the positive and normative effects of counterfeiting, i.e.,trademark infringement, in markets where consumers are not deceived by forgeries.The fact that consumers are willing to pay more for counterfeits than for generic merchandise of similar quality suggests that they value the prestige, or status, associated with brand-name trademarks. Counterfeiters of status goods impose a negative externality on consumers of genuine items, as fakes degrade the status associated with a given label. But counterfeits allow consumers to unbundle the status and quality attributes of the brand-name products, and alter the competition among oligopolistic trademark owners. We analyze two policies designed to combat counterfeiting: enforcement policy which increases the likelihood of confiscation of illegal items, and the imposition of a tariff on low-quality imports.
Handle: RePEc:nbr:nberwo:1915
Template-Type: ReDIF-Paper 1.0
Title: Are Output Fluctuations Transitory?
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: N. Gregory Mankiw
Note: EFG
Number: 1916
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1916
File-URL: http://www.nber.org/papers/w1916.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, John and N. Gregory Mankiw. "Are Output Fluctuations Transitory?" Quarterly Journal of Economics, pp. 857-880, November 1987.
Abstract: According to the conventional view of the business cycle, fluctuations in output represent temporary deviations from trend. The purpose of this paper is to question this conventional view. If fluctuations in output are dominated by temporary deviations from the natural rate of output, then an unexpected change in output today should not substantially change one's forecast of output in, say, ten or twenty years. Our examination of quarterly post-war United States data leads us to be skeptical about this implication. We find that a unexpected change in real GNP of one percent should change one's forecast by over one percent over a long horizon. While it is obviously imprudent to make definitive judgments regarding theories on the basis of one stylized fact alone, we believe that the great persistence of output shocks documented in this paper is an important and often neglected feature of the data that should more widely be used for evaluating theories of economic fluctuations.
Handle: RePEc:nbr:nberwo:1916
Template-Type: ReDIF-Paper 1.0
Title: Incentive Contracts
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: LS
Number: 1917
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1917
File-URL: http://www.nber.org/papers/w1917.pdf
File-Format: application/pdf
Publication-Status: published as The New Palgrave: A Dictionary of Economics. vol.2,pp. 744-748, ed. John Eatwell, Murray Milgate and Peter Newman. The Macmillan Press Limited London, 1987
Abstract: Labor relations involve incentive problems. The market solves these problems by developing a variety of institutions. This paper describes and assesses the various forms of incentive contracts.
Handle: RePEc:nbr:nberwo:1917
Template-Type: ReDIF-Paper 1.0
Title: Multicountry, Multifactor Tests of the Factor Abundance Theory
Author-Name: Harry P. Bowen
Author-Person: pbo120
Author-Name: Edward E. Leamer
Author-Person: ple440
Author-Name: Leo Sveikauskas
Note: ITI IFM
Number: 1918
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1918
File-URL: http://www.nber.org/papers/w1918.pdf
File-Format: application/pdf
Publication-Status: published as Bowen, Harry P., Edward E. Leamer and Leo Sveikauskas. "Multicountry, Multifactor Tests of the Factor Abundance Theory," American Economic Review, Vol . 77, No. 5, December 1987, 791-809.
Abstract: This paper presents conceptually correct tests of the Heckscher-Ohlin proposition that trade in commodities can be explained in terms of an interaction between factor input requirements and factor endowments. Most prior work that claims top resent tests of this hypothesis have used intuitive but inappropriate generalizations of the traditional two by two model to deal with a multidimensional reality. Moreover, prior work has in general used measurements on only two of the three variables(trade, factor input requirements and factor endowments) that are required for a proper test of the H-O theory.We derive an exact specification of the H-O interaction in a multicountry, multicommodity, multifactor world in the form of the Heckscher-Ohlin-Vanek (H-O-V) theorem which equates the factors embodied in net trade to excess factor supplies.This theorem implies sign and rank propositions analogous to those implicitly studied by Leontief, but it also implies hypotheses about the parameters linking factor contents and factor supplies. Accordingly, we conduct tests of the sign and rank propositions as well as several parametric hypotheses which permit various assumptions about measurement errors, nonproportional consumption and technological differences. Our analysis uses separately measured data on trade, factor input requirements and endowments for twenty-seven countries and twelve factors in 1967. Tests of the Leontief type sign and rank propositions sharply reject this facet of the H-O-V model. In particular, the sign of net factor exports infrequently predicts the sign of excess factor supplies and therefore does not systematically reveal factor abundance.The results from an extended set of tests conducted in a regression context reject the H-O-V hypothesis of an exact relationship between factor contents and national factor supplies. Support is found for the H-O--V assumption of homothetic preferences, but estimates of the parameters linking factor contents and factor supplies are found to differ significantly from their theoretical values. We find there is clear evidence that the departure of the estimated coefficients from their theoretical values is importantly related to differences across countries in the matrix of factor input requirements and, by implication, to violation of the assumption of factor price equalization. We also find that errors of measurement in both trade and national factor supplies are an important reason for rejection of the H-O-V hypothesis.
Handle: RePEc:nbr:nberwo:1918
Template-Type: ReDIF-Paper 1.0
Title: On the Political Economy of Land Value Capitalization and Local Public Sector Rent-Seeking in a Tiebout Model
Author-Name: Joseph Gyourko
Author-Person: pgy3
Author-Name: Joseph S. Tracy
Author-Person: ptr23
Note: PE
Number: 1919
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1919
File-URL: http://www.nber.org/papers/w1919.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Urban Economics, 1989, vol. 26, pp. 152-173.
Abstract: In this paper we examine the political economy. of capitalization in a Tiebout model when there is a rent-seeking public bureaucracy. A new approach is suggested for testing for the influence of successful local public sector rent-seeking on local property values. We present empirical evidence showing that property values are lower in cities which pay their public sector workers significantly more than similar public sector workers earn in other cities. Finally, we discuss how the regulatory process can be used to distribute rents arising from a short-run Tiebout disequilibrium to landowners, public sector workers, and renters.
Handle: RePEc:nbr:nberwo:1919
Template-Type: ReDIF-Paper 1.0
Title: An Analysis of Public and Private Sector Wages Allowing for Endogenous Choices of Both Government and Union Status
Author-Name: Joseph Gyourko
Author-Person: pgy3
Author-Name: Joseph Tracy
Author-Person: ptr23
Note: LS
Number: 1920
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1920
File-URL: http://www.nber.org/papers/w1920.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics. Volume 6, Issue 2, Page 229, Jan 1988
Abstract: Studies of public/private sector wage differentials typically assume that the govenment and union status of a worker are exogenous variables. Recently, some studies have relaxed this assumption slightly by allowing the union status to be endogenous. In this paper, we consider a more general selection model in which a worker selects among four labor markets: private/nonunion, private/union, public/nonunion and public/union. A multinomial logit model is estimated to capture this selection decision. Consistent wage equation estimates are then derived using a generalization of the now familiar two-step estimation procedure. Some evidence is found for selection bias in the private/nonunion and the public/union sectors.The pattern of these selection effects produces larger union wage premiumsin the public as compared to the private sector. While this is in contrast to the standard findings, the standard errors on the public sector union wage differentials are quite high. In addition, the data indicates that the public/private sector wage differential is largest for federal workers despite the "comparability" process determining their wages.
Handle: RePEc:nbr:nberwo:1920
Template-Type: ReDIF-Paper 1.0
Title: Risk Aversion and Determinants of Stock Market Behavior
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Note: ME
Number: 1921
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1921
File-URL: http://www.nber.org/papers/w1921.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol. 70, no. 2, pp. 183-190, May 1988.
Abstract: A simple model of equity pricing is developed to address two related questions. First, to what extent can unanticipated changes in such"fundamental" variables as profitability, real interest rates, inflation, and the variance of returns account for the observed behavior of the stockmarket? Second, how risk averse are investors in the aggregate?We find that the pretax profit rate and the variance of returns are both significant explanators of the market, and interest rates somewhat less so. Estimates of the index of relative risk aversion are obtained that put that parameter in the range of 3 to 4.
Handle: RePEc:nbr:nberwo:1921
Template-Type: ReDIF-Paper 1.0
Title: Real Exchange Rates and Productivity Growth in the United States and Japan
Author-Name: Richard C. Marston
Note: ITI IFM
Number: 1922
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1922
File-URL: http://www.nber.org/papers/w1922.pdf
File-Format: application/pdf
Publication-Status: published as From Real-Financial Linkages among Open Economies, edited by Sven W. Arndtand J. David Richardson, pp. 71-96. Cambridge, MA: MIT Press, 1987.
Abstract: Real exchange rates between the yen and dollar based on general price indexes overestimate the competitiveness of the United States relative to Japan. High productivity growth in the traded sector of the Japanese economy results in a continuous fall in the prices of traded goods relative to nontraded goods in Japan. In order to keep U.S. traded goods competitive, the real exchange rate based on general price series like the GDP deflator or the CPI index must continually fall resulting in a real appreciation of the yen.This paper provides estimates of how far real exchange rates based on general price series would have had to fall over the 1973-83 period in order to keep U.S. traded goods competitive. The real exchange rate based on GDP deflators, for example, would have had to fall by 38% relative to the real exchange rate based on unit labor costs in the traded sector. The GDP series remained roughly constant over the period, thus giving the misleading impression that U.S. goods were still competitive despite a sharp rise in the relative price of U.S. traded goods. The paper also provides estimates of the relative wage changes which would have to occur to restore the competitiveness of U.S. traded goods.
Handle: RePEc:nbr:nberwo:1922
Template-Type: ReDIF-Paper 1.0
Title: Poverty Among the Elderly: Where are the Holes in the Safety Net?
Author-Name: Michael J. Boskin
Author-Name: John B. Shoven
Note: PE
Number: 1923
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1923
File-URL: http://www.nber.org/papers/w1923.pdf
File-Format: application/pdf
Publication-Status: published as Boskin, Michael J. and John B. Shoven. "Poverty Among the Elderly: Where are the Holes in the Safety Net?" Pensions in the U.S. Economy, ed. z. Bodie , J. Shoven, D. Wise. Chicago: UCP, 1988.
Abstract: Using data from the longitudinal retirement history survey (RHS), we examine the economic status of the cohort of the elderly who were 68 -73 years old by 1979 to see who fell through the safety net in the 1970s. Our most important finding is that a non-trivial fraction of the elderly in the age/vintage group we study either remained poor, became poor, or had very low replacement rates in terms of their total income. This occurred despite the enormous general improvement of the economic status of the elderly, part of which was made possible by very large increases in real Social Security benefits. Examination of the characteristics of those who fell through the safety net reveal that females, especially widows, were the most likely candidates for economic difficulty in this cohort in this stage of their life. We also note a sharp difference in realizations of retirement income expectations among those who were poor and/or had low replacement rates relative to those who were well off and/or had high replacement rates. Both groups received substantially more Social Security benefits than expected, whereas those with (ex post) low replacement rates received less in pensions and continued earnings than they had expected while those with high replacement rates received more than expected.
Handle: RePEc:nbr:nberwo:1923
Template-Type: ReDIF-Paper 1.0
Title: Tax Asymmetries and Corporate Income Tax Reform
Author-Name: Saman Majd
Author-Name: Stewart C. Myers
Note: PE
Number: 1924
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1924
File-URL: http://www.nber.org/papers/w1924.pdf
File-Format: application/pdf
Publication-Status: published as Majd, Saman and Stewart C. Myers. "Tax Assymetries and Corporate Tax Reform ," The Effects of Taxation on Capital Accumulation, ed. by Martin Feldstein . Chicago: UCP, 1987.
Publication-Status: published as Tax Asymmetries and Corporate Income Tax Reform, Saman Majd, Stewart C. Myers. in Taxes and Capital Formation, Feldstein. 1987
Abstract: This paper investigates the impact of tax asymmetries (the lack of full loss offsets) under current corporate income tax law and a stylized tax reform proposal. The government's tax claim on the firm's pretax cash flows is modelled as a series of path-dependent call options and valued by option pricing procedures and Monte Carlo simulation.The tax reform investigated reduces the statutory tax rate, eliminates the investment tax credit and sets tax depreciation approximately equal to economic depreciation. These changes would increase the effective tax rate on marginal investments by firms that always pay taxes, but dramatically reduce the potential burden of tax asymmetries. "Stand-alone" investments, which are exposed to the greatest burden, are uniformly more valuable under this reform, despite the loss of the investment tax credit and accelerated depreciation.These general results are backed up by a series of numerical experiments. We vary investment risk, inflation (with and without indexing of tax depreciation), and investigate how allowing interest on loss carry forwards would affect after-tax project value.
Handle: RePEc:nbr:nberwo:1924
Template-Type: ReDIF-Paper 1.0
Title: The Sources of Disagreement Among International Macro Models and Implications for Policy Coordination
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 1925
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1925
File-URL: http://www.nber.org/papers/w1925.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, 1986, v5(Supp), S53-S75.
Publication-Status: published as as "Ambiguous Policy Multipliers in Theory and in Empirical Models" in Empirical Macroeconomics for Interdependent Economies, Ralph C. Bryant et al (eds) D.C., Brookings, April 1988.
Publication-Status: published as as "The Implications of Conflicting Models for Coordination Between Monetary and Fiscal Policy-Makers," In Empirical Macroeconomics for Interdependent Economies, eds., Ralph Bryant, et al. (Brookings Institution Press: Washington, D.C.), May 1988.
Publication-Status: published as in Frankel, Jeffrey A. "Financial Markets and Monetary Policy." The MIT Press (July 13, 1995)
Abstract: This paper makes use of the simulation results of 12 leading large international econometric models, as to the effects of commonly specified changes in monetary and fiscal policy, conducted under the Brookings exercise "Empirical Macroeconomics for Interdependent Economies." The first half of the paper examines disagreement among the models on the signs of policy multipliers, and how such disagreement compares to the ambiguities appearing in the theoretical literature. There turns out to be relatively little disagreement as to the effects on output, prices and the exchange rate. The greatest disagreement is rather over the question whether a monetary expansion worsens or improves the current account. The second half of the paper examines the implications for internationa lmacroeconomic policy coordination. The existing literature makes the unrealistic assumption that policy-makers all know the true model, from whichit follows that the Nash bargaining solution is in general superior to the Nash competitive solution. But everything changes once we recognize that policy-makers' models, as the models in the Brookings simulations, differ from each other and therefore from the "true" model. When the central bank and fiscal authorities subscribe to conflicting models, it is still true that(1) the competitive equilibrium is sub-optimal, and that (2) the two authorities will in general be able to agree on a cooperative policy package that each believes will improve the objective function; however, (3) the bargaining solution is as likely to move the target variables in the wrong direction as in the right direction, in the light of a third true model. Out of 1,210possible combinations of different models subscribed to by the two policy authorities and models representing reality, bargaining raises welfare in only 819 cases. The conclusion is that disagreement as to the true model maybe a more serious obstacle to successful policy coordination than is institutional failure to enforce Pareto-improving solutions.
Handle: RePEc:nbr:nberwo:1925
Template-Type: ReDIF-Paper 1.0
Title: Pricing to Market when the Exchange Rate Changes
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 1926
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1926
File-URL: http://www.nber.org/papers/w1926.pdf
File-Format: application/pdf
Publication-Status: published as Arndt, Sven W. and J. David Richardson (eds.) Real-financial linkages among open economies. Cambridge, MA and London: MIT Press, 1987.
Abstract: It has been widely remarked that US import prices have not fully reflected movements in the exchange rate. This paper begins with an investigation of the actual extent of "pricing to market" by foreign suppliers. It shows that pricing to market is a real phenomenon, but not universal; in particular, evidence on German export prices suggests that stickiness of import prices is largely confined to machinery and transport equipment. The paper then considers a number of possible models. While the evidence is not sufficient to distinguish among thesemodels, it seems probable that a full explanation will involve both dynamics and imperfect competition.
Handle: RePEc:nbr:nberwo:1926
Template-Type: ReDIF-Paper 1.0
Title: The Fisher Hypothesis and the Forecastability and Persistence of Inflation
Author-Name: Robert B. Barsky
Author-Person: pba670
Note: ITI IFM
Number: 1927
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1927
File-URL: http://www.nber.org/papers/w1927.pdf
File-Format: application/pdf
Publication-Status: published as Barsky, Robert B. "The Fisher Hypothesis and the Forecastibility and Persistence of Inflation," Journal of Monetary Economics, Jan. 1987.
Abstract: For the period 1860 to 1939, the simple correlation of the U.S. commercial paper rate with the contemporaneous inflation rate is -.17. The corresponding correlation for the period 1950 to 1979 is .71. Inflation evolved from essentially a white noise process in the pre-World War I years to a highly persistent, nonstationary ARIMA process in the post-1960 period. I argue that the appearance of an ex post Fisher effect for the first time after 1960 reflects this change in the stochastic process of inflation, rather than a change in any structural relationship between nominal rates and expectedi nflation. I find little evidence of inflation non-neutrality in data from the gold standard period.This contradicts the conclusion of a frequently cited study by Lawrence Summers, who examined the low frequency relationship between inflation and interest rates using band spectrum regression. Deriving and implementing a frequency domain version of the Theil misspecification theorem, I find that neither high frequency nor low frequency movements in gold standard inflation rates were forecastable. Thus even if nominal rates responded fully to expected inflation, one would expect to find the zero coefficient obtained by Summers.
Handle: RePEc:nbr:nberwo:1927
Template-Type: ReDIF-Paper 1.0
Title: An Assessment of the Benefits of Air Pollution Control: The Case of Infant Health
Author-Name: Theodore J. Joyce
Author-Person: pjo112
Author-Name: Michael Grossman
Author-Person: pgr107
Author-Name: Fred Goldman
Note: EH
Number: 1928
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1928
File-URL: http://www.nber.org/papers/w1928.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Urban Economics, Vol. 25, pp. 32-51, (January 1989).
Abstract: This paper contains estimates of the impacts of air pollutants on race-specific neonatal mortality rates based on data for heavily populated counties of the U.S. in 1977. Unlike previous research in this area, these estimates are obtained from awell specified behavioral model of the production of health, which is estimated with the appropriate simultaneous equations techniques. The results suggest that sulfur dioxide is the dominant air pollutant in newborn survival outcomes. There is also evidence that an increase in sulfur dioxide raises the neonatal mortality rate by raising the percentage of low-birth weight births. Based on marginal-willingness-to-pay computations, we estimate that the benefits of a 10 percent reduction insulfur dioxide levels range between $54 million and $1.09 billion in 1977 dollars.
Handle: RePEc:nbr:nberwo:1928
Template-Type: ReDIF-Paper 1.0
Title: U.S. Macroeconomic Policy and Performance in the 1980s: An Overview
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG ME
Number: 1929
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1929
File-URL: http://www.nber.org/papers/w1929.pdf
File-Format: application/pdf
Publication-Status: published as Patrick, H. and R. Tachi (eds.) Japan and the United States Today: Exchange Rates, Macroeconomic Policies, and Financial Market Innovations. New York: Columbia University Press, 1987.
Abstract: This piper provides an overview of U.S. macroeconomic policy and performance in the 1980s by first outlining the behavior of key economic variables and then discussing the policies that have affected these variables. After gaining some insight into the interaction between these policies and macroeconomic performance, it then goes on to examine where macro policy and the U.S. economy may be heading in the next several years.
Handle: RePEc:nbr:nberwo:1929
Template-Type: ReDIF-Paper 1.0
Title: Real Exchange Rate Variability: An Empirical Analysis of the Developing Countries Case
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 1930
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1930
File-URL: http://www.nber.org/papers/w1930.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian. "Real Exchange Rate Variability: An Empirical Analysisof the Developing Countries Case," International Economic Journal, Vol. 1, No. 1, Spring 1987, pp. 91-106.
Abstract: The purpose of this paper is to investigate the potential role of monetary and real factors in explaining real exchange rate variability in developing countries. For this purpose two indexes of real effective exchange rate variability that measure short-term and long-term variability were constructed for 30 countries. The results obtained, using a generalized least squares procedures on cross section data, indicate that real exchange rate variability has been affected both by real and monetary factors. In particular it was found that more unstable nominal exchange rate policies were reflected in higher real exchange rate instability in the short-run; more unstable domestic credit policies resulted in higher short-term real exchange rate variability; and more unstable external terms of trade also affected positively the degree of real exchange rate instability.
Handle: RePEc:nbr:nberwo:1930
Template-Type: ReDIF-Paper 1.0
Title: Efficient Contracts with Costly Adjustment: Short-RUn Employment Determination for Airline Mechanics
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 1931
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1931
File-URL: http://www.nber.org/papers/w1931.pdf
File-Format: application/pdf
Publication-Status: published as Card, David. "Efficient Contracts with Costly Adjustment: Short-Run Employment Determination for Airline Mechanics," American Economic Review, Vol. 7 6, No. 5, December 1986, pp.1045-1071.
Abstract: This paper presents an empirical analysis of firm-specific employment and wage outcomes for mechanics in the domestic airline industry. A dynamic contracting model is presented that incorporates both costly employment adjustment and potential gaps between contract wage rates and the opportunity value of workers' time. The model gives a useful description of the employment-output linkage in the data, but is less successful in capturing the dynamic relation between employment, contract wage rates, and wage rates outside the airline industry.
Handle: RePEc:nbr:nberwo:1931
Template-Type: ReDIF-Paper 1.0
Title: Do Equilibrium Real Business Cycle Theories Explain Post-War U.S. Business Cycles?
Author-Name: Martin S. Eichenbaum
Author-Person: pei4
Author-Name: Kenneth J. Singleton
Author-Person: psi735
Note: EFG
Number: 1932
Creation-Date: 1986-05
Order-URL: http://www.nber.org/papers/w1932
File-URL: http://www.nber.org/papers/w1932.pdf
File-Format: application/pdf
Publication-Status: published as Eichenbaum, Martin and Kenneth J. Singleton. "Do Equilibrium Real Business Cycle Theories Explain Post-War U.S. Business Cycles?" NBER Macroeconomics Annual, ed. by S. Fischer, Vol. 1, pp. 91-134. Cambridge, MA: MIT Press, 1986.
Publication-Status: published as Do Equilibrium Real Business Cycle Theories Explain Postwar US Business Cycles?, Martin Eichenbaum, Kenneth I. Singleton. in NBER Macroeconomics Annual 1986, Volume 1, Fischer. 1986
Abstract: This paper presents and interprets some new evidence on the validity of the Real Business Cycle approach to business cycle analysis. The analysis is conducted in the context of a monetary business cycle model which makes explicit one potential link between monetary policy and real allocations. This model is used to interpret Granger causal relations between nominal and real aggregates. Perhaps the most striking empirical finding is that money growth does not Granger cause output growth in the context of several multivariate VARs and for various sample periods during the post war period in the U.S. Several possible reconciliations of this finding with both real and monetary business cycles models are discussed. We find that it is difficult to reconcile our empirical results with the view that exogenous monetary shocks were an important independent source of variation in output growth.
Handle: RePEc:nbr:nberwo:1932
Template-Type: ReDIF-Paper 1.0
Title: On "Real" and "Sticky-Price" Theories of the Business Cycle
Author-Name: Bennett T. McCallum
Note: EFG
Number: 1933
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1933
File-URL: http://www.nber.org/papers/w1933.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "On 'Real' and 'Sticky-Price' Theories of the Business Cycle," Journal of Money, Credit, and Banking, Vol. 18, No. 4, November 1986, pp. 397-414.
Abstract: This paper begins by identifying the distinguishing characteristic of the "real business cycle" (RBC) class of macroeconomic models. It then scruitinizes existing evidence, presented in support of the RBC approach, of three types: calibrated general equilibrium models with no monetary sector, vector-autoregression variance decomposition results, and univariate measurements of trend and cyclical components. It is argued that, in fact, these types of evidence have so far provided little support for the RBC hypothesis. Finally, with regard to an important alternative hypothesis concerning macroeconomic fluctuations, the paper proposes a partial rationalization for the stickiness of nominal product prices.
Handle: RePEc:nbr:nberwo:1933
Template-Type: ReDIF-Paper 1.0
Title: The Feminization of Poverty?
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: LS
Number: 1934
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1934
File-URL: http://www.nber.org/papers/w1934.pdf
File-Format: application/pdf
Abstract: This paper uses Census of Population and Current Population Survey data to describe and analyze the sex-incidence of poverty in 1959, 1969, 1979, and 1984 according to a fixed standard and a standard that changes with national per capita real income. The popular view that there was a large increase in the percent of adult poor who are women and that this trend has accelerated in recent years is not supported by the data. There was considerable feminization of poverty in the 1960s, but in the 1970s the sex mix of poverty was relatively constant, and between 1979 and 1984 women's share decreased. The trend in feminization was more severe for blacks than for whites, primarily as a result of disparate trends in the 1970s. Statistical decomposition of the changes shows that an increase in the proportion of women in households without men was the principal source of feminization of poverty and the principal reason why the trend was more adverse for blacks than whites.
Handle: RePEc:nbr:nberwo:1934
Template-Type: ReDIF-Paper 1.0
Title: Are Efficiency Wages Efficient?
Author-Name: William T. Dickens
Author-Name: Lawrence F. Katz
Author-Person: pka266
Author-Name: Kevin Lang
Author-Person: pla83
Note: LS
Number: 1935
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1935
File-URL: http://www.nber.org/papers/w1935.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economic, Vol 7, July 1989
Abstract: Efficiency wage models have been criticized because worker malfeasance can be prevented in a pareto efficient manner by requiring workers to post a bond which they lose if they are caught cheating. However, since it is costly to monitor workers and costless to demand a larger bond, firms should pay nothing for monitoring and demand very large bonds. Since we observe that firms devote considerable resources to monitoring workers, bonds must be limited. Therefore firms must use second best alternatives -- intensive monitoring and/or efficiency wages. The payment of efficiency wages cannot be ruled out on a priori theoretical grounds.
Handle: RePEc:nbr:nberwo:1935
Template-Type: ReDIF-Paper 1.0
Title: Market Access and International Competition: A Simulation Study of 16K Random Access Memories
Author-Name: Richard E. Baldwin
Author-Person: pba124
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 1936
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1936
File-URL: http://www.nber.org/papers/w1936.pdf
File-Format: application/pdf
Publication-Status: published as in Empirical Methods for International Trade, (ed)R. Feenstra. MIT Press, 1987.
Abstract: This paper develops a model of international competition in an oligopoly characterized by strong learning effects. The model is quantified by calibrating its parameters to reproduce the US-Japanese rivalry in 16K R.A.Ms from 1978-1983. We then ask the following question: how much did the apparent closure of the Japanese market to imports affect Japan's export performance? A simulation analysis suggests that a protected home market was a crucial advantage to Japanese firms, which would otherwise have been uncompetitive both at home and abroad. We find, however, that Japan's home market protection nonetheless produced more costs than benefits for Japan.
Handle: RePEc:nbr:nberwo:1936
Template-Type: ReDIF-Paper 1.0
Title: Marginal Costs of Income Redistribution at the State Level
Author-Name: William R. Johnson
Note: PE
Number: 1937
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1937
File-URL: http://www.nber.org/papers/w1937.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 78, No. 3, (June 1988).
Abstract: Previous analyses of the cost of redistribution by a unitary government have focussed on the welfare losses of distorted labor supply choices. On the other hand, the analysis of redistribution b,y local qovernments in a federal system has emphasized the effect of the migration of taxpayers and transfer recipients in raising the cost (faced by state residents) of engaging in more redistribution. This paper combines both migration and labor supply effects to compute marginal redistribution costs at the state and federal level. Surprisingly, for a wide range of parameter values, states face lower redistribution costs than the national government because they are able to "export" some of the cost through lower federal tax revenue. The normative implication of the analysis is that any case for national redistribution policies must be based on benefit spillovers across state lines rather than on tax competition among state governments.
Handle: RePEc:nbr:nberwo:1937
Template-Type: ReDIF-Paper 1.0
Title: An Analysis of the Selection of Arbitrators
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Christopher L. Cavanagh
Note: LS
Number: 1938
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1938
File-URL: http://www.nber.org/papers/w1938.pdf
File-Format: application/pdf
Publication-Status: published as Bloom, David E. and Christopher Cavanagh. "An Analysis of the Selection of Arbitrators," American Economic Review, June 1986, pp. 408-422.
Abstract: This paper analyses data on union and employer rankings of different panels of arbitrators in an actual arbitration system. A random utility model of bargainer preferences is developed and estimated. The estimates indicate that unions and employers have similar preferences, in favor of lawyers, more experienced arbitrators, and arbitrators who seem to have previously favored their side. Alternative rankings models, which are estimated to test whether bargainers rank arbitrators strategically, reveal no evidence of strategic behavior.
Handle: RePEc:nbr:nberwo:1938
Template-Type: ReDIF-Paper 1.0
Title: News or Noise? An Analysis of GNP Revisions
Author-Name: N. Gregory Mankiw
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Note: EFG
Number: 1939
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1939
File-URL: http://www.nber.org/papers/w1939.pdf
File-Format: application/pdf
Publication-Status: published as Mankiw, N. Gregory and Matthew D. Shapiro."News or Noise? Analysis of GNP Revisions," Survey of Current Business, Vol. 66, pp. 20-25, May 1986.
Abstract: This paper studies the nature of the errors in preliminary GNP data, It first documents that these errors are large. For example, suppose the prelimimary estimate indicates that real GNP did not change over the recent quarter; then one can be only 80 percent confident that the final estimate (annual rate) will be in the range from -2.8 percent to +2.8 percent. The paper also documents that the revisions in GNP data are not forecastable, This finding implies that the preliminary estimates are the efficient given available information. Hence, the Bureau of Economic Analysis appears to follow efficient statistical procedures, in making its preliminary estimates.
Handle: RePEc:nbr:nberwo:1939
Template-Type: ReDIF-Paper 1.0
Title: Political Parties and the Business Cycle in the United States, 1948-1984
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Jeffrey Sachs
Note: EFG
Number: 1940
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1940
File-URL: http://www.nber.org/papers/w1940.pdf
File-Format: application/pdf
Publication-Status: published as Alesina, Alberto and Jeffrey Sachs, "Political Parties and the Business Cycle in the United States, 1948-1984." Journal of Money Credit and Banking, Vol. 20, No. 1, February 1988, pp. 63-82.
Abstract: This paper tests the existence and the extent of a politically induced business cycle in the U.S. in the post-World War II period. The cycle described in this paper is different from the traditional "political business cycle" of Nordhaus. It is based on a systematic difference between the monetary policies of the two parties in a model with labor contracts. From an explicit optimization problem we derive a system of equations for output and money growth. Then we successfully test the non-linear restriction imposed by the theory on the parameters of the system of equations. We cannot reject the hypothesis that money growth has been systematically different under the two types of administration and that this difference contributes to explain output fluctuations.
Handle: RePEc:nbr:nberwo:1940
Template-Type: ReDIF-Paper 1.0
Title: Investment Incentives and the Discounting of Depreciation Allowances
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 1941
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1941
File-URL: http://www.nber.org/papers/w1941.pdf
File-Format: application/pdf
Publication-Status: published as Summers, Lawrence H. "Investment Incentives and the Discounting of Depreciation Allowances," The Effects of Taxation on Capital Accumulation, ed. by Martin Feldstein, Chicago: UCP, 1987.
Publication-Status: published as Investment Incentives and the Discounting of Depreciation Allowances, Lawrence H. Summers. in The Effects of Taxation on Capital Accumulation, Feldstein. 1987
Abstract: This paper examines the discounting of depreciation allowances both theoretically and empirically. Economic theory suggests that depreciation tax shields should be discounted at the after tax riskless rates. However, a survey of 200 major corporations indicates that they employ much higher discount rates to depreciation allowances. Typical discount rates are in the 15 percent range. This finding suggests that "frontloaded" incentives like the ITC provide maximal stimulus to corporate investment.
Handle: RePEc:nbr:nberwo:1941
Template-Type: ReDIF-Paper 1.0
Title: The Self-Employment Experience of Immigrants
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 1942
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1942
File-URL: http://www.nber.org/papers/w1942.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Vol. 21, no. 4 (1986): 485-506.
Abstract: Self-employment is an important aspect of the immigrant experience in the labor market. Self-employment rates for immigrants exceed 15 percent for some national groups. This paper addresses three related questions on the self-employment experience of immigrants. First, how do self-employment rates of immigrants compare to those of native-born men? Second, is there an "assimilation" effect on the self-employment propensity of immigrants? Finally, are the more recent waves of immigrants facing different self-employment opportunities than the earlier waves? Using the 1970 and 1980 U.S. Censuses, the analysis shows that indeed self-employment rates of immigrants exceed those of native-born men; that there is a strong, positive impact of assimilation on self-employment rates; and that more recent waves of immigrants are opting with increasing frequency for the self-employment option.
Handle: RePEc:nbr:nberwo:1942
Template-Type: ReDIF-Paper 1.0
Title: The Relative Rigidity of Monopoly Pricing
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Author-Name: Garth Saloner
Note: EFG
Number: 1943
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1943
File-URL: http://www.nber.org/papers/w1943.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 77, No. 5, December 1987, pp. 917-926.
Abstract: This paper seeks to explain why monopolies keep their nominal prices constant for longer periods than do tight oligopolies. We provide two possible explanations. The first is based on the presence of a small fixed cost of changing prices. The second, on small costs of discovering the optimal price. The incentive to change price for duopolists producing differentiated products exceeds that of a single monopolistic firm which produced the same tange of products as the duopoly.
Handle: RePEc:nbr:nberwo:1943
Template-Type: ReDIF-Paper 1.0
Title: International Lending and Borrowing in a Stochastic Sequence Equilibrium
Author-Name: Richard H. Clarida
Author-Person: pcl69
Note: ITI IFM
Number: 1944
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1944
File-URL: http://www.nber.org/papers/w1944.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Vol. 31 (August 1990): 543-558.
Abstract: This paper is a theoretical investigation of international lending and borrowing in the context of a general equilibrium model in which national productivities are subject to random fluctuations and rates of time preference differ among countries. International capital flows arise from the efforts of risk-averse households situated in different countries to self-insure against random productivity fluctuations. We establish the existence of a rational expectations equilibrium in which the world interest rate is constant and strictly less than the rate of time preference of the least impatient countries. The rate of time preference, solvency restrictions on borrowing, and balanced-budget fiscal policies are rigorously analyzed.
Handle: RePEc:nbr:nberwo:1944
Template-Type: ReDIF-Paper 1.0
Title: The Balance of Payments Adjustment Mechanism in a Rational Expectations Equilibrium
Author-Name: Richard H. Clarida
Author-Person: pcl69
Note: ITI IFM
Number: 1945
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1945
File-URL: http://www.nber.org/papers/w1945.pdf
File-Format: application/pdf
Abstract: This paper provides a choice theoretic, general equilibrium account of the balance of payments adjustment process and the determination of national price levels in a world comprised of countries populated by rational households. Balance of payments adjustment dynaniics arise in the equilibrium of this model from the precautionary saving behavior of risk- averse households who self-insure against random productivity fluctuations by accumulating, via balance of payments surpluses in productive periods, buffer stocks of domestic money which can be drawn down to finance payments deficits, and thus a less variable profile of consumption relative to output, when productivity is unexpectedly low. Precautionary saving is shown to exhibit the partial-adjustment-to-target behavior typically postulated in the monetary approach literature. The existence of a rational expectations equilibrium in which the distribution of international reserves among central banks is stationary is established.
Handle: RePEc:nbr:nberwo:1945
Template-Type: ReDIF-Paper 1.0
Title: The Term Structure of Euromarket Interest Rates: An Empirical Investigation
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Richard H. Clarida
Author-Person: pcl69
Note: ME ITI IFM
Number: 1946
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1946
File-URL: http://www.nber.org/papers/w1946.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, John Y. and Richard H. Clarida. "The Term Structure of Euromarket Interest Rates: An Empirical Investigation," Journal of Monetary Economics, Vol. 19, No. 1, (January 1987), pp. 25-44.
Abstract: This paper is an empirical investigation of the predictability and comovement of risk premia in the term structure of Euromarket interest rates. We show that variables which have been used as proxies for risk premia on uncovered foreign asset positions also predict excess returns in Euroniarket term structures, while variables which have been used as proxies for risk premia in the term structure also predict excess returns on taking uncovered foreign asset positions. These findings suggests that risk premia in the Euromarket term structures and on uncovered foreign asset positions move together. We test formally the hypothesis that risk premia on uncovered 3-month EuroDM and Eurosterling deposits move in proportion to a single latent variable. We are unable to reject this hypothesis. We are also unable to reject the hypothesis that the risk premia on these three strategies and those on rolling over 1-month Eurosterling (EuroDM) deposits versus holding a 3-month Eurosterlirig (EuroDN) deposit move in proportion to a single latent variable. The single latent variable model can be interpreted atheoretically, as a way of characterizing the extent to which predictable asset returns "move together"; or it can be interpreted as in Hansen and Hodrick (1983) and Hodrick and Srivastava (1983) as a specialization of the ICAPM in which assets have constant betas on a single, unobservable benchmark portfolio.
Handle: RePEc:nbr:nberwo:1946
Template-Type: ReDIF-Paper 1.0
Title: The Welfare Cost of Uncertain Tax Policy
Author-Name: Jonathan S. Skinner
Author-Person: psk23
Note: PE
Number: 1947
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1947
File-URL: http://www.nber.org/papers/w1947.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, November 1988, vol. 37, pp. 129-145.
Abstract: Frequent shifts in tax policy can increase uncertainty about future net-of-tax wages and interest income. This paper measures the impact of uncertain tax policy on savings, labor supply, and welfare in the United States. A vector autoregression model with six variables was estimated which found the standard error of the one-year-ahead forecast for the wage tax to be 1.8 percentage points, and for the interest income tax 3.3 percentage points. Furthermore, the negative correlation between unanticipated shifts in the real interest rate and changes in the interest income tax amplifies the variability in the real after-tax return. A two-period model of consumption and labor supply is developed that measures the effect of uncertain taxes on savings, work hours, and taxpayer welfare. Using plausible empirical parameters, it is shown that removing all uncertainty about future tax policy can lead to a welfare gain of 0.4 percent of national income, or about 12 billion dollars in 1985.
Handle: RePEc:nbr:nberwo:1947
Template-Type: ReDIF-Paper 1.0
Title: Quotas and the Stability of Implicit Collusion
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Author-Name: Garth Saloner
Note: ITI IFM
Number: 1948
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1948
File-URL: http://www.nber.org/papers/w1948.pdf
File-Format: application/pdf
Publication-Status: published as "Tariffs Vs. Quotas with Implicit Collusion," Canadian Journal of Economics , Vol. 22, No. 2, pp. 237-244, May 1989.
Abstract: This paper shows that the imposition of an import quota by one country can lead to increased competitiveness; protection can reduce the price in the country that imposes the quota, the foreign country, or both. This emerges from a model in which the firms are assumed to sustain collusion by the threat of reversion to more competitive pricing. We consider both prices and quantities as the strategic variables and study competition both in the domestic and the foreign market taken individually, and in the two markets taken together.
Handle: RePEc:nbr:nberwo:1948
Template-Type: ReDIF-Paper 1.0
Title: Maximum Hours Legislation and Female Employment in the 1920s: A Reasse ssment
Author-Name: Claudia Goldin
Author-Person: pgo601
Note: LS DAE
Number: 1949
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1949
File-URL: http://www.nber.org/papers/w1949.pdf
File-Format: application/pdf
Publication-Status: published as Goldin, Claudia "Maximum Hours Legislation and Female Emplyment in the 1920s: A Reassessment," Journal of Political Economy, February, 1988, Vol. 96, pp. 189-205.
Abstract: The causes and consequences of state maximum hours laws for female workers, passed from the mid-1800s to the 1920s, are explored and are found to differ from a recent reinterpretation. Although maximum hours legislation reduced scheduled hours in 1920, the impact was minimal and it operated equally for men. Legislation affecting only women was symptomatic of a general desire by labor for lower hours, and these lower hours were achieved in the tight, and otherwise special, World War I labor market -- hours of work declined substantially for most workers in the second decade of this century. Most importantly, the restrictiveness of the legislation had no effect on the employment share of women in manufacturing. The legislation was, on the contrary, associated with a positive impact on the employment share of women in sales (another covered sector). Finally, labor force participation rates of women across cities during the 1920s were strongly and negatively correlated with shorter hours of work per day, consistent with one time-series explanation for the increase in female market work. These results are consistent with a labor market model in which scheduled hours of work per day are negatively related to days worked per week, and that assumption is justified using previously untapped data on actual hours, scheduled hours, and days worked for women in the covered sectors.
Handle: RePEc:nbr:nberwo:1949
Template-Type: ReDIF-Paper 1.0
Title: Hysteresis and the European Unemployment Problem
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG ITI IFM
Number: 1950
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1950
File-URL: http://www.nber.org/papers/w1950.pdf
File-Format: application/pdf
Publication-Status: published as Blanchard, Olivier J. and Lawrence H. Summers. "Hysteresis and the European Unemployment Problem," NBER Macroeconomics Annual, Stanley Fischer, ed. Vol 1, Fall 1986, Cambridge: MIT Press. Pp. 15-78.
Publication-Status: published as Hysteresis and the European Unemployment Problem, Olivier J. Blanchard, Lawrence H. Summers. in NBER Macroeconomics Annual 1986, Volume 1, Fischer. 1986
Abstract: European unemployment has been steadily increasing for the last 15 years and is expected to remain very high for many years to come. In this paper, we argue that this fact implies that shocks have much more persistent effects on unemployment than standard theories can possibly explain. We develop a theory which can explain such persistence, and which is based on the distinction between insiders and outsiders in wage bargaining. We argue that if wages are largely set by bargaining between insiders and firms, shocks which affect actual unemployment tend also to affect equilibrium unemployment. We then confront the theory to both the detailed facts of the European situation as well as to earlier periods of high persistent unemployment such as the Great Depression in the US.
Handle: RePEc:nbr:nberwo:1950
Template-Type: ReDIF-Paper 1.0
Title: On the Size Distribution of Employment and Establishments
Author-Name: Jonathan S. Leonard
Author-Person: ple190
Note: LS
Number: 1951
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1951
File-URL: http://www.nber.org/papers/w1951.pdf
File-Format: application/pdf
Abstract: Recent arguments that employment growth occurs disproportionately at small establishments are fundamentally misleading because they confuse regression to the mean with structural shifts in the size distribution of establishments and with an aging effect within cohorts. The net growth usually observed in aggregate studies hides the gross flows; 13 percent of the jobs in existence in 1974 had disappeared by 1980, while 18 percent of the 1980 jobs had not existed six years previously. The variation observed here in labor demand over time within individual establishments may help to explain unemployment.
Handle: RePEc:nbr:nberwo:1951
Template-Type: ReDIF-Paper 1.0
Title: Efficiency Wages and the Wage Structure
Author-Name: Alan B. Krueger
Author-Person: pkr63
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: LS EFG
Number: 1952
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1952
File-URL: http://www.nber.org/papers/w1952.pdf
File-Format: application/pdf
Publication-Status: published as Krueger and Summers, "Efficiency Wages and the Inter-Industry Wage Structure," from Econometrica, Vol. 56, No. 2, March 1988, pp. 259-293.
Abstract: This paper examines differences in pay for equally skilled workers in different industries. The major finding is that there is substantial dispersion in wages across industries, even after allowing for measured and unmeasured labor quality, working conditions, fringe benefits, transitory demand shocks, threat of unionization, union bargaining power, firm size and other factors. Some direct evidence in favor of efficiency wage theories is presented. The evidence suggests that industry wage differentials are successful in eliciting better performance through reduced turnover and increased effort.
Handle: RePEc:nbr:nberwo:1952
Template-Type: ReDIF-Paper 1.0
Title: The Canada-U.S. Auto Pact of 1965: An Experiment in Selective Trade Liberalization
Author-Name: Melvyn Fuss
Author-Name: Leonard Waverman
Note: PR
Number: 1953
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1953
File-URL: http://www.nber.org/papers/w1953.pdf
File-Format: application/pdf
Publication-Status: published as "The Canada-U.S. Auto Pact of 1965." In Costs and Productivity in Automobile Production, ed. by Melvyn Fuss and Leonard Waverman, pp. 172-208. New York: Cambridge University Press, February 1992.
Abstract: In this paper we analyse the Canada-U.S. Auto Pact, a selective trade liberalization agreement which created a duty-free North American market for the major U.S. multinational automobile producers, but continued to protect them from offshore producers. The new international trade/I.O. literature predicts that, given the probable unexploited economics of scale and specialization in the tariff-protected small Canadian economy prior to 1965, rationalization leading to large efficiency gains in Canadian production vis a vis US production would occur in a free trade environment. We estimate that the Auto Pact did not induce a substantial improvement in Canadian relative production efficiency. The missing ingredient seems to have been the competition-increasing effects of free trade in an oligopolistic setting that is emphasized by the new trade/I.O. literature. The Auto Pact did not increase the number of rivals in the oligopolistic Canadian industry since the major players in the industry had production facilities on both sides of the Canada-U.S. border before 1965, and no significant new entry into Canada occurred. In the 1962-64 period, Canadian automotive production was 27% less efficient than U.S. production. By 1970-72 this deficiency had been reduced to 19%, but was not further reduced by the end of the 1970's. Of the 8 percentage points reduction in the Canadian disadvantage, we attribute only 3 percentage points to the rationalization process induced specifically by the Auto Pact.
Handle: RePEc:nbr:nberwo:1953
Template-Type: ReDIF-Paper 1.0
Title: Merit Pay for School Superintendents?
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Richard P. Chaykowski
Author-Name: Randy A. Ehrenberg
Note: LS
Number: 1954
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1954
File-URL: http://www.nber.org/papers/w1954.pdf
File-Format: application/pdf
Publication-Status: published as "Determinants of the Compenstation and Mobility of School Superintendents" From Industrial and Labor Relations Review, Vol.41, No.3, pp. 386-401,(April 1988).
Publication-Status: published as Ehrenberg, R.G., R.P. Chaykowski and R.A. Ehrenberg."Are School Superintendents Rewarded for Performance?" From Distributing Educational Resources Within Nations, States, School Districts, and Schools, edited by D. Monk, American Educational Finance Association Yearbook, 1988.
Abstract: Given the important role that school district administrators play in the educational process, one might expect their "performance" to be of fundamental importance in determining both how much students learn and the cost of public education to taxpayers. Yet, while public debate has considered the issue of merit pay plans for teachers, virtually no attention has been directed to the methods by which school administrators are compensated. This paper provides evidence on whether school superintendents are explicitly or implicitly rewarded for their "performance" by higher compensation and/or greater opportunities for mobility. We analyze panel data from over 700 school 'districts in New Ycrk State during the 1978-79 to 1982-83 period. Measures of performance are defined and then entered into salary level, salary change, and mobility equations. While evidence is provided that school superintendents are rewarded for "performance", the magnitude of the rewards appear to be quite small.
Handle: RePEc:nbr:nberwo:1954
Template-Type: ReDIF-Paper 1.0
Title: Finite Lifetimes and the Crowding Out Effects of Budget Deficits
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG ME PE
Number: 1955
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1955
File-URL: http://www.nber.org/papers/w1955.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James M. and Lawrence H. Summers. "Finite Lifetimes and the Effectof Budget Deficits on National Saving," Journal of Monetary Economics, Vol . 20, September 1987, pp 369-392.
Abstract: This note explores the sensitivity of the short-run savings effects of government deficits to assumptions about household planning horizons. Using a lifecycle simulation model, we show that even though deficit policies shift sizable tax burdens to future generations, individuals live long enough to make the assumption of an infinite horizon a good approximation for analyzing the short-run savings effects. In practice, periods of debt accumulation such as that in the United States during World War II are reversed sufficiently rapidly to make their short-run effects on consumption and national savings relatively small.
Handle: RePEc:nbr:nberwo:1955
Template-Type: ReDIF-Paper 1.0
Title: The Intrafamily Allocation of Goods - How to Separate the Men From the Boys
Author-Name: Reuben Gronau
Author-Person: pgr333
Note: LS
Number: 1956
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1956
File-URL: http://www.nber.org/papers/w1956.pdf
File-Format: application/pdf
Publication-Status: Published as "The Intrafamily Allocation of Goods - How to Separate the Adult from the Child", Journal of Labor Economics, Vol. 9, no. 3 (1991): 207-235. Published as "The Intrafamily Allocation of Time: The Value of Housewives' Time", American Economic Review, Vol. 63, no. 4 (1973): 634-651.
Abstract: The paper integrates the basic principles of consumption theory and the economics of human resources to generate a powerful method for estimating the distribution of consumption between parents and children. Invoking the assumption of separability between parents' and children's consumption and the corresponding assumption of two-stage budgeting, it is shown that one can estimate the parents' share in total consumption by analyzing the effect of demographic changes on the consumption of adult goods (i.e., goods consumed exclusively by parents). Using the U.S. 1972/73 Consumption Expenditure Survey it is found that white married families tend to allocate about three-quarters of their consumption to parents and one quarter to children. The children's share of consumption in black families does not fall short of those in white families, and the share in white families where the father is absent is even higher. The share increases with the number of children, uut the absolute level of consumption per child declines. These findings are quite robust to changes in functional form and data-base.
Handle: RePEc:nbr:nberwo:1956
Template-Type: ReDIF-Paper 1.0
Title: Industrial Organization and International Trade
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 1957
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1957
File-URL: http://www.nber.org/papers/w1957.pdf
File-Format: application/pdf
Publication-Status: Published as "Increasing Returns, Monopolistic Competition, and International Trade", Journal of International Economics, Vol. 9, no. 4(1979): 469-480.
Publication-Status: published as Krugman, Paul R., 1989. "Industrial organization and international trade," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 20, pages 1179-1223 Elsevier.
Abstract: This paper reviews recent work on the relationship between industrial organization and international trade. Five strands in the theoretical literature are discussed. First is the role of economies of scale as a cause of intra-industry trade, modelled using monopolistic competition. Second is the effect of tariffs and quotas on domestic market power. Third is the analysis of dumping as international price discrimination. Fourth is the potential strategy role of government policy as an aid to domestic firms in oligopolistic competition. Finally, the paper discusses recent work that may provide a new argument for protectionism. A concluding section discusses recent efforts at quantification of new trade theory.
Handle: RePEc:nbr:nberwo:1957
Template-Type: ReDIF-Paper 1.0
Title: The Valuation of Security Analysis
Author-Name: Alex Kane
Author-Person: pka501
Author-Name: Alan J. Marcus
Author-Person: pma1156
Note: ME
Number: 1958
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1958
File-URL: http://www.nber.org/papers/w1958.pdf
File-Format: application/pdf
Publication-Status: published as Kane, Alex, Alan J. Marcus, and Robert R. Trippi. "The Valuation of Security Analysis." Journal of Portfolio Management 25, 3 (Spring 1999): 25-36.
Abstract: Active portfolio management is commonly partitioned into two types of activities: market timing, which requires forecasts of broad-based market movements, and security analysis, which requires the selection of individual stocks that are perceived to be underpriced by the market. Merton (1981) has provided an inciteful and easily-implemented means to place a value on market timing skills. In contrast, while a normative theory of stock selection was outlined long ago in Treynor and Black's (1973) work, no convenient means of valuing potential selection ability has yet been devised. We present a framework in which the value of a security analyst can be computed. We also treat market timing ability in this framework, and therefore can compare the relative values of each type of investment analysts. We find that stock selection is potentially extremely valuable, but that its value depends critically on the forecast interval, on the correlation structure of residual stock returns, and on the ability to engage in short sales. Finally, we show how to modify the value of selection for the important case in which analysts' forecasts of stocks' alphas are subject to error.
Handle: RePEc:nbr:nberwo:1958
Template-Type: ReDIF-Paper 1.0
Title: Mortgage Pricing: What Have We Learned So Far?
Author-Name: Patric H. Hendershott
Note: ME
Number: 1959
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1959
File-URL: http://www.nber.org/papers/w1959.pdf
File-Format: application/pdf
Publication-Status: published as Patric H. Hendershott, 1986. "Mortgage Pricing: What Have We Learned So Far?+," Real Estate Economics, vol 14(4), pages 497-509.
Abstract: Much progress has been achieved in the valuation of call options and interest-rate caps on default-free mortgages. The evidence suggests that the observed term structure of interest rates (the full structure, not just the end points) and a reasonable estimate of the volatility of spot rates is sufficient for pricing purposes. Knowledge of the precise nature of the interest-rate process and the exact market price of interest-rate risk, the not-well-identified determinants of the term structure, are not necessary for pricing. (The analogy to pricing stock options is striking; there, knowledge of the observed stock price -- and the present value of expected future dividends -- and a reasonable estimate of the volatility of the stock price are sufficient to price the option.) Moreover, the number of interest-rate state variables is also of little import, again holding the term structure and rate volatility constant. Pricing the mortgage default option, in contrast, is still in the embryonic stage. The stochastic process analogous to the interest-rate process in valuing call is a house price process: if a house price declines sufficiently, default occurs. The observed house price, the present value of expected future "dividends" (rents), and the volatility of house prices is, in principle, sufficient to value default (again note the analogy to stock price options). Unfortunately, rents are unknown, and no observable term-structure of expected future house-price inflation-rates exists from which to glean the division of expected housing returns between "dividends" and expected capital gains. Also, a series on the recent volatility of individual house prices is not readily available. Finally, measurement of the costs to defaulters and the losses of lenders/insurers when default occurs is far less straight-forward than is the case when call occurs or interest-rate caps are reached. (Here, an analogy can be drawn to the difficulties encountered in pricing the bankrupcy risk of firms.)
Handle: RePEc:nbr:nberwo:1959
Template-Type: ReDIF-Paper 1.0
Title: Price Contracts, Output, and Monetary Disturbances
Author-Name: Alan C. Stockman
Author-Person: pst94
Note: EFG
Number: 1960
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1960
File-URL: http://www.nber.org/papers/w1960.pdf
File-Format: application/pdf
Publication-Status: published as Stockman, Alan C. "Price Contracts, Output, and Monetary Disturbances," from Finance Constraints, Expectations, and Macroeconomics, ed. by Meir Kohnand S.C. Tsiang, Oxford, England: Oxford University Press, 1988.
Abstract: This paper presents a simp1e example in which incomplete asset markets create incentives for buyers and sellers to sign contracts that specify a price function which differs from the spot market equilibrium price function. The price function can exhibit downward stickiness in nominal prices, In the sense that a fall in the money supply reduces nominal prices less than proportionately and reduces real output. This equilibrium dominates spot market equilibrium in terms of expected utility.
Handle: RePEc:nbr:nberwo:1960
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Policies and International Financial Markets
Author-Name: Alan C. Stockman
Author-Person: pst94
Note: ITI IFM
Number: 1961
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1961
File-URL: http://www.nber.org/papers/w1961.pdf
File-Format: application/pdf
Publication-Status: published as Stockman, Alan C. "Fiscal Policies and International Financial Markets," From International Aspects of Fiscal Policies, edited by Jacob A. Frenkel,pp. 197-217. Chicago: The University of Chicago Press, 1988.
Publication-Status: published as Fiscal Policies and International Financial Markets, Alan C. Stockman. in International Aspects of Fiscal Policies, Frenkel. 1988
Abstract: This paper examines the effects of fiscal policies in an open economy when international financial markets are well developed. Consumers use these markets to hedge against the risk of uncertain future changes in government policies. These portfolio allocations alter the effects of changes in government policies, if and when they occur, as compared to a world with more limited financial markets. Three examples are discussed. The first involves a change in (productive) government spending, financed by a change in lump-sum taxes, in a large open economy with two goods. The second example concerns the effects of temporary changes in distorting taxes. The final example concerns the open-economy effects of changes in government deficits, due to changes in lump-sum taxes, without Ricardian equivalence. In each example the existence of opportunities to trade on well-developed international financial markets is shown to alter, in important ways, the effects of changes in government policies. The empirical significance of these differences should grow as international financial markets continue to develop in breadth and sophistication.
Handle: RePEc:nbr:nberwo:1961
Template-Type: ReDIF-Paper 1.0
Title: Is the Japan Problem Over?
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 1962
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1962
File-URL: http://www.nber.org/papers/w1962.pdf
File-Format: application/pdf
Abstract: This paper argues that Japan's export growth is likely to slow sharply over the next few years, perhaps to zero. For the past dozen years Japan's export volume has gown much more rapidly than her domestic production. This divergence was made necessary primarily by rising oil prices, and secondarily by a shift into current account surplus. Now both these factors are running in reverse. If Japan's export growth does slow sharply, the mechanism will be a very strong yen -- probably above 140. The paper argues that it is Japan's export growth rather than static trade structure that is the main cause of trade tension, so these developments should lead to a considerable reduction in trade friction.
Handle: RePEc:nbr:nberwo:1962
Template-Type: ReDIF-Paper 1.0
Title: Interpreting Tests of Forward Discount Bias Using Survey Data on Exchange Rate Expectations
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 1963
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1963
File-URL: http://www.nber.org/papers/w1963.pdf
File-Format: application/pdf
Publication-Status: published as Froot and Frankel, "Forward Discount Bias: Is it an Exchange Risk Premium?" from Quarterly Journal of Economics, Vol. CIV, Issue 1, pp. 139-161,(February 1989).
Publication-Status: published as Reprinted in On Exchange Rates, J. Frankel, MIT Press, Cambridge, 1993
Abstract: Survey data on exchange rate expectations are used to divide the forward discount into expected depreciation and a risk premium. Our starting point is the common test oh whether the forward discount is an unbiased predictor of future changes in the spot rate. We use the surveys to decompose the bias into a protion attributable to the risk premium and a portion attributable to systematic prediction errors. The survey data suggest that our findings of both unconditional and conditional bias are overwhelmingly due to systematic expectational errors. Regressions of future changes in the spot rate against the forward discount do not yield insights into the sign, size or variability of the risk premium as is usually thought.We test directly the hypothesis of perfect substitutability, and find support for it on that changes in the forward discount reflect, one for one , changes in expected depreciation. The "random-walk" view that expected depreciation is zero is thus rejected; expected depreciation is even significantly more variable than the risk premium. In fact, investors would do better if they always reduced fractionally the magnitude of expected depreciation. This is the same result that Bilson and many others have found with forward market data, but now it cannot be attributed to a risk premium.
Handle: RePEc:nbr:nberwo:1963
Template-Type: ReDIF-Paper 1.0
Title: Speculative Behavior of Institutional Investors
Author-Name: John Pound
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 1964
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1964
File-URL: http://www.nber.org/papers/w1964.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Portfolio Management, vol. 13, no. 3, pp. 46-52, Spring 1987
Abstract: A survey compared speculative behavior in two groups of institutional investors. The "experimental" group held stocks that had shown extraordinary price increases over the preceding year that also had high price earnings ratios. The control group held randomly selected stocks. In Shiller and Pound [1986] we argued that the survey results gave some support to some diffusion or epidemic models for interest in the stocks in the experimental group. Here, we show that the two groups are similar in describing their investment strategy as relating to a theory about fundamental value rather than about the kind of stocks that are becoming attractive to investors. However, the experimental group is less likely to make explicit comparisons of price with measures of fundamental value, and differs from the control group in their attitudes toward timing, price changes, and short-term earnings disappointment. Overall, these results appear consistent with the notion that price changes unrelated to fundamentals may be caused by contagious enthusiasm about fundamentals amongst institutional investors. The holding patterns of those experimental group investors who said that they were unsystematic in their stock choice are studied. These investors tended to show gradually increasing holdings over the period of stock price increase. Reasons respondents gave for the gradual increase are discussed.
Handle: RePEc:nbr:nberwo:1964
Template-Type: ReDIF-Paper 1.0
Title: The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector
Author-Name: Bronwyn H. Hall
Author-Person: pha54
Note: PR
Number: 1965
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1965
File-URL: http://www.nber.org/papers/w1965.pdf
File-Format: application/pdf
Publication-Status: published as Hall, Bronwyn H. "The Relationship Between Firm Size and Firm Growth in the U. S. Manufacturing Sector," Journal of Industrial Economics, Vol. XXXV, No.4, June 1987, pp. 583-606.
Abstract: This paper investigates the dynamics of firm growth in the U. S. manufacturing sector in the recent past. I use panel data on the publicly traded firms in the U. S. manufacturing sector: from a universe of approximately 1800 firms in 1976, I am able to follow most of them for at least three years, and over half of them from 1972 until 1983. I consider several problems, both econometric and substantive, which exist in analyzing this kind of data: the choice of size measure, the role of measurement error, and the effect of selection (attrition) on estimates obtained from this sample. Using time series methods, suitably modified for panel data (where the number of time periods per observational unit is small), I analyze the behavior of employment over time and find that most of the change in employment in any given year is permanent in the sense that there is no tendency to return to the previous level. Year-to-year growth rates are largely uncorrelated and there is almost no role for measurement error. I find that Gibrat's Law is weakly rejected for the smaller firms in my sample and accepted for the larger firms; Other measures of size produce essentially the same results. Correction for attrition from the sample changes the results somewhat: I use a simple model in which firms leave the sample because they are small and/or undervalued (since many exits are acquisitions) and find that Tobin's Q, the raio of market valuation to the value of the underlying assets of the firm, is a much better predictor of exit probability than size alone (firms with low Q are more likely to exit the sample). When I use this estimate of the probability of exit to control for selection bias, Gibrat's Law is weakly rejected for firms of all sizes and there are significant positive effects on firm growth from both investment in physical capital and R&D expenditures, with R&D having a somewhat higher net effect.
Handle: RePEc:nbr:nberwo:1965
Template-Type: ReDIF-Paper 1.0
Title: The Demand for Health Inputs and Their Impact on the Black Neonatal Mortality Rate in the U.S.
Author-Name: Theodore J. Joyce
Author-Person: pjo112
Note: EH
Number: 1966
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1966
File-URL: http://www.nber.org/papers/w1966.pdf
File-Format: application/pdf
Publication-Status: published as Joyce, Theodore. "The Demand for Health Inputs and Their Impact on the Black Neonatal Mortality Rate in the U.S.," Social Science and Medicine, Vol. 2 4, No. 11, 1987, pp. 911-918.
Abstract: Relatively high birth rates among black adolescents and unmarried women as well as inadequate access to medical care are considered primary reasons why the black neonatal mortality rate is almost double that of whites. Using household production theory, this paper examines the determinants of input utilization and estimates the impact of utilization on the survival of black infants across large counties in the U.S. in 1977. The results indicate that expanding the availability of family planning clinics increases the number of teenagers served resulting in a lower neonatal mortality rate. Accessibility to abortion services operates in a similar manner. Moreover, the use of neonatal intensive care, which is strongly related to its availability, is an important determinant of newborn survivability whereas the initiation of early prenatal care is not. Overall, the results suggest that lowering the incidence of low weight and preterm births among blacks by helping women to avoid an unwanted birth, may be the moat cost-effective way of improving black infant health.
Handle: RePEc:nbr:nberwo:1966
Template-Type: ReDIF-Paper 1.0
Title: Money and the Open Economy Business Cycle: A Flexible Price Model
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Robert J. Hodrick
Author-Person: pho115
Note: ITI IFM
Number: 1967
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1967
File-URL: http://www.nber.org/papers/w1967.pdf
File-Format: application/pdf
Abstract: This paper develops an open-economy model of the business cycle. The nominal prices in the model are flexible and monetary nonneutrality is developed using information confusion about the sources of disturbances to demand coupled with differential persistence of demand shocks. Firms use inventories to smooth their production, and consumers follow a stochastic permanent income expenditure function. The major implication of the model is that unperceived monetary disturbances improve the terms of trade and increase real output in contrast to sticky price models in which the terms of trade deteriorates. This implication of the model is examined empirically.
Handle: RePEc:nbr:nberwo:1967
Template-Type: ReDIF-Paper 1.0
Title: Reflections on the Inter-Industry Wage Structure
Author-Name: Alan B. Krueger
Author-Person: pkr63
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG LS
Number: 1968
Creation-Date: 1986-06
Order-URL: http://www.nber.org/papers/w1968
File-URL: http://www.nber.org/papers/w1968.pdf
File-Format: application/pdf
Publication-Status: published as Krueger, Alan B. and Lawrence H. Summers."Reflections on the Inter-Industry Wage Structure," Unemployment and the Structure of Labor Markets, eds. K. Lang and J. Leonard, Oxford, Basil Blackwell, 1987
Publication-Status: published as Krueger, Alan B. and Lawrence H. Summers. "Efficiency Wages And The Inter-Industry Wage Structure," Econometrica, 1988, v56(2), 259-294.
Abstract: This paper reviews available evidence on the inter-industry wage structure. The inter-industry wage structure is remarkably similar in different eras, in different countries, and among different types of workers. Industries with high capital-to-labor ratios, monopoly power and high profits pay relatively high wages. We conclude that the competitive model cannot without substantial modification provide an adequate explanation of the inter-industry wage structure. The implications of this finding for micro and macro economic theory and policy are examined.
Handle: RePEc:nbr:nberwo:1968
Template-Type: ReDIF-Paper 1.0
Title: The Prewar Business Cycle Reconsidered: New Estimates of Gross NationalProduct, 1869-1918
Author-Name: Christina D. Romer
Author-Person: pro407
Note: EFG
Number: 1969
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1969
File-URL: http://www.nber.org/papers/w1969.pdf
File-Format: application/pdf
Publication-Status: published as Romer, C. "The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908," from Journal of Political Economy, February 1989, vol. 97, pp. 1-37.
Abstract: This paper shows that the existing estimates of prewar gross national product exaggerate the size of cyclical fluctuations. The source of the exaggeration is that the original Kuznets estimates are based on the assumption that GNP moves one-for-one with commodity output valued at producer prices. New estimates of GNP for 1869-1918 are derived using the estimated aggregate relationship between GNP and commodity output for the interwar and postwar eras. The new estimates of GNP indicate that the business cycle is only slightly more severe in the pre-Worid War I era than in the post-World War II era.
Handle: RePEc:nbr:nberwo:1969
Template-Type: ReDIF-Paper 1.0
Title: Budget Deficits, Tax Rules, and real Interest Rates
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: EFG ME PE
Number: 1970
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1970
File-URL: http://www.nber.org/papers/w1970.pdf
File-Format: application/pdf
Abstract: This paper examines three sources of the fluctuations in real interest rates during the past three decades: changes in budget deficits, changes in tax rules, and changes in monetary policy. The evidence indicates that budget deficits and monetary policy have had a strong influence on the level of long-term interest rates but fails to identify any effect of changes in corporate tax rates and investment incentives. The analysis shows that it is projected future budget deficits rather than the current level of the actual or structural deficit that influence long-term interest rates. Each percentage point increase in the five-year projected ratio of budget deficits to GNP raises the long-term government bond rate by approximately 1.2 percentage points while the ratio of the current deficit to GNP (either actual or structural) has no significa effect. The specific parameter estimates imply that the increase in projected budget deficits was responsible for about two-thirds of the rise in the interest rates between 1977-78 and 1983-84.
Handle: RePEc:nbr:nberwo:1970
Template-Type: ReDIF-Paper 1.0
Title: An Evaluation of Recent Evidence on Stock Market Bubbles
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Robert J. Hodrick
Author-Person: pho115
Author-Name: Paul Kaplan
Note: ME
Number: 1971
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1971
File-URL: http://www.nber.org/papers/w1971.pdf
File-Format: application/pdf
Publication-Status: published as Robert P. Flood and Peter M. Garber, eds., Speculative Bubbles, Speculative Attacks and Policy Switching, M.I.T. Press, 1994, pp. 105-133.
Abstract: Several recent studies have attributed a large part of asset price volatility to self-fulfilling expectations. Such an explanation is unattractive to many since it allows allocations that need bear no particular relation to those implied by the economist's standard kit of market fundamentals. We examine the evidence presented in some of these studies and find (i) that all of the bubble evidence can equally well be interpreted as evidence of model misspecification and (ii) that a slight extension of standard econometric methods points very strongly toward model misspecification as the actual reason for the failure of simple models of market fundamentals to explain asset price volatility.
Handle: RePEc:nbr:nberwo:1971
Template-Type: ReDIF-Paper 1.0
Title: Dollar Appreciation and Manufacturing Employment and Output
Author-Name: William H. Branson
Author-Name: James P. Love
Note: ITI IFM
Number: 1972
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1972
File-URL: http://www.nber.org/papers/w1972.pdf
File-Format: application/pdf
Abstract: This paper examines the impact of the movements in the real exchange rate on employment and output in U.S. manufacturing industries. We use a simple model of supply and demand to estimate the elasticity of manufacturing employment and output with respect to the real exchange rate, at different levels of aggregation. The data are quarterly, covering two time periods -- 1963:1 to 1985:1 and 1972:1 to 1985:1. The employment estimates include 20 manufacturing sectors at the 2-digit SIC level, 125 sectors at the 3-digit SIC level, 176 sectors at the 4-digit SIC level. In addition, we disaggregate manufacturing employment regionally by the 50 states plus the District of Columbia. The output estimates include 80 sectors of industrial production at different levels of aggregation. We check for consistency by considering the impact of aggregation among the 2-,3-, and 4-digit employment estimates, and by comparing the estimates for employment to those for output. We find that exchange rate movements have had important effects on the manufacturing sector, and in particular, the durable goods sector, including primary metals, fabricated metal products, and non-electrical machinery. Other sectors that suffer large employment loses when the dollar appreciates are stone, clay and glass products, transportation, instruments, textiles and apparel, chemicals, rubber and leather goods.
Handle: RePEc:nbr:nberwo:1972
Template-Type: ReDIF-Paper 1.0
Title: Chronic Excess Capacity in U.S. Industry
Author-Name: Robert E. Hall
Note: EFG
Number: 1973
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1973
File-URL: http://www.nber.org/papers/w1973.pdf
File-Format: application/pdf
Publication-Status: Published as "The Relation Between Price and Marginal Cost in U.S.Industry" , JPE, Vol. 96, no. 5 (1988): 921-947.
Abstract: Previous research has suggested that firms in a number of industries have considerable market power, in the sense that their prices exceed their marginal costs. However, the observed profits of those industries are not nearly as high as would occur under full exploitation of the market power with a constant returns technology. Rather, because of fixed costs associated with a minirnumn scale of operation or for other reasons, industry equilibriumn occurs at a point where no abnormal returns are earned, even though market power exists. This inference is supported by an empirical study that shows that most industries hold capital far beyond the point that would minimize cost given their actual output. In this sense, the industries have chronic excess capacity.
Handle: RePEc:nbr:nberwo:1973
Template-Type: ReDIF-Paper 1.0
Title: Private Investment in R&D to Signal Ability to Perform Government Contracts
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Note: PR
Number: 1974
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1974
File-URL: http://www.nber.org/papers/w1974.pdf
File-Format: application/pdf
Publication-Status: published as "The Private R&D Investment Response to Federal Design and Technical Competitions". From The American Economic Review, Vol. 78, No. 3, (June 1988).
Abstract: Official government statistics on the "mission-distribution" of U.S. R&D investment are based on the assumption that only the government sponsors military R&D. In this paper we advance and test the alternative hypothesis, that a significant share of privately-financed industrial R&D is military in orientation. We argue that in addition to (prior to) contracting with firms to perform military R&D, the government deliberately encourages firms to sponsor defense research at their own expense, to enable the government to identify the firms most capable of performing certain government contracts, particularly those for major weapons systems. To test the hypothesis of, and estimate the quantity of, private investment in 'signaling' R&D, we estimate variants of a model of company R&D expenditure on longitudinal, firm-level data, including detailed data on federal contracts. Our estimates imply that about 30 percent of U.S. private industrial R&D expenditure in 1984 was procurement- (largely defense-) related, and that almost half of the increase in private R&D between 1979 and 1984 was stimulated by the increase in Federal demand.
Handle: RePEc:nbr:nberwo:1974
Template-Type: ReDIF-Paper 1.0
Title: Issues in the Measurement and Interpretation of Effective Tax Rates
Author-Name: David F. Bradford
Author-Name: Charles Stuart
Note: PE
Number: 1975
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1975
File-URL: http://www.nber.org/papers/w1975.pdf
File-Format: application/pdf
Publication-Status: published as Bradford, David and Charles Stuart. "Issues in the Measurement and Interpretation of Effective Tax Rates." National Tax Journal, Vol. 39, No. 3, (September 1986), pp. 307-316.
Publication-Status: published as "Saving and Capitla Formation in the United States and Ohter Industrila Countries" 1987, Chapter 2 in Robert Lipsey and Irving Kravis's: Saving and Economics Growth: Is the U.S. Really Falling Behind?; New York, The conference Board.
Abstract: Marginal effective tax rates on investment that are derived from the user cost of capital are nowadays widely used practically to assess the effects of capital taxation. In this paper, we examine several troublesome issues in the construction and use of marginal effective tax rates and user costs of capital. Our comments fall into two classes. In the first are concerns about the adequacy of the current generation of models of capital-market equilibrium, into which marginal effective tax rates (user costs) are incorporated. In the second are concerns about the appropriateness of the assumption, implicit and nearly universal in marginal effective tax rate calculations, that investors expect a given tax code to remain unchanged forever. We show that effects of current changes in the law on expectations about future changes may undo or even reverse the effects predicted by traditionally calculated effective tax rates.
Handle: RePEc:nbr:nberwo:1975
Template-Type: ReDIF-Paper 1.0
Title: The Wage-Productivity Hypothesis: Its Economic Consequences and Policy Implications.
Author-Name: Joseph E. Stiglitz
Note: LS
Number: 1976
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1976
File-URL: http://www.nber.org/papers/w1976.pdf
File-Format: application/pdf
Publication-Status: published as Boskin, Michael J. (ed.) Modern Developments in Public Finance. New York and Oxford: Blackwell, 1987.
Abstract: This paper explores the implications for less developed countries the hypothesis that workers' productivity depends on the wages they receive. In particular, we show that this hypothesis may explain the high urban wages and unemployment found in many such countries. The market equilibrium is shown not to be pareto efficient. If the government could not control urbaxv'rural migration, but could control wages and urban employment, it would, in general, set wages and employment levels differently. The sources of Inefficiency are identified. The (constrained) pareto optimal policy can be implemented via taxes and subsidies; but two instruments (both specific and ad valorern wage tax/subsidies) are required. More generally, policy changes will affect both the urban wage and the level of unemployment, and these consequences need to be taken into accounce, both In the determination of shadow wages to be used in cost benefit analysis and In the analysisis of the incidence of any set of taxes and subsIdIes. The shadow price of labor may differ markedly from what it would be if wages were arbitrarily fixed and there were no migration. In particular, in the special case of the Harris-Todaro migration model, with fixed rural wages and productivity depending only on the absolute wage received, the shadow wage is the market wage, regardless of the relative evaluation of current and future consumption. Shadow prices under other specifications of the wage-productivity relationship are analyzed.
Handle: RePEc:nbr:nberwo:1976
Template-Type: ReDIF-Paper 1.0
Title: Incentive Compatible Trade Policies
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Note: ITI IFM
Number: 1977
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1977
File-URL: http://www.nber.org/papers/w1977.pdf
File-Format: application/pdf
Publication-Status: published as Feenstra, Robert C. "Incentive Compatible Trade Policies," Scandinavian Journal of Economics, 1987.
Abstract: We consider a two country trade model with production uncertainty. If complete contingent markets do not exist, it is desirable for governments to adopt some trade policies to share the production risk. A full information policy involves income transfers across countries, which can be achieved by equal import tariffs and export subsidies. With incomplete information we consider incentive compatible trade policies, which are designed to be truth revealing while partially sharing the production risk. In this case the tariff in one country may differ from the export subsidy abroad.
Handle: RePEc:nbr:nberwo:1977
Template-Type: ReDIF-Paper 1.0
Title: Gains from Trade in Differentiated Products: Japanese Compact Trucks
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Note: ITI IFM
Number: 1978
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1978
File-URL: http://www.nber.org/papers/w1978.pdf
File-Format: application/pdf
Publication-Status: published as Feenstra, Robert C. "Gains from Trade in Differentiated Products: Japanese Compact Trucks," Empirical Methods for International Trade, ed. by R. C. Feenstra, Cambridge, MA: MIT Press, 1988.
Abstract: We present a methodology for estimating the welfare gains from a product with new characteristics, and apply it to Japanese and American compact trucks. Our approach can be used on any products for which a hedonic regression can be estimated. For 1979-80 we find average welfare gains of $500-600 per Japanese truck. In later years the benefit to consumers is reduced by the tariff on imports and the introduction of American compact models. American compacts have consumer gains which are much less than the average for Japanese models, since for each American compact there is an import with very similar characteristics.
Handle: RePEc:nbr:nberwo:1978
Template-Type: ReDIF-Paper 1.0
Title: In the Wrong Place at the Wrong Time: The Extent of Frictional and Structural Unemployment
Author-Name: Jonathan S. Leonard
Author-Person: ple190
Number: 1979
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1979
File-URL: http://www.nber.org/papers/w1979.pdf
File-Format: application/pdf
Publication-Status: published as Unemployment and the Structural LAbor Markets, (eds) K. Lang and J. Leornard, 1987, Oxford: Basil Blackwell.
Abstract: A major cause of unemployment, distinct from inadequate aggregate demand and instability of workers, is the instability of jobs themselves. In an average year about one in every nine jobs disappear and one in every eight is newly created. This is based on an analysis of year to year employment changes among the private employers of Wisconsin between 1977 and 1982. This job loss may account for roughly 2.2 percentage points, or one quarter, of the average unemployment rate. As much as half of the transitions of workers from employment to non-employment may be accounted for by the destruction of jobs. Establishments appear to adjust their employment quickly, largely within one year. Employment growth rates one year apart are negatively correlated, and thereafter nearly follow a random walk. Establishments exhibit considerable heterogeneity in employment growth rates, with some positive cyclical variations, but little industry effect. Employment shifts across establishments within an industry are of far greater magnitude than shifts across industry lines.
Handle: RePEc:nbr:nberwo:1979
Template-Type: ReDIF-Paper 1.0
Title: Irreversible Investment, Capacity Choice, and the Value of the Firm
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Note: ME
Number: 1980
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1980
File-URL: http://www.nber.org/papers/w1980.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 78, no. 5, pp. 969-985, Dec. 1988.
Abstract: A model of capacity choice and utilization is developed consistent with value maximization when investment is irreversible and future demand is uncertain. Investment requires the full value of a marginal unit of capacity to be at least as large as its full cost. The former includes the value of the firms option not to utilize the unit, and the latter includes the opportunity cost of exercising the investment option. We show that for moderate amounts of uncertainty, the firm's optimal capacity is much smaller than it would be if investment were reversible, and a large fraction of the firm's value is due to the possibility of future growth. We also characterize the behavior of capacity and capacity utilization, and discuss implications far the measurement of marginal cost and Tobin's q.
Handle: RePEc:nbr:nberwo:1980
Template-Type: ReDIF-Paper 1.0
Title: A Time Series Analysis of Representative Agent Models of Consumption andLeisure Choice Under Uncertainty
Author-Name: Martin S. Eichenbaum
Author-Person: pei4
Author-Name: Lars Peter Hansen
Author-Person: pha303
Author-Name: Kenneth J. Singleton
Author-Person: psi735
Note: EFG
Number: 1981
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1981
File-URL: http://www.nber.org/papers/w1981.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, February 1988.
Abstract: This paper investigates empirically a model of aggregate consumption and leisure decisions in which goods and leisure provide services over time. The implied time non-separability of preferences introduces an endogenous source of dynamics which affects both the co-movements in aggregate compensation and hours worked and the cross-relations between prices and quantities. These cross-relations are examined empirically using post-war monthly U.S. data on quantities, real wages and the real return on the one-month Treasury bill. We find substantial evidence against the overidentifying restrictions. The test results suggest that the orthogonality conditions associated with the representative consumer's intratemporal Euler equation underlie the failure of the model. Additionally, the estimated values of key parameters differ significantly from the values assumed in several studies of real business models. Several possible reasons for these discrepancies are discussed.
Handle: RePEc:nbr:nberwo:1981
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Drinking Age Laws and Highway Mortality Rates of Young Drivers
Author-Name: Henry Saffer
Author-Person: psa935
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH PE
Number: 1982
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1982
File-URL: http://www.nber.org/papers/w1982.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, Michael and Henry Saffer. "Drinking Age Laws and Highway Mortality Rates: Cause and Effect," Economic Inquiry, Vol. 25, No. 3, July 1987.
Abstract: This paper presents estimates of the effects of the drinking age and beer taxes on youth motor vehicle mortality. The data set employed is a time series, from 1975 to 1981, of cross sections of the 48 contiguous states. Separate regressions for 15 to 11 year olds, 18 to 20 year olds and 21 to 24 year olds are presented. A simultaneous estimation model is used to account for the endogeneity .of the drinking age. The results show that during the sample period an increase in the drinking age to 21, which is approximately 8 percent, would have reduced mortality in the 18 to 20 year old group by approximately 14 percent. Also a 100 percent increase in the real beer tax, which is approximately $1.50 per case, would reduce highway mortality of 18 to 20 year olds by about 19 percent. This increase in the beer tax would also reduce mortality by about 8 percent for 15 to 17 year olds and by about 18 percent for the 21 to 24 year olds.
Handle: RePEc:nbr:nberwo:1982
Template-Type: ReDIF-Paper 1.0
Title: The Failure of Ricardian Equivalence Under Progressive Wealth Taxation
Author-Name: Andrew B. Abel
Author-Person: pab10
Note: PE
Number: 1983
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1983
File-URL: http://www.nber.org/papers/w1983.pdf
File-Format: application/pdf
Publication-Status: published as Abel, Andrew B. "The Failure of Ricardian Equivalence Under Progressive Wealth Taxation." Journal of Public Economics, Vol. 30, No. 1, (June 1986), pp . 117-128.
Abstract: Although the Ricardian Equivalence Theorem holds under a linear estate tax schedule, it fails to hold under a nonlinear estate tax schedule. In a representative consumer economy, a temporary lump-sum tax increase reduces contemporaneous consumption. If different consumers face different marginal estate tax rates because they leave bequests of different sizes, a lump-sum tax increase redistributes resources from consumers in low marginal estate tax brackets to consumers in high marginal estate tax brackets; aggregate consumption mey rise, fall, or remain unchanged. These departures from Ricerdian Equivalence hold more generally under any nonlinear tax on saving, wealth or income accruing to wealth.
Handle: RePEc:nbr:nberwo:1983
Template-Type: ReDIF-Paper 1.0
Title: Why Are Children Poor?
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: LS
Number: 1984
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1984
File-URL: http://www.nber.org/papers/w1984.pdf
File-Format: application/pdf
Abstract: Data from the 1960, 1970, and 1980 Censuses of Population and the Current Population Surveys of 1980 and 1985 are used to describe and analyze the economic position of children with special emphasis on cross-section differences and variation over time in the incidence of poverty. Between 1959 and 1979 the income available to children tended to follow the same pattern as adult income, but between 1979 and 1984 the trends for children were very unfavorable. Poverty rose, average income fell, and income inequality increased. Contrary to popular belief, the increase in femaleheaded households played only a small part in the growth of poverty among children since 1979. Income available to children fell because households with children are highly dependent on labor income- -which fell for all age groups. The elderly (65+), who derive 75 percent of their income from nonlabor sources (e.g., social security, private pensions, interest), were the only age group to experience gains in real per capita income during 1979-84. The conclusions about trends in the money income available to children and adults are relatively unchanged when estimates of the value of nonmarket production and in-kind government social welfare programs are added to money income.
Handle: RePEc:nbr:nberwo:1984
Template-Type: ReDIF-Paper 1.0
Title: Ski-Lift Pricing, with an Application to the Labor Market
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: Paul M. Romer
Author-Person: pro45
Note: EFG
Number: 1985
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1985
File-URL: http://www.nber.org/papers/w1985.pdf
File-Format: application/pdf
Publication-Status: published as "Ski-Lift Pricing, with Applications to Labor and Other Markets." From The American Economic Review, Vol. 77, No. 5, pp. 875-890, (December 1987).
Abstract: The market for ski runs or amusement rides often features lump-sum admission tickets with no explicit price per ride. Therefore, the equation of the demand for rides to the supply involves queues, which are systematically longer during peak periods, such as weekends. Moreover, the prices of admission tickets are much less responsive than the length of queues to variations in demand, even when these variations are predictable. We show that this method of pricing generates nearly efficient outcomes under plausible conditions. In particular, the existence of queues and the "stickiness" of prices do not necessarily mean that rides are allocated improperly or that firms choose inefficient levels of investment. We then draw an analogy between "ski-lift pricing" and the use of profit-sharing schemes in the labor market. Although firms face explicit marginal costs of labor that are sticky and less than workers' reservation wages, and although the pool of profits seems to create a common-property problem for workers, this method of pricing can approximate the competitive outcomes for employment and total labor compensation.
Handle: RePEc:nbr:nberwo:1985
Template-Type: ReDIF-Paper 1.0
Title: Reputational Constraints on Monetary Policy
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: EFG
Number: 1986
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1986
File-URL: http://www.nber.org/papers/w1986.pdf
File-Format: application/pdf
Publication-Status: published as Rogoff, Kenneth. "Reputational Constratints on Monetary Policy." Carnegie-Rochester Conference Series on Public Policy, ed. by Karl Brunner and Allen Meltzer, Vol. 26, Spring 1987, pp. 141-182. American Economic Review, vol. 80, no. 1, pp 21-36, March 1990.
Abstract: Recent advances in game theory have made it possible to study monetary policy credibility in a structured fashion. Some have concluded from these models that reputational considerations substantially discourage the monetary authorities from ever attempting surprise inflations. Hence legal constraints on money supply growth are unnecessary and can only be harmful. In this study, I critically assess a number of alternative models of monetary policy reputation, including some new variants. The bulk of the paper is concerned with comparing specific details of these models. One general conclusion is that although this first generation of monetary policy reputation models yields a significant number of important insights, it is premature to argue that time consistency is not a major issue in the design of monetary policy institutions. The main problem is that the models either yield a multiplicity of equilibria, or/and yield conclusions which are very sensitive to apparently minor changes in the information structure. Whereas an optimal reputational equilibrium may arise without any explicit cooperation among atomistic private agents, it is not (yet) clear why we should expect them to coordinate on the most favorable equilibrium. Strategic uncertainty may be an important drawback to institutional setups which place few constraints on monetary policy.
Handle: RePEc:nbr:nberwo:1986
Template-Type: ReDIF-Paper 1.0
Title: Economic Events and Keynesian Ideas: The 1930s and the 1970s
Author-Name: Michael R. Darby
Author-Name: James R. Lothian
Note: ITI IFM
Number: 1987
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1987
File-URL: http://www.nber.org/papers/w1987.pdf
File-Format: application/pdf
Publication-Status: published as Darby and Lothian, "Keynes's General Theory: Fifty Years On; Its Relevance and Irrelevance to Modern Times," ed. by John Burton, et.al., Hobart Paperback 24, London: The Institute of Economic Affairs, 1986.
Abstract: Keynes' General Theory was a brilliant attempt to explain the paradox of low interest rates, ineffectual easy monetary policy, and low investment during the Great Depression. We argue that Keynes' failure to distinguish between low nominal and high real interest rates led him to misinterpret a tight and all too effective monetary policy and unnecessarily hypothesize a downward shift in investment demand. Keynesian ideas in turn profoundly influenced economic policy in the 1960s and 1970s. The resulting postwar inflation -- rather than scholarship on what actually happened in the 1930s -- appears to be the primary reason for the waning influence of the ideas derived from the General Theory.
Handle: RePEc:nbr:nberwo:1987
Template-Type: ReDIF-Paper 1.0
Title: Supply Shocks and Optimal Monetary Policy
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: EFG
Number: 1988
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1988
File-URL: http://www.nber.org/papers/w1988.pdf
File-Format: application/pdf
Publication-Status: published as Turnovsky, Stephen J. "Supply Shocks and Optimal Monetary Policy," Oxford Economic Papers, Vol. 39, No. 1, March 1987, pp. 20-37.
Abstract: This paper demonstrates that if current shocks are observed instantaneously, output can be stabilized perfectly for completely general supply disturbances, using simple monetary rules based only on: (i) the current shock, (ii) the previous forecast of the current shock, (iii) the forecast for just one period ahead. The optimal rule can be expressed in an infinite number of ways and various alternatives are considered. With optimal wage indexation, the monetary rule is even simpler. If current shocks are not observed instantaneously, but are inferred from other signals, the optimal rules are of the same form, with the current perceived disturbance replacing the actual.
Handle: RePEc:nbr:nberwo:1988
Template-Type: ReDIF-Paper 1.0
Title: The Internationalization of American Banking and Finance: Structure, Risk, adn World Interest Rates
Author-Name: Michael R. Darby
Note: ITI IFM
Number: 1989
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1989
File-URL: http://www.nber.org/papers/w1989.pdf
File-Format: application/pdf
Publication-Status: published as Darby, Michael R."The Internationalization of American Banking and Finance:structure, Risk, and World Interest Rates," Journal of International Money and Finance, Vol. 5, No. 4, (December 1986).
Abstract: The transformation of American banking from the parochialism of 1960 to the internationally linked structure of the 1980s is analyzed and detailed quantitatively. While the liberalization of trade and the existence of and changes in financial regulations profoundly affected the pace and order of this transformation, it is argued that international banking is the historic norm. International banking on the one hand provides the opportunity to banks to diversify their portfolio, but may simultaneously expose them to increased systematic risk, especially with regards to movements in the U.S. real interest rate. Deposit insurance provides an incentive for banks to take on such priced systematic risk with welfare costs which must be balanced against the welfare gains from the insurance. The paper closes with an exploration of the nature of the linkage of major movements in real interest rates and exchange rates. Further research seems warranted on monetary-policy-regime changes and investment-demand shifts as a result of changes in tax, regulatory, and political climate.
Handle: RePEc:nbr:nberwo:1989
Template-Type: ReDIF-Paper 1.0
Title: On the Inception of Rational Bubbles in Stock Prices
Author-Name: Behzad T. Diba
Author-Person: pdi273
Author-Name: Herschel I. Grossman
Note: EFG ME
Number: 1990
Creation-Date: 1986-07
Order-URL: http://www.nber.org/papers/w1990
File-URL: http://www.nber.org/papers/w1990.pdf
File-Format: application/pdf
Publication-Status: published as Diba and Grossman, "The Theory of Rational Bubbles in Stock Prices," from Economic Journal, Vol. 98, No. 3, September 1988.
Abstract: This paper analyzes the theoretical possibility of rational bubbles in stock prices in a model in which stockholders have infinite planning horizons and in which free disposal of equity rules out the existence of negative rational bubbles. The analysis shows that in this framework if a positive rational bubble exists, then it started on the first date of trading of the stock. Thus, the existence of a rational bubble at any date would imply that the stock has been overvalued relative to market fundamentals since the first date of trading and that prior to the first date of trading potential stockholders who anticipated the initial pricing of the stock expected that the stock would be overvalued relative to market fundamentals. The analysis also shows that any rational bubble will eventually burst and will not restart. Thus, even if a positive rational bubble exists, stockholders know that after a random, but almost surely finite, date the stock price will conform to market fundamentals forever.
Handle: RePEc:nbr:nberwo:1990
Template-Type: ReDIF-Paper 1.0
Title: Consumer Spending and the After-Tax Real Interest Rate
Author-Name: N. Gregory Mankiw
Note: PE
Number: 1991
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w1991
File-URL: http://www.nber.org/papers/w1991.pdf
File-Format: application/pdf
Publication-Status: published as Mankiw, N. Gregory."Consumer Spending and the After-Tax Real Interest Rate." The Effects of Taxation on Capital Accumulation, ed by Martin Feldstein. Chicago: UCP, 1987.
Publication-Status: published as Consumer Spending and the After-Tax Real Interest Rate, N. Gregory Mankiw. in Taxes and Capital Formation, Feldstein. 1987
Publication-Status: published as Consumer Spending and the After-Tax Real Interest Rate, N. Gregory Mankiw. in The Effects of Taxation on Capital Accumulation, Feldstein. 1987
Abstract: This paper examines the interaction between consumer durable goods and consumer non-durable goods in determining the responsiveness of total expenditure to the after-tax real interest rate. The introduction of consumer durables into the consumer's decision problem can have important effects on the interest elasticity of total spending. The channel highlighted here might be called the "user cost effect," in that the after-tax interest rate enters the implicit user cost of consumer durable goods. Even if a consumer has a one-period planning horizon, possibly because of a binding borrowing constraint, the user cost effect may nonetheless make his spending highly interest sensitive. Finally, the paper examines the response of the level and composition of consumer spending to the high real interest rates experienced in the early 1980s.
Handle: RePEc:nbr:nberwo:1991
Template-Type: ReDIF-Paper 1.0
Title: Measuring the Efficiency Cost of Taxing Risky Capital Income
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: John D. Wilson
Note: PE
Number: 1992
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w1992
File-URL: http://www.nber.org/papers/w1992.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 79, No. 3, pp. 429-439, (June 1989).
Abstract: In this paper, we derive a measure of the efficiency cost of taxing risky capital income in an infinite horizon stochastic model. The resulting measure differs from all those that have been proposed in the existing literature. It can be represented by the expression -sigma(s) T(s)c(deltaX(s)), where T(s) measures the present value of the taxes that would be paid on a unit of investment in a riskless project with the same expected depreciation rate and tax treatment as capital invested in period s, X(s), while c(X(s)) represents the certainty equivalent to the representative individual of the lottery where measures the ex post change in investment in period s due to the tax change. The paper then compares this measure with others that have appeared in the literature. We were unable to find support for the argument in Bulow-Suinmers(1984) that the efficiency cost of taxing risky capital income is much larger than that implied by the measure -sigma(s)T(s)E(deltaX(s)). In fact, we show in special cases that our measure implies a smaller efficiency cost than does the measure -sigma(s)T(s)E(deltaX(s)).
Handle: RePEc:nbr:nberwo:1992
Template-Type: ReDIF-Paper 1.0
Title: The Cash Flow Corporate Income Tax
Author-Name: Mervyn A. King
Note: PE
Number: 1993
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w1993
File-URL: http://www.nber.org/papers/w1993.pdf
File-Format: application/pdf
Publication-Status: published as King, Mervyn A. "The Cash Flow Corporate Income Tax," The Effects of Taxation on Capital Accumulation, ed. by Martin Feldstein. Chicago: UCP, 1987.
Publication-Status: published as The Cash Flow Corporate Income Tax, Mervyn A. King. in The Effects of Taxation on Capital Accumulation, Feldstein. 1987
Abstract: The current debate on tax reform has raised again the question of how the corporate tax system should be altered. The cumulative effect of piece meal changes to the tax system has been to produce major distortions in the pattern of savings and investment and falling revenue in real terms. To overcome these problems, reform, both in the US and UK, has focussed on ways to tax the real economic income of companies. The main problems with this approach are the difficulties of (a) indexing the tax treatment of income from capital in a comprehensive manner and (b) defining economic depreciation. This paper discusses and alternative way to obtain the objective of fiscal neutrality without a significant erosion of the tax base. The implications of such a cash flow corporate income tax for financial and investment decisions are discussed both theoretically and in terms of potential and administrative and practical problems of implementation.
Handle: RePEc:nbr:nberwo:1993
Template-Type: ReDIF-Paper 1.0
Title: Taxation of Asset Income in the Presence of a World Securites Market
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Hal R. Varian
Author-Person: pva5
Note: PE
Number: 1994
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w1994
File-URL: http://www.nber.org/papers/w1994.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Journal of International Economics, vol .26, no. 314, pp. 205-226, 1989.
Abstract: This paper shows, using a standard CAPM model of security prices in a world market, that even small countries can affect the price of domestically issued risky securities, while large countries can affect the prices of all securities. As a result, countries have the incentive to set tax rates such that in equilibrium investors specialize in domestic securities, and net capital flows between countries are restricted. Each country does this to increase the utility of domestic residents, taking as given the tax policies of other governments, but the net outcome is a reduction in world efficiency and likely a reduction in the utility of all individuals.
Handle: RePEc:nbr:nberwo:1994
Template-Type: ReDIF-Paper 1.0
Title: Supply-Side Macroeconomics
Author-Name: John F. Helliwell
Author-Person: phe368
Note: EFG
Number: 1995
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w1995
File-URL: http://www.nber.org/papers/w1995.pdf
File-Format: application/pdf
Publication-Status: published as "Supply-side Macro-economics." From Canadian Journal of Economics, Vol. 19, No. 4, pp. 597-625, (November 1986).
Abstract: This paper tests New Classical and Keynesian explanations of output determination within an encompassing "factor utilization" model wherein the output decision by producers is modelled as the choice of a utilization rate for employed factors. In this encompassing model, the ratio of actual to normal output (with the latter defined by a nested CES vintage production function with capital, energy and employment as factor inputs) is explained by unexpected sales (a Keynesian element), abnormal profitability (one component of which is the Lucas "price surprise" effect), and abnormal inventories. Results using Canadian data show that the Keynesian and New Classical elements contribute explanatory power, as does the production-function-based measure of normal output, while each of these partial models is strongly rejected in favour of the encompassing model. The highly structured factor utilization model is also seen to fit better than an unstructured VAR model. U.S. data confirm the results, and show that there are significant effects from abnormal demand, profitability and inventory levels even if the labour and capital components of normal output are defined using hours and utilized capital rather than employment and the capital stock. The results are also confirmed using alternative output (and hence input) concepts, using a translog function instead of a CES function to define normal output, and using data for several other major industrial countries.
Handle: RePEc:nbr:nberwo:1995
Template-Type: ReDIF-Paper 1.0
Title: The Empirical Analysis of Tax Reforms
Author-Name: Mervyn A. King
Note: PE
Number: 1996
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w1996
File-URL: http://www.nber.org/papers/w1996.pdf
File-Format: application/pdf
Publication-Status: published as Advances in Econometrics, 1988, ed. T. Bewely, Cambridge University Press: London
Abstract: Over the last decade increasing use has been made of individual household data to analyse the gains and losses from tax reform. Much attention has been paid to the econometric estimation of models of household responses to taxes. But these models yield valid estimates of the welfare consequences of tax changes only when the implied preference orderings are well behaved. This paper discusses the nature of such conditions in detail. Where there are rionlinearities in the budget constraint then two sets of "primal" and "dual" conditions must be satisfied. The analysis of these conditions yields suggestions for the specification of behavioural models and the use of individual-specific information in the observed data.
Handle: RePEc:nbr:nberwo:1996
Template-Type: ReDIF-Paper 1.0
Title: The Ins and Outs of Unemployment: The Ins Win
Author-Name: Michael R. Darby
Author-Name: John C. Haltiwanger
Author-Person: pha231
Author-Name: Mark W. Plant
Note: LS
Number: 1997
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w1997
File-URL: http://www.nber.org/papers/w1997.pdf
File-Format: application/pdf
Abstract: This paper develops a framework for analyzing unemployment in terms of variations in the nt.imber and distribution of people becoming unemployed and in individual probabilities of leaving unemployment. Contrary to the emphasis on exit probabilities in the recent macroeconomics literature, we present empirical evidence in support of the proposition that changes in the size and distribution of the inflow Into unemployment are the primary determinant of the unemployment rate. Instead of falling at the beginning of a recession, the outflow rate rises (with a lag) in response to the increased inflows which drive the recession. In contrast to normal unemployment, cyclical unemployment is concentrated in groups with low normal exit probabilities; so the observed procyclical variation in the average exit probability may largely he explained by predictable distributional effects.
Handle: RePEc:nbr:nberwo:1997
Template-Type: ReDIF-Paper 1.0
Title: Labor Markets and the Choice of Technology in an Open Developing Economy
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 1998
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w1998
File-URL: http://www.nber.org/papers/w1998.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Development Studies, Vol. 25, No. 2, pp. 210-225, (January 1989).
Abstract: This paper highlights economic factors determining the choice of technology and openness in an intertemporal context in the presence of Institutional constraints In the labor market. It considers the case in which a more aggressive - development strategy involves an investment in a modern technology. This technology raises the degree to which real wages and productivity depend on external factors while at the same time It also raises the expected value of real income. In the absence of Such investment, production takes place in a traditional sector, using a technology that limits exposure to external shocks. The analysis evaluates the dependence of the choice of technology on the volatility of the shocks affecting the economy, the expected productivity gains, the investment cost associated with the modern technology, and the attitude towards risk. It starts with a benchmark case of a flexible wage/employment economy. The dependence of openness, investment, and real wages on the attltuae towards risk is derived for such an economy. The paper then proceeds to analyze the implications of departures from the benchmark model. Specifically, it evaluates the effects of minimum wage policy on the choice of technology. it is demonstrated that institutional constraints in the labor market tend to discourage adoption of new technologies. The importance of this effect depends on the volatility of the underlying shocks. A rise In the volatility tends to be associated with a drop in the degree to which a given institutional structure constrains the move to the new sector. Thus, turbulent periods provide opportunities for structural shifts in favor of the new sector. The analysis assesses both the positive aspects of policies and the welfare costs associated with departures from fully flexible labor markets. It also discusses the interaction between institutional structure of the labor market and the use of protective measures that attempt to reduce exposure to external shocks.
Handle: RePEc:nbr:nberwo:1998
Template-Type: ReDIF-Paper 1.0
Title: The Estimation of Prewar GNP Volatility, 1869-1938
Author-Name: Nathan S. Balke
Author-Person: pba121
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 1999
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w1999
File-URL: http://www.nber.org/papers/w1999.pdf
File-Format: application/pdf
Publication-Status: Published as "The Estimation of Prewar Gross National Product: Methodologyand New Evidence", JPE, Vol. 97, no. 1 (1989): 38-92.
Abstract: New evidence is provided to assess the recent controversy regarding the volatility of real economic activity before 1929 relative to the period since World War II. Some recent work claims that the longstanding stylized fact of greater prewar volatility is "spurious". In contrast, this paper reconfirms the greater amplitude of business fluctuations prior to the Great Depression. The basic technique is the regression method, which estimates equations for real GNP during 1909-38, with one or more explanatory variables for components of GNP, and then uses the estimated coefficients to "backcast" real GNP or the period 1869-1908. The paper contains an extensive examination of the sensitivity of these regression indexes to alternative dependent variables, sample periods, detrending methods, and the inclusion of alternative explanatory variables. Particular attention is paid to the conflicting evidence regarding the amplitude of cycles in construction activity between 1870 and 1890. The resulting prewar/postwar volatility ratios, for 1869-1928 as compared to 1950-1980, range from 1.43 to 2.16. The paper concludes by suggesting that this range of volatility ratios is more likely to understate than overstate the prewar/postwar volatility ratio.
Handle: RePEc:nbr:nberwo:1999
Template-Type: ReDIF-Paper 1.0
Title: Errors of Measurement in Output Deflators
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Author-Name: Zvi Griliches
Note: PR
Number: 2000
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w2000
File-URL: http://www.nber.org/papers/w2000.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business & Economic Statistics, Vol. 7, No. 1, pp. 1-9,(January 1989).
Abstract: In this paper we investigate the incidence of measurement errors in two independent estimates of long-term price change, within the framework of "multiple indicators" models of price measurement. We develop estimates of the measurement-error variances associated with both the Producer Price Index (PPI) and the Census Unit Value Relative (UVR) . Our estimates provide support for the generally accepted view that the PPI is a far more reliable indicator of long-term price change: the estimated signal-to-noise ratios for the PPI and UVR are 2.72 and 0.53, respectively. Our estimates should be useful for both constructing an optimal indicator of price change, and for identifying econometric models including error-ridden price- or output-growth terms as regressors. Our analysis suggests that "scores" assigned to product deflators provide useful information about their reliability. By extending our model to explicitly incorporate product-quality change, we are able to assess the importance of the problem posed by quality change for price and productivity measurement. Less than half of quality change, which we estimate to occur at an average annual rate of 1.3 percent, appears to be adjusted for in the PPI. Consequently, estimates of productivity growth based on the PPI underestimate "quality-adjusted" productivity growth by an estimated 43 percent.
Handle: RePEc:nbr:nberwo:2000
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of the Smoot-Hawley Tariff
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI DAE IFM
Number: 2001
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w2001
File-URL: http://www.nber.org/papers/w2001.pdf
File-Format: application/pdf
Publication-Status: published as in "Research in Economic History" Roger L. Ransom, Peter H. Lindert (eds) December 1989, pp. 1-35.
Publication-Status: published as in Frieden, Jeffry and David Lake (eds.) "International Political Economy." Bedford/St. Martin's Press, (August 13, 1999)
Abstract: Economic histories of the interwar years view the Great Depression and the Smoot Hawley Tariff as inextricably bound up with one another. They assign a central role to the Depression in explaining the passage of the 1930 Tariff Act and at the same time emphasize the role of the tariff in the propogation of the Depression. This paper argues that popular accounts have conveyed what is at best an incomplete and at worst a misleading impression of the relationship between the tariff and the Depression. Rather than simply strengthening the hand of a Republican Executive predisposed toward protection or increasing the burden borne by a depressed agricultural sector, the uneven impact of the Depression occasioned the birth of a new protectionist coalition comprised of producers particularly hard hit by import competition: border agriculture and small-scale industry engaged in the production of speciality goods. Rather than leading to a dramatic across-the-board decline in the volume of U.S. imports, the tariff had very different effects across sectors. Rather than worsening the Great Depression by reducing foreign demands for U.S. exports, the direct macroeconomic effect of the tariff is likely to have been expansionary. This remains true even when feedbacks to the United States and foreign retaliation are analyzed. In any case, relative to the Depression, the direct macroeconomic effects of the tariff were small. If Smoot-Hawley had significant macroeconomic effects, these operated instead through its impact on the stability of the international monetary system and the efficiency of the international capital market.
Handle: RePEc:nbr:nberwo:2001
Template-Type: ReDIF-Paper 1.0
Title: Research and Development and Intraindustry Spillovers: An Empirical Application of Dynamic Duality
Author-Name: Jeffrey I. Bernstein
Author-Person: pbe327
Author-Name: M. Ishaq Nadiri
Note: PR
Number: 2002
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w2002
File-URL: http://www.nber.org/papers/w2002.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 56, pp. 249-269, (April 1989).
Abstract: In this paper we estimate a model of production and investment based on the theory of dynamic duality and are particularly Interested in the effects of R&D spillovers and in calculating the social and private rates of return. We identify and estimate three effects associated with the intraindustry R&D spillover. First, costs decline as knowledge expands for the externality-receiving firms. Second, production structures are affected, as factor demands change in response to the spillover. Third, the rates of capital accumulation are affected by the R&D spillover. These cost-reducing, factor-biasing and capital adjustment effects of the spillover are estimated for four industries. The existence of R&D spillovers implies that the social and private rates of return to R&D capital differ. We estimate that the social return exceeds the private return in each industry. However, there is significant variation across industries in the differential between the social and private rates of return.
Handle: RePEc:nbr:nberwo:2002
Template-Type: ReDIF-Paper 1.0
Title: Propogation of Shocks in a High-Inflation Economy: Israel, 1980-85
Author-Name: Leonardo Leiderman
Author-Name: Assaf Razin
Author-Person: pra388
Note: ITI IFM
Number: 2003
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w2003
File-URL: http://www.nber.org/papers/w2003.pdf
File-Format: application/pdf
Publication-Status: published as "Foreign Trade Shocks and the Dynamics of High Inflation: Israel, 1978-85" Journal of International Money and Finance, Vol. 7, pp. 411-423, (1988).
Abstract: The purpose of this paper is to provide empirical answers to questions related to the propagation of shocks in a high-inflation economy. Do one-time inflationary shocks give rise to long-term persistence, or inertia? Do balance of payments' shocks trigger a process that, through indexation and monetary accommodation, results in long-term changes in inflation? Within the context of a specific hypothesis, influential both in policy discussions and in economic analyses, the paper addresses these issues using Israeli data and vector-autoregression techniques. The evidence does not support the hypothesis that one-time nominal shocks have a persistent effect on the inflation rate, or the hypothesis that long-term changes in inflation are triggered by autonomous fluctuations in the trade balance.
Handle: RePEc:nbr:nberwo:2003
Template-Type: ReDIF-Paper 1.0
Title: Rational Inflationary Bubbles
Author-Name: Behzad T. Diba
Author-Person: pdi273
Author-Name: Herschel I. Grossman
Note: EFG ME
Number: 2004
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w2004
File-URL: http://www.nber.org/papers/w2004.pdf
File-Format: application/pdf
Publication-Status: published as Diba, Behzad T. and Herschel I. Grossman. "Rational Inflationary Bubbles," Journal of Monetary Economics, Vol. 21, No. 1, pp. 35-46, (January 1988).
Abstract: This paper analyzes the possible inception of rational inflationary bubbles under the assumption that the empirically relevant environment precludes the existence of rational deflationary bubbles. The analysis shows that if a rational inflationary bubble exists, then it must have started on the date of initial issuance of the fiat money. Moreover, the existence of a rational inflationary bubble would imply that, prior to the initial issuance of the fiat money, agents who anticipated its introduction expected a rational inflationary bubble to occur. The analysis also shows that once a rational inflationary bubble bursts it cannot restart. The analysis, however, does not preclude the existence of a rational inflationary bubble that shrinks periodically, but never bursts. The limitations on the inception and existence of rational inflationary bubbles also apply to rational exchange-rate bubbles.
Handle: RePEc:nbr:nberwo:2004
Template-Type: ReDIF-Paper 1.0
Title: Government Spending, Interest Rates, Prices, and Budget Deficits in the United Kingdom, 1701-1918
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 2005
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w2005
File-URL: http://www.nber.org/papers/w2005.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 20, no. 2 (1987): 221-248.
Abstract: The British data from the early 1700s through World War I provide an unmatched opportunity for studying the effects of temporary changes in government purchases. In this paper I examine the effects of these changes on interest rates, the quantity of money, the price level, and budget deficits. Temporary increases in government purchases--showing up in the sample as increases in military outlays during wartime--had positive effects on long-term interest rates. The effect on the growth rate of money (bank notes) was positive only during the two periods of suspension of the gold standard (1797-1821 and 1914-1918). As long as convertibility of bank notes into specie was maintained, there was no systematic relation of government spending to monetary growth. Similarly, the main interplay between temporary government spending and inflation occurred during the periods of suspension. Temporary changes in military spending accounted for the bulk of budget deficits from the early 1700s through 1918. This association explains the main increases in the ratio of the public debt to GNP, as well as the decreases that typically occurred during peacetime. Over the sample of more than two hundred years, I found only two examples of major budget deficits that were unrelated to wartime -- one associated with compensation payments to slaveowners in 1835-36 and the other with a political dispute over the income tax in 1909-10. Because of the "exogeneity" of these deficits, it is interesting that interest rates showed no special movements at these times.
Handle: RePEc:nbr:nberwo:2005
Template-Type: ReDIF-Paper 1.0
Title: Inflationary Consequences of Anticipated Macroeconomic Policies
Author-Name: Allan Drazen
Author-Person: pdr25
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: EFG
Number: 2006
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w2006
File-URL: http://www.nber.org/papers/w2006.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 57, No. 189, pp. 147-164, (January 1990).
Abstract: We consider a model in which the level of taxes and seignorage are too low to finance government expenditures and debt service. Government debt will therefore grow without bound, implying the eventual need to change policy. Starting with utility maximization, we analyze the effect of the expected switch on equilibrium time paths before the switch takes place. We analyze stabilization via increasing taxes, increasing money growth rates, or cutting expenditures, both under certainty and under uncertainty about the composition or timing of a stabilization. Under full certainty, inflation may rise, fall, or remain constant before the stabilization, depending on which policy tool is used to stabilize. Uncertainty solely about the composition of the stabilization will yield paths in between the above cases, with a price jump at the time of stabilization. In general there is no simple correlation between changes in the budget deficit and inflation. With uncertainty about the timing OF a stabilization, the inflation rate will most likely exhibit fluctuations and may overshoot its steady state value, even when real balances move monotonically. Uncertainty about the timing of a stabilization can therefore itself induce fluctuation in inflation, even if underlying utility and subjective probability functions are smooth.
Handle: RePEc:nbr:nberwo:2006
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy and International Competitiveness
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 2007
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w2007
File-URL: http://www.nber.org/papers/w2007.pdf
File-Format: application/pdf
Publication-Status: published as International Aspects of Fiscal Policies, edited by Jacob A. Frenkel, pp. 349-375. Chicago: The University of Chicago Press, 1988.
Publication-Status: published as Tax Policy and International Competitiveness, Lawrence H. Summers. in International Aspects of Fiscal Policies, Frenkel. 1988
Abstract: This paper examines the interactions between tax policy, international capitol mobility, and international competitiveness. It demonstrates that tax policies which stimulate national investment without affecting national savings must inevitably lead to deterioration in a country's trade balance in the short and intermediate run. This conclusion, which contradicts a great deal of popular rhetoric highlights the importance of considering the macroeconomic as well as the microeconomic aspects of tax changes. Yore generally, the effects of tax policies depend critically on the extent of the international capital flows which they generate. The paper examines the issue of international capital mobility both theoretically and empirically. A variety of considerations suggest that while tax policies could generate large capital flows, governments pursue policies which tend to inhibit capital flows following tax changes. This makes the analysis of tax policies difficult.
Handle: RePEc:nbr:nberwo:2007
Template-Type: ReDIF-Paper 1.0
Title: Health Expenditures and Precautionary Savings
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE AG
Number: 2008
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w2008
File-URL: http://www.nber.org/papers/w2008.pdf
File-Format: application/pdf
Publication-Status: published as What Determines Savings by Laurence Kotlikoff, MIT Press, 1989.
Abstract: The precautionary motive for saving is an important issue that is receiving increasing attention. Part of the motivation for this interest stems from the post war coincidence of two trends, one a decline in the U.S. rate of saving and the other an increase in insurance of various types, including unemployment insurance, annuity insurance, disability insurance, and health insurance. This paper examines precautionary saving for uncertain health care payments using a simple two period and illustrates this model's theoretical insights through simulations of a 55 period life cycle model. While derived from a highly stylized model, the simulations give the impression that precautionary saving for uncertain health expenditures could explain a large amount of aggregate savings. Adding uncertain health expenditures to the model's economy raises long run savings by almost one third, assuming individuals self insure. Arrangements for insuring uncertain health expenditures also have potentially quite sizable effects on savings. Introducing actuarially fair insurance to the economy with uncertain health expenditures reduces the steady state level of wealth of that economy by 12 percent. Switching from the fair insurance arrangement to a Medicaid-type program with an asset test further reduces steady state wealth by 75 percent.
Handle: RePEc:nbr:nberwo:2008
Template-Type: ReDIF-Paper 1.0
Title: Government Purchases and Real Interest Rates
Author-Name: N. Gregory Mankiw
Note: EFG ME
Number: 2009
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w2009
File-URL: http://www.nber.org/papers/w2009.pdf
File-Format: application/pdf
Publication-Status: published as Mankiw, N. Gregory. "Government Purchases and Real Interest Rates." Journal of Political Economy, Vol. 95, No. 2, (April 1987), pp. 407-419.
Abstract: This paper examines the dynamic impact of government purchases in a simple general equilibrium model with both durable and non-durable consumer goods as well as productive capital. The model generates perhaps surprising results. In particular, increases in government purchases are shown to cause reductions in real interest rates. The model thus provides a possible explanation for the observed behavior of real interest rates around wars.
Handle: RePEc:nbr:nberwo:2009
Template-Type: ReDIF-Paper 1.0
Title: Hospital Admissions, Length of Stay, and Case-Mix Impacts of Per Case Payment: The Maryland Experience
Author-Name: David S. Salkever
Author-Person: psa1313
Author-Name: Donald M. Steinwachs
Note: EH
Number: 2010
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w2010
File-URL: http://www.nber.org/papers/w2010.pdf
File-Format: application/pdf
Publication-Status: published as "Utilization and Case-Mix Impacts of Per Case Payment in Maryland." From Health Care Financing Review, Vol. 9, No. 3, pp. 23-32, (Spring 1988).
Abstract: Maryland has simultaneously operated per case - and per service hospital payment systems since 1976 with varying levels of stringency in setting per case rates. Regression analyses of this experience are used to compare the impacts of these systems on admissions, length of stay, and case-mix costliness for the period July 1, 1976 to June 30, 1981. Our results indicate a positive effect on admissions and negative effects on case-mix and length of stay for the per case payment approach relative to the per service approach. More stringent levels of per case payment are associated with stronger utilization responses.
Handle: RePEc:nbr:nberwo:2010
Template-Type: ReDIF-Paper 1.0
Title: Export Supply and Import Demand Functions: A Production Theory Approach
Author-Name: W. Erwin Diewert
Author-Person: pdi117
Note: ITI PR IFM
Number: 2011
Creation-Date: 1986-08
Order-URL: http://www.nber.org/papers/w2011
File-URL: http://www.nber.org/papers/w2011.pdf
File-Format: application/pdf
Publication-Status: published as Feenstra, Robert C. (ed.) Empirical methods for international trade. Cambridge, MA and London: MIT Press, 1988.
Abstract: In this paper we theoretically and empirically model import demand and export supply behavior of firms for the U.S. economy from 1967-1982. A producer theoretic approach based on duality theory is used to derive econometric systems of producer supply and demand functions that are consistent with profit maximizing behavior. This system is then empirically implemented and the resulting estimates used to construct a full set of supply and demand elasticities characterizing import demand and export supply functions as well as domestic output supply and labor demand. These elasticities are in turn used to derive devaluation elasticities and some estimates of the equilibrium real exchange rate that would cause the U.S. trade surplus to reach zero.
Handle: RePEc:nbr:nberwo:2011
Template-Type: ReDIF-Paper 1.0
Title: Testing the Response of Consumption to Income Changes with (Noisy) PanelData
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: Aloysius Siow
Author-Person: psi13
Note: LS
Number: 2012
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2012
File-URL: http://www.nber.org/papers/w2012.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, May, 1987, pp. 293-328.
Abstract: This paper tests the rational expectations lifecycle model of consumption against (1) a simple Keynesian model and (ii) the rational expectations lifecycle model with imperfect capital markets. The tests are based upon the relative responsiveness of consumption to income changes which can be predicted from past information and income changes which cannot be predicted. Since there is strong evidence that panel data contains substantial measurement error, the tests are especially constructed to allow for measurement error in the income process. They also allow for more general income processes than have been considered to date in the literature. The results reject the Keynesian model and generally support the lifecycle model, although the tests are not sufficiently precise to rule out the possibility that some households are liquidity constrained. Measurement error does have a strong influence on the relationship between consumption and income. When it is ignored our tests do not reject the Keynesian model. We show that consideration of measurement error may also reconcile differences in the results of Hall and Mishkin (1982) and Bernanke(1984). Nevertheless, our most important conclusion is that Hall and Mishkin's, Bernanke's, and Hayashi's (198 ) qualitative finding that the vast majority of households obey the lifecycle model is not an artifact of failure to account for measurement error in the income data.
Handle: RePEc:nbr:nberwo:2012
Template-Type: ReDIF-Paper 1.0
Title: Permanent Homelessness in America?
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Brian Hall
Note: LS
Number: 2013
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2013
File-URL: http://www.nber.org/papers/w2013.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B. and Brian Hall. "Permanent Homelessness in America?" Population Research and Policy Review, Vol. 6, (1987), pp. 3-27.
Abstract: This paper seeks to determine the approximate number of homeless persons in the U.S., the rate of change in the number, and whether or not the problem is likely to be permanent or transitory. It makes particular use of a new 1985 survey of over 503 homeless people in New York City. It finds: (1) that the much maligned 1984 Department of Housing and Urban Affairs study was roughly correct in its estimate of 250,000 - 350,000 homeless persons for 1983; (2) the number of homeless has grown since 1983, despite economic recovery, with the number of homeless families growing especially rapidly (3) homelessness is a relatively long-term state for 6omeless individuals, who average 6-8 years of homelessness; (4) much of the homeless problem can be attributed to increases in the number of the poor in the 1980s and declines or rough constancy in the number of low-rent rental units; (5) relatively few homeless individuals receive welfare or general assistance money; a large proportion have spent time in jail. Overall, the study suggests that economic recovery will not solve the problem of homelessness, and that in the absence of changes in the housing market or in the economic position of the very poor, the U.S. will continue to be plagued with a problem of homelessness for the forseeable future.
Handle: RePEc:nbr:nberwo:2013
Template-Type: ReDIF-Paper 1.0
Title: Interindustry Wage Differences and Industry Characteristics
Author-Name: William T. Dickens
Author-Name: Lawrence F. Katz
Author-Person: pka266
Note: LS
Number: 2014
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2014
File-URL: http://www.nber.org/papers/w2014.pdf
File-Format: application/pdf
Publication-Status: published as Dickens, William T. and Lawrence F. Katz. "Inter-Industry Wage Differencesand Industry Charachteristics." Unemployment and the Structure of Labor Markets, edited by K. Lang and J. Leonard, pp. 48-89. New York: Basil Blackwell, 1987.
Abstract: This paper examines the extent of interindustry wage differences for nonunion workers and finds that even after controlling for a wide range of individual characteristics and geographic location a substantial amount of individual wage variation can be accounted for by industry differences. In the aggregate industry effects explain at least 6.7% of inter-personal wage variation. At most they explain 30%. While the importance of industry differences is clear, the reasons for the differences are more difficult to establish. Independent of the problems of interpreting the correlates of industry differences, even the sign of the relation of many variables with wages is difficult to establish when other variables are included as controls. This conclusion is suggested by a literature review and confirmed by an analysis of a large number of alternative specifications of an industry wage equation using individual wage data from the CPS and industry characteristics from a number of recent sources. Only industry average education and industry profitability have the same (positive) sign in every specification and in all the studies reviewed. Of these two only average education was nearly always significantly related to wages. Average establishment size had a nearly consistent positive relation. What does emerge from the analysis is a pattern of correlations. There appears to be one major dimension (and perhaps other less important dimensions) along which industries differ. A principal components analysis of an industry characteristics data set is used to demonstrate this. High wage industries have lower quit rates, higher labor productivity, fewer women, more educated workers, longer work weeks, a higher ratio of nonwage to wage compensation, higher unionization rates, larger establishments and firms, higher concentration ratios and are more profitable. An analysis of a limited number of industry characteristics in 1939 yields a similar pattern. The implications of these results for alternative theories of wage determination are considered.
Handle: RePEc:nbr:nberwo:2014
Template-Type: ReDIF-Paper 1.0
Title: Agency Costs, Collateral, and Business Fluctuations
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Author-Name: Mark Gertler
Author-Person: pge11
Note: EFG
Number: 2015
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2015
File-URL: http://www.nber.org/papers/w2015.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben and Mark Gertler, "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, vol. 79, no. 1, pp. 14-31, March 1989
Publication-Status: published as Ben Bernanke & Mark Gertler, 1986. "Agency costs, collateral, and business fluctuations," Proceedings, Federal Reserve Bank of San Francisco
Abstract: Bad economic times are typically associated with a high incidence of financial distress, e.g., insolvency and bankruptcy. This paper studies the role of changes in borrower solvency in the initiation and propagation of the business cycle. We first develop a model of the process of financing real investment projects under asymmetric information, extending work by Robert Townsend. A major conclusion here is that when the entrepreneurs who borrow to finance projects are more solvent (have more "collateral"), the deadweight agency costs of investment finance are lower. This model of investment finance is then embedded in a dynamic macroeconomic setting. We show that, first, since reductions in collateral in bad times increase the agency costs of borrowing, which in turn depress the demand for investment, the presence of these financial factors will tend to amplify swings in real output. Second, we find that autonomous factors which affect the collateral of borrowers (as in a "debt-deflation") can actually initiate cycles in output.
Handle: RePEc:nbr:nberwo:2015
Template-Type: ReDIF-Paper 1.0
Title: Two-Person Dynamic Equilibrium: Trading in the Capital Market
Author-Name: Bernard Dumas
Author-Person: pdu519
Note: ITI IFM
Number: 2016
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2016
File-URL: http://www.nber.org/papers/w2016.pdf
File-Format: application/pdf
Publication-Status: published as "Two-Person Dynamic Equilibrium in the Capital Market." From The Review of Financial Studies, Vol. 2, No. 2, pp. 157-188, (1989).
Abstract: When several investors with different risk aversions trade competitively in a capital market, the allocation of wealth fluctuates randomly between them and acts as a state variable against which each market participant will want to hedge. This hedging motive complicates the investors' portfolio choice and the equilibrium in the capital market. Although every financial economist is aware of this difficulty, to our knowledge, this issue has never been analyzed in detail. The current paper features two investors, with the same degree of impatience, one of them being logarithmic and the other having an isoelastic utility function. They face one risky constant-return-to-scale stationary production opportunity and they can borrow and lend to and from each other. The behavior of the allocation of wealth is characterized, along with the behavior of the rate of interest and that of the security market line. The two main results are: (1) investors in equilibrium do revise their portfolios over time so that some trading takes place, (2) provided some conditions are satisfied, the allocation of wealth admits a steady-state distribution at an interior point; this is in contrast to the certainty case, where one investor in the long run holds all the wealth. The existence of trading opens the way to a theory of capital flows and market trading volume.
Handle: RePEc:nbr:nberwo:2016
Template-Type: ReDIF-Paper 1.0
Title: Persistent Trade Effects of Large Exchage Rate Shocks
Author-Name: Richard Baldwin
Author-Person: pba124
Author-Name: Paul R. Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 2017
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2017
File-URL: http://www.nber.org/papers/w2017.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. 104, No. 4 (Nov., 1989), pp. 635-654
Abstract: This paper presents a theoretical basis fcr the srgunent that large exchange rate shocks - such as the rise of the dollar from 1980 to 1985 - may shift historical relationships between exchange rates and trade flows. We begin with partial models in which large exchange rate fluctuations lead to entry or exit decisions that are not reversed when the currency returns to its previous level. When we develop a simple model of the feedback from "hysteresis" in trade to the exchange rate itself. Here we see that a large capital inflow, which leads to an initial appreciation, can result in a persistent reduction in the exchange rate consistent with trade balance.
Handle: RePEc:nbr:nberwo:2017
Template-Type: ReDIF-Paper 1.0
Title: Optimal Monetary Policy in an Open Economy
Author-Name: Peter J. Stemp
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 2018
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2018
File-URL: http://www.nber.org/papers/w2018.pdf
File-Format: application/pdf
Publication-Status: published as Stemp, Peter J. Stemp and Stephen J. Turnovsky. "Optimal Monetary Policy inan Open Economy," European Economic Review, Vol. 31, No. 5, July 1987, pp. 1113-1135.
Abstract: This paper analyzes the optimal intertemporal tradeoff between inflation and output in an open economy under perfect foresight. The announcement of the optimal plan may, or may not, generate an initial jump in the exchange rate. That depends upon the real adjustment costs, which such unanticipated changes impose on the economy. In the case that such jumps occur, the question of time consistency of the optimal policy arises. A time consistent solution is obtained provided: (i) the policy maker is not too myopic; (ii) the adjustment costs associated with the jump in the exchange rate are of an appropriate form. The optimal monetary rule is derived and properties of this rule, as well as the overall optimal adjustment of the economy are discussed.
Handle: RePEc:nbr:nberwo:2018
Template-Type: ReDIF-Paper 1.0
Title: Can Union Labor Ever Cost Less?
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 2019
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2019
File-URL: http://www.nber.org/papers/w2019.pdf
File-Format: application/pdf
Publication-Status: published as Allen, Steven G. "Can Union Labor Ever Cost Less?" Quarterly Journal of Economics, Vol. 102, No. 2, May 1987, pp. 347-373.
Abstract: This paper examines the effect of unions on efficiency by estimating cost function systems over three different sets of construction projects. The results show that union contractors have greater economies of scale. This gives them a cost advantage in large commercial office buildings, but in school and hospital construction, nonunion contractors have lower costs at all output levels. Despite the cost differences, profits for nonunion contractors in school and hospital construction are no higher than those for union contractors because the burden of higher union costs is shifted to buyers.
Handle: RePEc:nbr:nberwo:2019
Template-Type: ReDIF-Paper 1.0
Title: Tax Structure and Public Sector Growth
Author-Name: Daniel R. Feenberg
Author-Person: pfe56
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 2020
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2020
File-URL: http://www.nber.org/papers/w2020.pdf
File-Format: application/pdf
Publication-Status: published as Feenberg, Daniel R. and Harvey S. Rosen. "Tax Structure and Public Sector Growth," Journal of Public Economics, Vol. 32, No. 1, Feb. 1987, pp. 185-201 .
Abstract: It has been hypothesized that a jurisdiction's tax structure exerts an independent effect upon the growth of its public sector. We test this hypothesis by examining the relationship between the growth of state general expenditure and the elasticity of tax revenues with respect to income. The work takes advantage of a very careful set of income elasticities for the personal income and sales tax systems for each state, for every year from 1978 to 1983. The main conclusion is that the data do not support the notion that the form of the tax structure exerts an independent effect on public sector growth.
Handle: RePEc:nbr:nberwo:2020
Template-Type: ReDIF-Paper 1.0
Title: The Youth Labor Market in the 80s: Determinants of Re-Employment Probabilities for Young Men and Women
Author-Name: Lisa M. Lynch
Author-Person: ply3
Note: LS
Number: 2021
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2021
File-URL: http://www.nber.org/papers/w2021.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol. LXXI, no. 1, pp. 37-45, Feb. 1989.
Abstract: This paper presents an analysis of the determinants of re-employment probabilities for young workers in the U.S. Using data from the new National Longitudinal Survey youth cohort a model is developed to analyze the transition probabilities from nonemployment to employment. The key factors examined include personal characteristics, unemployment income, local demand conditions, and duration dependence. There are significant differences between the labor market experiences of whites and nonwhites, and males and females. High school dropouts have many more difficulties in the labor market than those who remain in school longer and/or receive other types of training. Local demand conditions are a strong determinant of the duration of spells of nonemployment and there appears to be strong evidence of negative duration dependence in re-employment probabilities for both young males and young females.
Handle: RePEc:nbr:nberwo:2021
Template-Type: ReDIF-Paper 1.0
Title: Price Inertia and Inflation: Evidence and Theoretical Rationale
Author-Name: M. Ishaq Nadiri
Note: PR
Number: 2022
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2022
File-URL: http://www.nber.org/papers/w2022.pdf
File-Format: application/pdf
Publication-Status: published as Nadiri, M.I. "Price Inertia and Inflation: Evidence and Theoretical Rationale," in Structural Change, Economic Interdependence and World Development , ed. by Luigi Pasinetti and Peter Lloyd, Vol. 3, Houndsmill and London: Macmillan, 1987, pp. 329-357.
Abstract: In this paper we look at some empiricel evidence of and theoretical rationale for price inflexibility in the face of a decrease in short run demand in the Western-type industrialized economies. The empirical evidence suggests that price sluggishness is pervasive but varies across markets, industries and countries. There are different reasons for the price inertia. The response of firms to uncertainty, the cost of adjusting prices, the contents of the long- term contracts in the goods and input markets, the extent and variability of excess demand may differ among firms and industries. The structure of the industry, the degree of heterogeneity of the products in a market, the network of input-output relationship among industries, the nature of international competition, the process of forming expectations about the future, shocks from monetary and fiscal policies and input price shocks, all interact and create the ever changing environment of the firms. In these changing circumstances there are incentives for prices to be sluggish and thus arises the dilemma of achieving price stability at a high cost of unemployment. The ability of governments to achieve stable prices is probably endogenous in the system and may depend on a threshold rate of inflation. A number of policy options are discussed to address the issue of price inertia which would reduce the adjustment burden of anti-inflationary policies.
Handle: RePEc:nbr:nberwo:2022
Template-Type: ReDIF-Paper 1.0
Title: Structural and Stabilization Aspects of Fiscal and Financial Policy in the Dependent Economy
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ITI IFM
Number: 2023
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2023
File-URL: http://www.nber.org/papers/w2023.pdf
File-Format: application/pdf
Publication-Status: published as Oxford Economic Papers, Vol. 40, No. 2, pp. 220-245, (June 1988).
Abstract: The paper considers the response of a small, open dependent economy to a variety of fiscal and financial shocks as well as the influence of alternative budget balancing rules on the response of the system to such external shocks as a change in the world interest rate. The approach allows for both uncertain individual lifetimes and population growth, using a slightly generalized version of the Yaari-Blanchard model of consumer behavior. Debt neutrality does not prevail unless the sum of the population growth rate and the individual's probability of death equals zero. The government spends on traded and non-traded goods and raises tax revenue both through a lump sum tax and through a distortionary tax on the production of traded goods. Even though the tax on the production of traded goods is the only conventional distortion in the model, changes in this tax rate will have first order real income effects even when the distortion is evaluated at a zero tax rate, as long as the individual's subjective pure rate of time preference differs from the interest rate. This can occur even in well-behaved steady states of the Yaari-Blanchard model, as long as the population growth rate plus the probability of death differ from zero. This "intrinsic" distortion effectively causes second-best arguments to apply even when there is only one conventional distortion. Even in the absence of government budget deficits, fiscal choices relating to the composition of public spending and the structure of taxation have important short-term and long-term consequences for the real exchange rate, the sectoral allocation of production, the level and composition of private consumption, the current account (in the short run) and the nation's stock of claims on the rest of the world in the long run.
Handle: RePEc:nbr:nberwo:2023
Template-Type: ReDIF-Paper 1.0
Title: Comparing the Performance of Alternative Exchange Arrangements
Author-Name: Warwick J. McKibbin
Author-Person: pmc14
Author-Name: Jeffrey D. Sachs
Note: ITI IFM
Number: 2024
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2024
File-URL: http://www.nber.org/papers/w2024.pdf
File-Format: application/pdf
Publication-Status: published as Warwick J. Mckibbin & Jeffrey D. Sachs, 1988. "Comparing the global performance of alternative exchange arrangements," Journal of International Money and Finance, vol 7(4), pages 387-410.
Abstract: The volatility of the world economy since the breakdown of the Bretton Woods par value system of exchange rates has led many policymakers and economists to call for reform of the international monetary system. Many critics of the current "non-system" call for tighter international rules of the game in macroeconomic policy making. The proposed systems cover a wide spectrum of measures including maintaining the current flexible exchange rate system but with increased consultations between the major economies; a "target zone " system as advocated by John Williamson; or a full return to a system of fixed exchange rates as advocated by Ronald McKinnon This paper presents and applies a methodology useful for studying the operating characteristics of a number of alternative monetary arrangements using a large-scale simulation model of the world economy. We consider the performance of the regimes when policymakers do or do not observe the shocks, and when policymakers infer the shocks using an optimal filtering rule. Although the results are model specific and at best illustrative of the issues involved, the approach does have the advantage of providing a richer framework of analysis than is possible in simple models of international interdependence.
Handle: RePEc:nbr:nberwo:2024
Template-Type: ReDIF-Paper 1.0
Title: Do Deferred Wages Dominate Involuntary Unemployment as a Worker Discipline Device?
Author-Name: George A. Akerlof
Author-Name: Lawrence F. Katz
Author-Person: pka266
Note: LS
Number: 2025
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2025
File-URL: http://www.nber.org/papers/w2025.pdf
File-Format: application/pdf
Publication-Status: published as Advances in the Theory and Measurement of Unemployment, Weiss, Y. and G. Fishelson, eds., New York: MacMillan, 1990, pp. 172-203.
Abstract: In the most widely analyzed type of efficiency wage model of involuntary unemployment, firms pay wages in excess of market clearing to give workers an incentive not to shirk. Such payments in excess of market clearing and the resultant equilibrium unemployment act as a worker discipline device. This paper concerns what is usually considered the most important theoretical criticism of such models: the so-called bonding argument. The essence of the bonding critique is that contracts whereby workers pay a bond to the firm upon taking a job (or pay an employment fee to gain employment) can eliminate involuntary unemployment. Explicit upfront bonds are only quite rarely observed. A more subtle form of the bonding critique argues that implicit bonding through upward sloping wage profiles and other deferred payment schemes can perfectly substitute for upfront bonds in providing incentives not to shirk and thereby allow the labor market to clear. This paper shows that upward sloping wage profiles do not act as a perfect substitute for explicit bonds in a natural extension of the shirking model in which workers are finite lived, the monitoring of worker behaviors on the job is costly, and firms have reputations for honesty as employers. In the absence of direct upfront bonding, optimal payment schedules will be in excess of market clearing. The reason why upward sloping wage profiles that are market clearing will not generally be the optimal labor contract is simple: delayed payment may provide sufficient incentive to prevent shirking late in the life of the contract, but in the beginning of the contract it does not prevent shirking. And it turns out in a variety of stylized cases, it is cheaper for the firm to pay a wage premium rather than to accept worker shirking early in the contract. The implications of potential worker malfeasance in the absence of explicit bonds for compensation schedules, job assignments, and firm monitoring strategies over the course of a worker's career are also analyzed.
Handle: RePEc:nbr:nberwo:2025
Template-Type: ReDIF-Paper 1.0
Title: How Important is Welfare Dependence?
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Note: LS
Number: 2026
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2026
File-URL: http://www.nber.org/papers/w2026.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics. "Analyzing the Duration of Welfare Spells" Vol. 39, no. 3, pp. 245-273, August 1989.
Abstract: This paper develops a theoretical model of welfare dependence, in which current participation in AFDC induces greater future use of the program. One prediction is duration dependence in welfare spells. This is tested using 6 years of monthly data on time spent in the AFDC program among female household heads in the control group of the Seattle/Denver Income Maintenance Experiment. A variety of duration dependence models are estimated, investigating the effect of different functional form assumptions, as well as the impact of accounting for time-varying covariates, competing risks, and data heterogeneity in the estimates. Monthly AFDC participation does not show strong evidence of duration dependence. In fact, during the initial months on the program the probability of leaving the program, conditional on past participation, appears to be flat or increasing. After about eight months the probability of leaving starts to decrease, but it becomes virtually flat after 18 to 24 months. There is some indication that there are two distinct groups that utilize welfare: one group, which has a very low probability of leaving welfare and whose rate of exit changes little over time; and a second group, which is more affected by time on the program. The propensity of black women to experience longer AFDC spells appears totally due to their lower probability of leaving AFDC via marriage, rather than any difference in leaving via earnings or other income increases. However, even where duration dependence is present in the data, this is not adequate evidence for program-induced welfare dependence. The final part of the paper presents a model of earnings change and AFDC participation which contains no welfare dependence effects. Welfare spells simulated from this model show duration dependence effects which appear quite similar to those observed in the actual data.
Handle: RePEc:nbr:nberwo:2026
Template-Type: ReDIF-Paper 1.0
Title: Death, Population Growth, Productivity Growth and Debt Neutrality
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ME
Number: 2027
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2027
File-URL: http://www.nber.org/papers/w2027.pdf
File-Format: application/pdf
Publication-Status: published as "Death, Birth, Productivity Growth and Debt Neutrality," From The Economic Journal, Vol. 98, No. 391, pp. 279-293, (June 1988).
Abstract: Debt neutrality is said to occur if, given a program for public spending on current goods and services over time, the real equilibrium of the economy (private consumption, investment, relative prices, etc.) is independent of the pattern of government borrowing and lump-sum taxation over time. The paper brings together work of Blanchard on individual uncertain lifetimes and debt neutrality and Weil on population growth and debt neutrality. It is shown that there will be debt neutrality if and only if the sum of the rate of growth of population and the individual probability of death equals zero. If this condition holds, non-zero rates of growth of labor productivity will not destroy debt neutrality.
Handle: RePEc:nbr:nberwo:2027
Template-Type: ReDIF-Paper 1.0
Title: Immigrants, Minorities, and Labor Market Competition
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 2028
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2028
File-URL: http://www.nber.org/papers/w2028.pdf
File-Format: application/pdf
Publication-Status: published as From Industrial and Labor Relations Review, Vol. 40, No. 3, pp. 382-392,(April 1987).
Abstract: This paper analyzes the extent of labor market competition among immigrants, minorities and the native population. The study reveals that immigrants tend to be substitutes with some labor market groups, and complements with others. However, all these effects of shifts in immigrant supply on the earnings of native-born men are numerically very small, so that even if immigrants are substitutes with some native-born groups their numerical impact on the native-born wage is trivial. In addition, increases in the supply of immigrants do have a sizable impact on the earnings of immigrants themselves. Increases of 10 percent in the supply of immigrants reduce the immigrant wage by about 10 percent. Thus the main competitors of immigrants in the labor market are other immigrants.
Handle: RePEc:nbr:nberwo:2028
Template-Type: ReDIF-Paper 1.0
Title: Dividend and Share Changes: Is There a Financing Hierarchy?
Author-Name: Robert L. McDonald
Author-Name: Naomi Soderstrom
Note: ME
Number: 2029
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2029
File-URL: http://www.nber.org/papers/w2029.pdf
File-Format: application/pdf
Abstract: The most widely accepted empirical dividend model is that proposed by Lintner, who argued that firms smooth dividends over time. Many theoretical dividend models, however, either predict that dividends should be highly variable, or at least offer no support for the smoothing hypothesis. We use a switching regression model to test the Lintner model against an alternative which allows dividend behavior to differ depending upon whether or not firms are issuing shares. We reject the Lintner model, finding no evidence of dividend smoothing when firms are not issuing shares, and a high negative dividend growth rate when firms are issuing shares. This description of dividend behavior suggests the existence of a financing hierarchy in that the marginal source of finance differs over time. To further explore the financing hierarchy, we estimate logit models which explain the decisions by firms to change dividends, and to issue or repurchase shares. The results are consistent with the existence of a financing hierarchy.
Handle: RePEc:nbr:nberwo:2029
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Medicare's Prospective Payment System on Psychiatric Patients Treated in Scatterbeds
Author-Name: Richard G. Frank
Author-Name: Judith R. Lave
Author-Name: Carl A. Taube
Author-Name: Agnes Rupp
Author-Name: Howard H. Goldman
Note: EH
Number: 2030
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2030
File-URL: http://www.nber.org/papers/w2030.pdf
File-Format: application/pdf
Publication-Status: published as in T. G. McGuire and R.M. Scheffler, editors, The Economics of Mental Health Services. Advances in Health Economics and Health Services Research, Volume 8, JAI Press, 1987.
Abstract: Medicare's Prospective Payment System (PPS) for hospitals was phased-in during the 1884 Federal Fiscal Year. While many providers of psychiatric inpatient care were exempted from PPS patients treated in general hospital beds outside of psychiatric units (scatterbeds) were not. This allows for an initial assessment of the impact of PPS on psychiatric patients. We use a single equation model of hospital length of stay to estimate the impact of PPS. We allow for the possibility of both anticipating behavior and slow adjustment to the new payment scheme. The results indicate a substantial response to PPS over the first year of implementation. The estimated response includes sizable anticipatory and slow adjustment components. The findings suggest that policy discussions may be weighted too heavily in the direction of concern over hospital financial status given the ability of hospitals to change their behavior.
Handle: RePEc:nbr:nberwo:2030
Template-Type: ReDIF-Paper 1.0
Title: Country Risk and Incentives Schemes
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 2031
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2031
File-URL: http://www.nber.org/papers/w2031.pdf
File-Format: application/pdf
Publication-Status: Published as "Country Risk and Contingencies", International Economic Journal, Vol. 3, no. 1 (1989): 81-102.
Abstract: The purpose of this paper is to address the role of endogenous default penalties that are contingent upon the intensity of default on the part of the borrowing nation, and to evaluate the effects of contingency plans that make the interest rate dependent upon variables that are correlated with the default penalty. This is done by considering an economy where a default will trigger a variable cost whose magnitude is determined by the intensity of default. We design alternative incentive schemes by varying the responsiveness of the penalty to the intensity of default, without changing the total cost applied in case of a complete default. At the limit our incentive scheme converges to an exogenous default cost regime. We derive the supply of credit for the case where there is uncertainty regarding the total default cost, and we evaluate the dependency of the supply curve on the incentive scheme. A rise in the elasticity of the penalty with respect to the default intensity is shown to induce a higher default rate and to raise the country risk as reflected in the interest rate associated with a given borrowing, causing a leftward shift in the supply of credit. Using the expected welfare of a representative consumer it is shown that the introduction of partial defaults due to a variable penalty has adverse effects. Thus, our study concludes that variable default schemes that tie the penalty to the default rate are disadvantageous. We turn then to an assessment of the welfare effect of plans that make the interest rate contingent upon realization of shocks. In general, such a contingency plan is advantageous. For example, a plan that will index the Interest rate such as to correlate it perfectly with the default penalty eliminates the adverse effects of country risk on expected income. For such an economy a contingency plan that will index the effective interest rate to the realization of the terms of trade will be beneficial in reducing the effective magnitude of country risk and the incidence of default .
Handle: RePEc:nbr:nberwo:2031
Template-Type: ReDIF-Paper 1.0
Title: Consumption and Government-Budget Finance in a High-Deficit Economy
Author-Name: Leonardo Leiderman
Author-Name: Assaf Razin
Author-Person: pra388
Note: ITI IFM
Number: 2032
Creation-Date: 1986-09
Order-URL: http://www.nber.org/papers/w2032
File-URL: http://www.nber.org/papers/w2032.pdf
File-Format: application/pdf
Abstract: This paper characterizes empirically how government budget variables, such as spending, taxes, and deficits, affected private-sector consumption in the high-budget-deficit economy of Israel during the first half of the 1980s. The paper develops and estimates an intertemporal optimizing model of consumption choice by finite-lived individuals. The evidence supports this formulation against the Ricardian infinite-horizon case, but it does not support it when compared to the unrestricted relations in the data.
Handle: RePEc:nbr:nberwo:2032
Template-Type: ReDIF-Paper 1.0
Title: Investment, Tobin's Q, and Multiple Capital Inputs
Author-Name: Robert S. Chirinko
Author-Person: pch94
Note: EFG
Number: 2033
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2033
File-URL: http://www.nber.org/papers/w2033.pdf
File-Format: application/pdf
Publication-Status: Published as "Multiple Capital Inputs, Q, and Investment Spending", JEDC, Vol. 17, no. 5/6 (1993): 907-928.
Abstract: Despite their solid theoretical basis, models of business investment based on Tobin's Q theory have recorded a generally disappointing empirical performance. This paper examines one possible source of misspecification. When the firm's technology is expanded to include two or more capital inputs, the investment equation following from maximizing behavior includes Q as well as a series of additional explanatory variables. The importance of these omitted variables is assessed, and the econometric evidence is mixed, as the Multi-Capital Q model clearly dominates the Conventional specification but empirical problems remain. In addition, the implications of the parameter estimates from the Conventional and Multi-Capital models for tax policy are noted.
Handle: RePEc:nbr:nberwo:2033
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Increasing Returns, Hysteresis, Real Wages and Unemployment
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG
Number: 2034
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2034
File-URL: http://www.nber.org/papers/w2034.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 31, No. 3, pp. 543-560, (April 1987).
Abstract: European unemployment is widely regarded as a problem of excessive real wages. This view as it is usually expressed carries the disturbing implication that there is a sharp conflict between the interests of those currently employed and the unemployed because it suggests that increases in employment will require reductions in the real wages of those currently employed. The first part of this paper shows that increases in employment in Europe are likely to be associated with rising real take-home pay for workers because of fiscal increasing returns. Increases in employment and output will make possible reductions in taxes sufficiently large to offset any effects of diminishing returns to labor. The second part of the paper considers alternative explanations for the failure of nominal wages to adjust so as to restore full employment and their implications for the efficacy of fiscal policies. It concludes that under a variety of plausible conditions tax cuts would succeed in stimulating employment.
Handle: RePEc:nbr:nberwo:2034
Template-Type: ReDIF-Paper 1.0
Title: Hysteresis in Unemployment
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG ITI IFM
Number: 2035
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2035
File-URL: http://www.nber.org/papers/w2035.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 31, No. 1/2, pp. 288-295, (1987).
Abstract: The recent European experience of high persistent unemployment has led to the development of theories of unemployment hysteresis embodying the idea that the equilibrium unemployment rate depends on the history of the actual unemployment rate. This paper summarizes two directions of research on hysteresis that appear especially promising. Membership theories are based on the distinction between insiders and outsiders and explore the idea that wage setting is largely determined by firms' incumbent workers rather than by the unemployed. Duration theories explore the idea that the long term unemployed exert much less downwards pressure on wages than do the short term unemployed.
Handle: RePEc:nbr:nberwo:2035
Template-Type: ReDIF-Paper 1.0
Title: Pensions, Unions and Implicit Contracts
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 2036
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2036
File-URL: http://www.nber.org/papers/w2036.pdf
File-Format: application/pdf
Abstract: This paper analyzes the relation of pension coverage and key plan characteristics to measures of union membership and strength, and to related interactions. The large and significant relationships which are found cannot be explained by, and are often inconsistent with, predictions obtained by extending the major explanations for the existence of pensions to allow for union monopoly effects. The findings support some (but not other) explanations in which the impetus for pensions arises more directly from the behavior of unions, and suggest that behavioral and related policy analyses of pensions should be conducted separately for the union and nonunion sectors.
Handle: RePEc:nbr:nberwo:2036
Template-Type: ReDIF-Paper 1.0
Title: Wages, Employment, Training and Job Attachment in Low Wage Labor Marketsfor Women
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 2037
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2037
File-URL: http://www.nber.org/papers/w2037.pdf
File-Format: application/pdf
Abstract: This paper analyzes economic behavior and the effects of training and income support policies in the low wage labor market for women. The opportunity set takes account of nonlinearities and discontinuities associated with career interruption, part-time work, and government programs. There are two sectors! one which rewards training and individual ability, the other which does not and offers only the minimum wage. Effects of policies are found to vary importantly among heterogeneous groups of women according to ability and taste for children and household work. Some preliminary empirical evidence is presented to narrow the choice of specification.
Handle: RePEc:nbr:nberwo:2037
Template-Type: ReDIF-Paper 1.0
Title: International Oligopoly and Asymmetric Labour Market Institutions
Author-Name: James A. Brander
Author-Person: pbr168
Author-Name: Barbara J. Spencer
Author-Person: psp2
Note: ITI IFM
Number: 2038
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2038
File-URL: http://www.nber.org/papers/w2038.pdf
File-Format: application/pdf
Publication-Status: published as Brander, J. and Spencer, B. "Unionized Oligopoly and International Trade Policy," Journal of International Economics, Vol. 24, No. 314, 1988, pp. 217-238.
Abstract: Asymmetries in labour relations can have important effects on imperfectively competitive rivalries between firms. Such asymmetries are particularly striking in cross-country comparisons and are therefore of greatest interest in international markets. Using a simple duopoly model, we focus on two asymmetries. First, one firm may face a noncooperative union and second, institutional factors may allow one firm to commit itself to particular labour input before its rival sets output, giving it a natural Stackelberg leadership role. We examine the trade policy incentives resulting from these labour asymmetries, focusing on profit shifting tariffs, quotas and subsidies.
Handle: RePEc:nbr:nberwo:2038
Template-Type: ReDIF-Paper 1.0
Title: Seniority Rules and the Gains from Union Organization
Author-Name: Joseph S. Tracy
Author-Person: ptr23
Note: LS
Number: 2039
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2039
File-URL: http://www.nber.org/papers/w2039.pdf
File-Format: application/pdf
Abstract: This paper examines the optimality of several seniority provisions which are common to U.S. union contracts. The paper focuses on the attempts by the initial union members to maximize their return from organizing the union. An overlapping generations model is used in the analysis. Seniority wage increases are found to serve as implicit initiation fees and thus serve as one means of appropriating rents from future union members. Layoff rules are shown to be optimal only when the organizers are constrained in the types of contracts they can write. Without these constraints, the optimal contract provides full insurance making layoff rules unnecessary. The paper concludes with a plausible set of constraints which organizers may face and discusses the conditions necessary for seniority layoff rules to result.
Handle: RePEc:nbr:nberwo:2039
Template-Type: ReDIF-Paper 1.0
Title: The Importance of Local Fiscal Conditions in Analyzing Local Labor Markets
Author-Name: Joseph Gyourko
Author-Person: pgy3
Author-Name: Joseph S. Tracy
Author-Person: ptr23
Note: LS
Number: 2040
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2040
File-URL: http://www.nber.org/papers/w2040.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, vol.97, no. 5, October 1989, pp.1208-1231.
Abstract: A new test of the compensating wage differential model is proposed. The logic behind Roback's model showing how differences in nonproduced amenities may be reflected in intercity wage differentials is extended to the case of differences in local fiscal conditions, represented by tax rates and publicly produced services. Results show that differences in local tax rates and services provisions do generate compensating wage differentials across cities. The effects of a particularly large set of taxes and effective services output measures are examined.
Handle: RePEc:nbr:nberwo:2040
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Prerequisites for a Viable Managed Exchange Rate Regime: A Non-technical Eclectic Introduction
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ITI IFM
Number: 2041
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2041
File-URL: http://www.nber.org/papers/w2041.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. "Fiscal Prerequisites for a Viable Managed Exchange Rate Regime: A Non-Technical Eclectic Introduction. WisselKoersen In Een Veranderende Wereld (Exchange Rates in a Changing World), pp. 99-117. Leiden/Antwerpen: H.E. Stenfert Kroese B.V., 1986.
Abstract: The paper first reviews the budget identities of the fiscal and monetary authorities and the solvency constraint or present value budget-constraint of the consolidated public sector, for closed and open economies. It then discusses the new conventional wisdom concerning the fiscal roots of inflation and the budgetary prerequisites for generating and stopping hyperinflation. The popular rational expectations "Unpleasant Monetarist Arithmetic" model of Sargent and Wallace has ambiguous inflation implications from an increase in the fundamental deficit and is incapable of generating hyperinflation. The only runaway, explosive or unstable behavior it can exhibit is "hyperdeflation"! In the open economy, the need to maintain a managed exchange rate regime does not impose any constraint on the growth rate of domestic credit, arising through the government's need to remain solvent. Obstfeld's proposition to the contrary is due to the omission of government bonds and borrowing. There is not yet any "deep structural" theory justifying the (exogenous) lower bounds on the stock of foreign exchange reserves characteristic of the collapsing exchange rate literature. Absent such a theory of "international liquidity," one cannot model satisfactorily a foreign exchange crisis that is not at the same time a government solvency crisis. Given such a lower bound, the existence or absence of a pecuniary opportunity cost to holding reserves is shown to condition the fiscal and financial actions consistent with prolonged survival of the managed exchange rate regime.
Handle: RePEc:nbr:nberwo:2041
Template-Type: ReDIF-Paper 1.0
Title: Optimal Monetary Policy and Wage Indexation Under Alternative Disturbances and Information Structures
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 2042
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2042
File-URL: http://www.nber.org/papers/w2042.pdf
File-Format: application/pdf
Publication-Status: published as Turnovsky, Stephen J. "Optimal Monetary Policy and Wage Indexation Under Alternative Disturbances and Information Structures." Journal of Money, Credit and Banking, Vol. 19, No. 2, (May 1987), pp. 157-180.
Abstract: The interdependence between the optimal degree of wage indexation and optimal monetary policy is analyzed for a small open economy under a variety of assumptions regarding: (i) relative information available to private agents and the stabilization authority; (ii) the perceived nature of the disturbances impinging on the economy. The distinctions between: (a) unanticipated and anticipated disturbances, and (b) permanent and transitory disturbances, are emphasized. The extent to which stabilization is achieved is shown to depend upon the nature of the disturbances and the available information. The policy redundancy issue is emphasized, implying that optimal rules can frequently be specified in many equivalent ways.
Handle: RePEc:nbr:nberwo:2042
Template-Type: ReDIF-Paper 1.0
Title: International Capital Mobility in Developing Countries vs. Industrial Countries: What do Saving-Investment Correlations Tell Us?
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Michael P. Dooley
Author-Person: pdo13
Author-Name: Donald Mathieson
Note: ITI IFM
Number: 2043
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2043
File-URL: http://www.nber.org/papers/w2043.pdf
File-Format: application/pdf
Publication-Status: published as Frankel, Jeffrey A., Michael Dooley, and Donald Mathieson, "International Capital Mobility: What do Saving-Investment Correlations Tell Us?,"International Monetary Fund Staff Papers, Vol 34, September 1987, pp. 503-530.
Abstract: The finding of Feldstein and Horioka (1980) that countriesf investment rates are highly correlated with their national saving rates has by now been confirmed by many subsequent studies, even though their inference that international capital mobility nust be low has not been as widely accepted. This paper examines the statistical relationship between national saving and investment in a sample that includes not only 14 industrialized countries, but also 50 developing countries. The paper addresses some of the econometric critiques that have been aimed at the Feldstein-Horioka work. Contrary to what one would expect from consideration of capital mobility, the coefficient appears higher for industrialized countries than for developing countries, and higher after 1973 than before. Our interpretation of the saving-investment evidence is that the hypothesis of a high degree of substitutability for claims on physical capital located in different countries is not supported by the data. International substitutability for financial capital may be nigh, but this is a separate condition (which is properly tested by looking directly at rates of return). High international substitutability for bonds would imply high international substitutability for physical capital if capital were perfectly substitutable for bonds within each country, but there is no reason for this to hold, any more than there is for all goods to be perfect substitutes.
Handle: RePEc:nbr:nberwo:2043
Template-Type: ReDIF-Paper 1.0
Title: Empirical Structural Evidence on Wages, Prices and Employment in the US
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Note: EFG
Number: 2044
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2044
File-URL: http://www.nber.org/papers/w2044.pdf
File-Format: application/pdf
Publication-Status: published as "A Traditional Interpretation of Macroeconomic Fluctuations." From The American Economic Review, Vol. 79, No. 4, pp. 1146-1164, (December 1989).
Abstract: In this paper, I investigate US post war price, wage and employment dynamics by identifying and estimating a price and a wage equation. I reach the following two main conclusions: Nominal wages adjust faster to prices than prices do to nominal wages. This may be taken as evidence that price inertia is more important empirically than nominal wage inertia. The wage equation implies that the effect on wage inflation of a permanent increase in unemployment, given prices, is largely temporary. This can be interpreted in various ways. One is that, if the wage equation is interpreted as a Phillips curve, both the rate of change and the level of unemployment play an important role in wage determination. The methodology of the paper is somewhat different from the traditional approach to the estimation of price and wage equations. Its spirit is to impose on the reduced form a just identifying set of restrictions. In this way, a structural interpretation is made possible, while the data are left free to speak.
Handle: RePEc:nbr:nberwo:2044
Template-Type: ReDIF-Paper 1.0
Title: Alternative Liberalization Strategies
Author-Name: Robert E. Baldwin
Note: ITI IFM
Number: 2045
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2045
File-URL: http://www.nber.org/papers/w2045.pdf
File-Format: application/pdf
Publication-Status: published as Baldwin, Robert E. "Alternative Liberalization Strategies," Free Trade in the World Economy: Towards and Opening of Markets, ed. by Herbert Giersch. Tubingen: J.C.B. Mohr, 1987.
Abstract: This paper examines various strategies that have been proposed for halting the recent drift toward protectionism and restoring a more liberal trading regime. A number of groups and individuals propose a multilateral approach aimed at immediately reducing all forms of import barriers and export subsidies on a nondiscriminatory basis across all commodities. Others, who doubt that all major countries are prepared at this time to pursue this approach, favor a bilateral and regional strategy in which those countries willing to liberalize conclude agreements that are left open for others to join. They believe that this approach will eventually lead to multilateral liberalization. Some groups believe that neither of these approaches will succeed and that an aggressive strategy of quickly retaliating against the unfair trade practices of other countries is the best way to bring countries to the bargaining table for multilateral negotiations. The merits and problems of these various strategies are considered as well as their prospects for implementation. The importance of other conditions necessary for trade liberalization such as satisfactory domestic and international macroeconomic conditions are also discussed.
Handle: RePEc:nbr:nberwo:2045
Template-Type: ReDIF-Paper 1.0
Title: Capital Accumulation and Annuities in an Adverse Selection Economy
Author-Name: Martin S. Eichenbaum
Author-Person: pei4
Author-Name: Dan S. Peled
Author-Person: ppe182
Note: PE
Number: 2046
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2046
File-URL: http://www.nber.org/papers/w2046.pdf
File-Format: application/pdf
Publication-Status: published as Eichenbaum, Martin S. and Dan S. Peled. "Capital Accumulation and Annuitiesin an Adverse Selection Economy," Journal of Political Economy, Vol. 95, No. 2, April 1987, pp. 334-354.
Publication-Status: published as In The Measurement of Saving, Investment, and Wealth, Robert Lipsey, and Helen Tice, eds. University of Chicago Press: Chicago. 1989.
Abstract: This paper suggests that adverse selection problems in competitive annuity markets can generate quantity constrained equilibria in which some agents whose length of lifetime is uncertain find it advantageous to accumulate capital privately. This occurs despite the higher rates of return on annuities. The welfare properties of these allocations are analyzed. It is shown that the level of capital accumulation is excessive in a Paretian sense. Policies which eliminate this inefficiency are discussed.
Handle: RePEc:nbr:nberwo:2046
Template-Type: ReDIF-Paper 1.0
Title: Why Don't the Prices of Stocks and Bonds Move Together?
Author-Name: Robert B. Barsky
Author-Person: pba670
Note: ME
Number: 2047
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2047
File-URL: http://www.nber.org/papers/w2047.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 79, no. 5 (1989): 1132-1145.
Abstract: The very low real interest rates on bonds in the 1970's were accompanied by a large drop in the value of common stocks relative to dividends and earnings. More generally, a number of authors have demonstrated that the real prices of debt and equity claims do not covary closely, and often move in opposite directions. This paper analyzes the effects of two disturbances - an increase in risk, and a slowing of productivity growth - each of which might rationalize a simultaneous drop in equity values and in real interest rates on bonds. As long as marginal utility is a convex function of consumption, an increase in risk depresses the return on riskless bonds. When all of the wealth of the economy is traded in the stock market, equity values fall with increasing equity risk only if the intertemporal elasticity of substitution in consumption exceeds unity. This same pattern occurs in response to a fall in productivity growth. In a richer two-real-asset model, which takes account of the fact that corporate capital has rarely been more than a quarter of total wealth, it is likely that both increased risk and lower productivity growth in the corporate sector would lead to a fall in stock prices, a drop in real interest rates, and a rise in the price of the second tangible asset -the pattern seen in the 1910's.
Handle: RePEc:nbr:nberwo:2047
Template-Type: ReDIF-Paper 1.0
Title: The Intra-Daily Exchange Rate Dynamics and Monetary Policies After the G5 Agreement
Author-Name: Takatoshi Ito
Note: ME ITI IFM
Number: 2048
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2048
File-URL: http://www.nber.org/papers/w2048.pdf
File-Format: application/pdf
Publication-Status: published as Ito, Takatoshi. "The Intra-Daily Exchange rate Dynamic and Monetary Policies After the G5 Agreement," Journal of the Japanese and International Economies, Vol. 1, 1987, pp. 275-298.
Abstract: This paper investigates determinants of yen appreciation from the G5 agreement of September 1985 to the end of May, 1986. During that period, four waves of appreciation separated by calm periods are identified. For each wave and calm period, the changes in the yen/dollar exchange rate are decomposed in those taken place in the Tokyo, Europe and New York markets. In addition, correlations among the yen, mark, and pound for each market for each wave are studied. The surprisingly strong effect of the G5 agreement on the exchange rate was due to the signaled U.S. policy change. The role of direct intervention by the Bank of Japan was rather limited at that point. The Bank of Japan, adopted the "high interest policy" in October 1985. By narrowing the interest rate gap between Japan and the United States, the Bank of Japan successfully led to another round of appreciation. A major cause of the third wave of yen appreciation starting January 24, 1986 was the decline in oil prices. After the third wave was over, the Bank of Japan started intervening the market in support of the dollar -- a reversal of direction. However, the effort was not successful to stop another round of yen appreciation. The fourth wave of appreciation in the middle of April was due to a mix of prospects of reducing the U.S. federal deficits and a further decline in oil prices. These findings are consistent with a view that the exchange rates respond mainly to news of fundamentals and that the exchange rates are not manageable by coordinated interventions alone.
Handle: RePEc:nbr:nberwo:2048
Template-Type: ReDIF-Paper 1.0
Title: Location Decisions of the New Immigrants to the United States
Author-Name: Ann P. Bartel
Note: LS
Number: 2049
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2049
File-URL: http://www.nber.org/papers/w2049.pdf
File-Format: application/pdf
Publication-Status: published as "Where Do the New U.S. Immigrants Live?" From Journal of Labor Economics, Vol. 7, No. 4, pp. 371-391, (1989).
Abstract: This paper estimates a multinomial logit model of the location decisions of new immigrants to the United States. Data from the 5- percent Public Use Samples of the 1970 and 1980 Censuses of Population are used to study the geographic distribution of immigrants who arrived after 1965. The major findings are as follows: (1) In choosing both initial and subsequent locations, immigrants are considerably more geographically concentrated than native Americans who move to a new city. (2) All of the immigrant groups prefer to live in cities where their countrymen are already located, but this relationship is much weaker for the more educated immigrants. (3) There is ambiguous evidence on the question of whether immigrants learn about economic opportunities as they spend time in this country. On the one hand, with the exception of the Mexicans, distance from the home country has a much weaker negative impact on location choice as time in the U.S. elapses. On the other hand, the expected wage variable, which should have a larger positive effect over time, only did so for the Asians, and to some extent, the Central and South Americans (excluding Mexicans and Cubans). (4) Within each ethnic group, there are significant differences in the location choice behavior of the 1965-69 and 1975-79 immigrant cohorts. The results are consistent with an increase over time in the quality of Asian immigrants, and a decrease in the quality of Mexican, Cuban and European immigrants.
Handle: RePEc:nbr:nberwo:2049
Template-Type: ReDIF-Paper 1.0
Title: Investment and Sales: Some Empirical Evidence
Author-Name: Andrew B. Abel
Author-Person: pab10
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Note: EFG
Number: 2050
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2050
File-URL: http://www.nber.org/papers/w2050.pdf
File-Format: application/pdf
Publication-Status: published as From Dynamic Econometric Modeling: Proceedings of the Third International Symposium in Economic Theory & Econometrics, edited by William A. Barnett, Ernst Berndt, and Halbert White, pp. 269-296. New York: Cambridge Univ-ersity Press, 1988.
Abstract: This paper attempts to give a structural interpretation to the distributed lag of sales on investment at the two-digit level in US manufacturing. It first presents a simple model which captures the various sources of lags and their respective implications. It then estimates the model, using both data on investment and sales as well as direct evidence on the sources of lags. The spirit of the paper is exploratory ; the model is used mainly as a vehicle to construct, present and interpret the data. We find that the following model can roughly generate the distributed lag structure found in the data. Firms face delivery lags of 3 quarters. They also face adjustment costs, which lead them to take into account expected future sales, with discount factor -9 when constructing the desired capital stock, and to close about 5% of the gap between actual and desired capital per quarter. They pay for orders at a constant rate between the time of order and that of delivery. The model is however not very successful in explaining differences in dynamics across sectors.
Handle: RePEc:nbr:nberwo:2050
Template-Type: ReDIF-Paper 1.0
Title: The Competitiveness and Comparative Advantage of U.S. Multinationals, 1957-1983
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Irving B. Kravis
Note: ITI IFM
Number: 2051
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2051
File-URL: http://www.nber.org/papers/w2051.pdf
File-Format: application/pdf
Publication-Status: published as Lipsey, Robert E. and Irving B. Kravis. "The Competitiveness and Comparative Advantage of U.S. Multinationals, 1957-1984," Banca Nazionale del Lavoro Quarterly Review, No. 161, June 1987, pp. 147-165.
Abstract: The share in world exports of manufactured goods of U.S. multinational firms, including their majority-owned overseas affiliates, has been nearly stable since 1966. This stability, over a period in which the export share of the U.S. as a geographical entity was declining for the most part, suggests that it was not declines in the competitiveness of American firms' management and technology that were responsible for the deterioration of the U.S. trade position. That view is reinforced by the fact that a good deal of the change in U.S. export shares can be explained by changes in U.S. prices relative to those of other countries. The comparative advantage of both the U.S. and U.S. multinational firms, especially the latter, has been in chemicals, machinery, and transport equipment, industries with relatively fast growth in worldwide exports. The growth of U.S. exports in 1966-77 fell far short of what it would have been if the U.S. had retained its share in each industry. The growth of U.S. multinationals' exports fell a little short of that implied by constant-shares but surpassed that of the U.S. as a country in almost every industry. After 1977, both the U.S. and its multinationals kept up with their constant share growth rates and the U.S. even ran a bit ahead. The multinationals' position as exporters, now supplying almost half their exports from their majority-owned overseas affiliates, seems to have been quite insulated from changes in U.S. policies and circumstances.
Handle: RePEc:nbr:nberwo:2051
Template-Type: ReDIF-Paper 1.0
Title: New Evidence on the Effects of Exchange Rate Intervention
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: ITI IFM
Number: 2052
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2052
File-URL: http://www.nber.org/papers/w2052.pdf
File-Format: application/pdf
Publication-Status: Published as "New Evidence on the Distribution of Unemployment Insurance Benefits", NTJ, Vol. 30, no. 2 (1977): 219-221.
Abstract: The September 1985 decision of the G-5 countries to pursue coordinated intervention has been widely credited with the subsequent sharp decline of the dollar relative to other major currencies, On the surface, the dollar's decline appears as evidence that coordinated intervention can be an effective instrument of economic policy, contrary to most of the previous economic analysis of this issue. The evidence in the present paper shows that such a conclusion is unwarranted. The dollar's decline in the nine months after the G-5 agreement was generally no faster than it had been since the beginning of its decline in the spring of 1985. The only indication of discontinuity in the overall behavior of the dollar was a drop of about 4 percent that occurred immediately after the G-5 meeting and that has largely persisted. Although this evidence cannot be taken as a conclusive indication that coordinated intervention had no effect on the dollar’s rate of decline, it does show the inappropriateness of interpreting the dollar's decline after September 1985 as evidence that coordinated intervention was effective. The special case of the Japanese yen is more ambiguous. Unlike all of the other G-5 currencies, the yen did appreciate more rapidly after the €5-5 meeting than it did before. But the Japanese government was also unique in making a major shift in monetary policy immediately after the G-5 meeting to strengthen the yen and the yen was also the major currency that could be expected to appreciate most as a result of the massive and unexpected decline of the price of oil in the first half of 1986.
Handle: RePEc:nbr:nberwo:2052
Template-Type: ReDIF-Paper 1.0
Title: Is Debt Neutral in the Life Cycle Model?
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 2053
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2053
File-URL: http://www.nber.org/papers/w2053.pdf
File-Format: application/pdf
Publication-Status: published as What Determines Savings, By Larry Kotlikoff, MIT Press, 1989.
Abstract: This paper questions the widely accepted view that deficits have real effects in the life cycle model. Standard analyses of deficits within life cycle models treat the government as a dictatorial entity that can effect any intergenerational redistribution it desires. In contrast, this paper drops the assumption of compulsion and models the government as a coalition of self-interested young and old generations whose bargaining determines government decisions. Since each generation is selfish, no generation will voluntarily absorb the debts of another except as a quid pro quo for receiving particular goods or services. Hence, redistribution per se between generations will not arise. Because each generation is ultimately responsible for its own liabilities, deficit finance, while altering the timing of tax receipts, has no economic impact.
Handle: RePEc:nbr:nberwo:2053
Template-Type: ReDIF-Paper 1.0
Title: A Test of International CAPM
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: Anthony P. Rodrigues
Note: ITI IFM
Number: 2054
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2054
File-URL: http://www.nber.org/papers/w2054.pdf
File-Format: application/pdf
Publication-Status: published as "Tests of Mean-Variance Efficiency of International Equity Markets" Oxford Economic Papers, vol 45, (July 1993) p. 403-421
Abstract: We propose and implement a Wald test of the international capital asset pricing model. Ex post asset returns are regressed on asset supplies. CAPM requires that the matrix of coefficients from a regression of n rates of return on n asset supply shares be proportional to the covariance matrix of the residuals from those regressions. We test this restriction in the context of a model that aggregates all outside financial assets for each of ten countries. We do not find strong support for the restrictions of CAPM.
Handle: RePEc:nbr:nberwo:2054
Template-Type: ReDIF-Paper 1.0
Title: Management Ownership and Corporate Performance: An Empirical Analysis
Author-Name: Randall Morck
Author-Person: pmo146
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert W. Vishny
Author-Person: pvi218
Number: 2055
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2055
File-URL: http://www.nber.org/papers/w2055.pdf
File-Format: application/pdf
Publication-Status: published as "Management Ownership and Market Valuation: An Empirical Analysis" Journal of Financial Economics, March, 1988
Abstract: We investigate the relation between management ownership and corporate performance, as measured by Tobin's Q. In a cross-section of Fortune 500 firms, Tobin's Q first increases and then declines as board of directors holdings rise. For older firms there is weak evidence that Q is lower when a firm is run by a member of the founding family than when it is run by an officer unrelated to the founder.
Handle: RePEc:nbr:nberwo:2055
Template-Type: ReDIF-Paper 1.0
Title: The Demand for Workers and Hours and the Effects of Job Security Policies: Theory and Evidence
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 2056
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2056
File-URL: http://www.nber.org/papers/w2056.pdf
File-Format: application/pdf
Publication-Status: published as Employment, Unemployment and Labor Utilization, ed. Robert Hart, pp 9-32, Boston: Unwin Hyman, 1988.
Publication-Status: published as Hamermesh, Daniel S. and Stephen J. Trejo. "The Demand For Hours Of Labor: Direct Evidence From California," Review of Economics and Statistics, 2000, v82(1,Feb), 38-47.
Abstract: There has been a wide variety of research on worker-hours substitution and the effects of various costs on the speed and extent to which labor demand adjusts. Much of this literature, though, confuses various types of fixed costs and fails to provide a guide for identifying how changes in labor-cost structures affect static relative demands for workers and hours and the paths by which they adjust. This study presents a typology of labor cost market policies in OECD countries are pigeonholed by their effects on labor costs are view of the evidence indicates clearly that there is some slight substitution between workers and hours along a constant effective-labor isoquant. The evidence is clear that employers adjust the demand for hours more rapidly than that for workers and that both adjust fairly rapidly. It also shows that a major effect of cost-increasing policies designed to induce substitution from hours to workers is a reduction in the total amount of worker-hours demanded. Original analysis demonstrates that lags in the adjustment of employment in response to changes in demand lengthened in most OECD countries during the 1970s.
Handle: RePEc:nbr:nberwo:2056
Template-Type: ReDIF-Paper 1.0
Title: Business Cycles and Oligopoly Supergames: Some Empirical Evidence on Prices and Margins
Author-Name: Ian Domowitz
Author-Person: pdo3
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Bruce C. Petersen
Author-Person: ppe145
Note: EFG
Number: 2057
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2057
File-URL: http://www.nber.org/papers/w2057.pdf
File-Format: application/pdf
Publication-Status: published as Domowitz, Ian, R. Glenn Hubbard and Bruce C. Petersen. "Oligopoly Supergames: Some Empirical Evidence on Prices and Margins," Journal of Industrial Economics, Vol. 35, No. 4, June 1987, pp. 379-398.
Abstract: There has been a significant interest on a theoretical level in the application of supergames to oligopoly behavior. Implications for pricing behavior in trigger-strategy models in response to aggregate demand are of particular importance for public policy considerations. We contrast the predictions for the movements of industry prices over the business cycle of two such models -- put forth by Edward Green and Robert Porter and by Julio Rotemberg and Garth Saloner -- and test the predictions using a panel data set of U.S. manufacturing industries. Our principal findings are four. First, the levels of price-cost margins of concentrated, homogeneous-goods industries, while higher than those of unconcentrated counterparts, appear to be closer to those predicted by a single-period Cournot-Nash equilibrium than monopoly. Second, there is little evidence to support the idea that price-cost margins of these industries have different cyclical patterns from other industries apart from effects by level of industry concentration. Maximum price declines for concentrated industries give little support for the occurrence of price wars during either recessions or booms. Finally, consistent with the predictions of the Rotemberg-Saloner model, the industries with high price-cost margins have more countercyclical price movements than those exhibited by other industries. That gradual price adjustment is quantitatively important for those industries, suggests, however, that other factors may lie behind the apparent rigidity of prices.
Handle: RePEc:nbr:nberwo:2057
Template-Type: ReDIF-Paper 1.0
Title: Structural Change and Patterns of International Trade
Author-Name: Robert E. Baldwin
Note: ITI IFM
Number: 2058
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2058
File-URL: http://www.nber.org/papers/w2058.pdf
File-Format: application/pdf
Publication-Status: published as (eds) John Black and Allisdair McBean, Macmillan Press: 1989. Structures of International Trade.
Abstract: This paper focuses on economists' understanding of the basic determinants of trade patterns and, in particular, on the manner in which these underlying factors change over time and are affected by various policies. A brief survey contrasts the determinants of the structure of trade emphasized by the Ricardian, Heckscher-Ohlin, and imperfect competition models and discusses how well the predictions of these various theories are supported by empirical evidence. The main conclusion of the survey is that trade economists have been reasonably successful in explaining the structure of trade at any point in time but much less successful in understanding how the determinants of the patterns of trade change over time. This inability to explain how the basic determinants of the structure of trade change over time can lead both to poor predictions and bad policy advice. Given the increased interest in long-term shifts in trading structures, it is argued that trade economists should enlarge their analytical framework by endogenizing to a greater extent the basic economic factors determining these shifts. They must also recognize the endogenous nature of trade policies in their models, if they are to carry out their predictive and evaluative roles in the best possible manner.
Handle: RePEc:nbr:nberwo:2058
Template-Type: ReDIF-Paper 1.0
Title: International Macroeconomic Policy Coordination When Policy-Makers Disagree on the Model
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Katharine Rockett
Author-Person: pro265
Note: ITI IFM
Number: 2059
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2059
File-URL: http://www.nber.org/papers/w2059.pdf
File-Format: application/pdf
Publication-Status: published as Translated into Spanish in Instituto de Estudios Fiscales, Madrid: Hacienda Publica Espanola.
Publication-Status: published as Frankel, Jeffrey A. and Katharine Rockett. "International Macroeconomic Policy Coordination When Policymakers Do Not Agree on the True Model." From The American Economic Review, Vol. 78, No. 3, pp. 318-340, (June 1988).
Abstract: The existing literature on international macroeconomic policy coordination makes the unrealistic assumption that policy-makers all know the true model, from which it follows in general that the Nash bargaining solution is superior to the Nash non-cooperative solution. But everything changes once we recognize that policy-makers' models differ from each other and therefore from the "true" model. It is still true that the two countries will in general be able to agree on a cooperative policy package that each believes will improve the objective function relative to the Nash non-cooperative solution. However, the bargaining solution is as likely to move the target variables in the wrong direction as in the right direction, in the light of a third true model. This paper illustrates these theoretical points with monetary and fiscal multipliers taken from simulations of eight leading international econometric models. (It is a sequel to NBER Working Paper 1925, which considered coordination between the domestic monetary and fiscal authorities.) Here we first consider coordination between U.S. and non-U.S. central banks. We find that out of 512 possible combinations of models that could represent U.S. beliefs, non-U.S. beliefs and the true model, coordination improves U.S. welfare in only 289 cases, reducing it in 206, and improves the welfare of other OECD countries in only 297 cases, reducing it in 198. Then we consider coordination with both monetary and fiscal policy. We find that out of 512 combinations, coordination improves U.S. welfare in 183 cases, reducing it in 228, and improves the welfare of other OECD countries in 283 cases, reducing it in 219. A final section of the paper considers possible extensions of the framework, dealing with uncertainty.
Handle: RePEc:nbr:nberwo:2059
Template-Type: ReDIF-Paper 1.0
Title: Optimal Labor Contracts, Imperfect Competition and Underemployment Equilibria: A Framework for Analysis
Author-Name: Russell Cooper
Note: EFG
Number: 2060
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2060
File-URL: http://www.nber.org/papers/w2060.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, 1989.
Abstract: This paper examines the macroeconomic properties of imperfectly competitive economies. The focus is on the coordination failures that might arise in these economies, a study of alternative policies and the comparative static properties of these models. This paper differs from others in this area by modeling the labor market from the perspective of optimal contract theory. This permits an evaluation of the role of labor market behavior in producing these coordination failures and a study of labor market policies (such as unemployment insurance and alternative compensation schemes).
Handle: RePEc:nbr:nberwo:2060
Template-Type: ReDIF-Paper 1.0
Title: Debt Problems and Macroeconomic Policies
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG
Number: 2061
Creation-Date: 1986-10
Order-URL: http://www.nber.org/papers/w2061
File-URL: http://www.nber.org/papers/w2061.pdf
File-Format: application/pdf
Publication-Status: published as "Debt Problems and Macroeconomic Policies" in Debt Financial Stability and Public Policy. 1986, Kansas City Federal Reserve.
Publication-Status: published as Lawrence H. Summers, 1986. "Debt problems and macroeconomic policies," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 165-208.
Abstract: This paper examines the recent dramatic increase in the ratio of US non-financial debt to GNP. It concludes that it is largely the result of federal budget deficits. There does not appear to have been a major change in traditional patterns of private sector borrowing in recent years. The excessive accumulation of Federal debt probably threatens financial stability more than recent increases in private debt.
Handle: RePEc:nbr:nberwo:2061
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Fiscal Policies When Incomes are Uncertain: A Contradiction to Ricardian Equivalence
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: EFG ME PE
Number: 2062
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2062
File-URL: http://www.nber.org/papers/w2062.pdf
File-Format: application/pdf
Publication-Status: published as From The American Economic Review, Vol. 78, No. 1, pp. 14-23, (March 1988).
Abstract: This paper shows that when earnings are uncertain the substitution of deficit finance for tax finance or the introduction of an unfunded social security program will raise consumption even if all bequests reflect intergenerational altruism. Thus, contrary to the theory developed by Barro and a number of subsequent writers, an operative bequest motive need not imply Ricardian equivalence. Since there is no uncertainty in the present analysis about the date of each individual's death, this conclusion does not depend on imperfections in annuity markets. Nor does it depend on the existence of non-lump-sum taxes and other distortions. Rather it follows from the result derived in the paper that, when an individuals future earnings are uncertain, his future bequest is also uncertain and his consumption therefore rises more in response to an increase in his current disposable income than to an equal present value increase in the disposable income of his potential heirs.
Handle: RePEc:nbr:nberwo:2062
Template-Type: ReDIF-Paper 1.0
Title: Trends and Deviations in Federal, State and Local Finance
Author-Name: Jeffrey S. Zax
Note: PE
Number: 2063
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2063
File-URL: http://www.nber.org/papers/w2063.pdf
File-Format: application/pdf
Abstract: This paper contains a descriptive analysis o+ real per capita annual revenues, expenditures, deficits, debt levels and capital expenditures for federal, state and local government finance in the United States for the rears 1952-83. It summarizes each time series as a deterministic trend and an ARIM characterization of the deviations around trend. These summaries demonstrate that civilian capital outlays are falling at an accelerating pace in ail levels of government; federal government expenditures and debt are expanding at an accelerating rate; local special districts are also growing quadratically; state governments have a continuing surplus of revenues over expenditures; and local governments depend upon intergovernmental revenues to maintain balance between revenues and expenditures while reducing debt. Stochastic persistence tends to increase at more disaggregate levels of government. Expenditures tend to have longer lags than do revenues.
Handle: RePEc:nbr:nberwo:2063
Template-Type: ReDIF-Paper 1.0
Title: The Economic Consequences of the Franc Poincare
Author-Name: Barry Eichengreen
Author-Person: pei2
Author-Name: Charles Wyplosz
Author-Person: pwy2
Note: ITI IFM
Number: 2064
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2064
File-URL: http://www.nber.org/papers/w2064.pdf
File-Format: application/pdf
Publication-Status: published as "Economic Consequences of the Franc Poincare." From Economic Effects ofthe Government Budget, edited by Elhanan Helpman, Assaf Razin, and Efraim Sadka, pp. 257-286. Cambridge, MA: MIT Press, 1988.
Abstract: In this paper we reassess the cyclical performance of the French economy in the 1920s, focusing in particular on the period 1926-1931 and on France's resistance to the Great Depression. France expanded rapidly after 1926 and, unlike the other leading industrial economies, resisted the onset of the Depression until 1931. We find strikingly little support for the conventional explanation for these events, which emphasizes an undervalued French franc and an export-led boom. While French exports as a share of GDP turned down as early as 1928, the economy continued to expand for several subsequent years. Investment, not exports, emerges as the proximate source of the French economy's resistance to the Great Depression. And fiscal policy emerges as the major determinant of the surge in French investment spending. Previous accounts have emphasized the role of monetary policy in determining the seal and nominal exchange rates ostensibly responsible for French economic fluctuations in the decade after 1921. In contrast, we argue here for a more balanced view of the roles of monetary and fiscal policies in French macroeconomic fluctuations over that critical decade.
Handle: RePEc:nbr:nberwo:2064
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Policies and Real Exchange Rates in the World Economy
Author-Name: Jacob A. Frenkel
Author-Name: Assaf Razin
Author-Person: pra388
Note: EFG ITI IFM
Number: 2065
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2065
File-URL: http://www.nber.org/papers/w2065.pdf
File-Format: application/pdf
Publication-Status: published as "Spending, Taxes, and Deficits: International-Intertemporal Approach." From Princeton Studies in International Finance, No. 63, pp. 1-44,(December 1988).
Abstract: This paper examines the effects of fiscal policies on the evolution of real rates of interest and real exchange rates in the interdependent world economy. We construct an analytical framework suitable for a detailed examination of the various channels through which these variables are influenced by government spending and by tax policies. The analytical framework employs a general equilibrium approach highlighting the roles played by wealth effects and by temporal and intertemporal substitution effects. The general principle illustrated by the analysis of the dynamic effects of budget deficits is that the consequences of temporary tax policies stretch beyond the period during which the temporary policies are in effect. The counterpart to these dynamic implications is the rise in the economy's external debt induced by the budget deficit the service of which stretches into the indefinite future. By series of examples, allowing for both distortionary and non-distortionary taxes and for various patterns of government spending, it is shown that the quantitative and qualitative effects of fiscal policies on real exchange rates, real interest rates, debt accumulation and the like depend critically on the commodity composition of government spending and its intertemporal allocations on the one hand, and on the details of government debt issue and tax structure, including the timing of taxes and borrowing and the types of taxes used to finance the budget, on the other hand.
Handle: RePEc:nbr:nberwo:2065
Template-Type: ReDIF-Paper 1.0
Title: Forecasting Recessions Under the Gramm-Rudman-Hollings Law
Author-Name: Victor Zarnowitz
Author-Name: Geoffrey H. Moore
Note: EFG
Number: 2066
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2066
File-URL: http://www.nber.org/papers/w2066.pdf
File-Format: application/pdf
Publication-Status: published as Lahiri, Kajal and Geoffrey H. Moore (eds.) Leading economic indicators: New approaches and forecasting records. Cambridge; New York and Melbourne: Cambridge University Press, 1991.
Abstract: The targeted deficit reductions of the Gramm-Rudman-Hollings (GRH) law are to be temporarily suspended in case of an official determination that real economic growth either (a) has been less than one percent in the two most recent reported quarters, or (b) is projected to be less than zero in any two consecutive quarters out the next six. This amounts to a particular definition of recession. But business cycles are best identified by the consensus of movements in the principal economic aggregates. Not all recessions are associated with real GNP declining or growing less than 1% for two successive quarters. Also, GNP estimates are subject to long sequences of revisions that are often large. We show that, for these reasons, conditioning a suspension of deficit cuts upon specific changes in preliminary data for real GNP involves very long lags in recognizing recessions. The recessions would be largely over before they were identified. We also show that forecasts of real GNP, based on the consensus among groups of professional forecasters, can reduce these lags considerably. This is so despite the fact that early and accurate predictions of business cycle peaks are rare, and false warnings occur.
Handle: RePEc:nbr:nberwo:2066
Template-Type: ReDIF-Paper 1.0
Title: A Specification Test for Speculative Bubbles
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: EFG
Number: 2067
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2067
File-URL: http://www.nber.org/papers/w2067.pdf
File-Format: application/pdf
Publication-Status: published as West, Kenneth D. "A Specification Test for Speculative Bubbles," The Quarterly Journal of Economics, Vol. CII, No. 3, August 1987, pp. 553-580.
Abstract: The set of parameters needed to calculate the expected present discounted value of a stream of dividends can be estimated in two ways. One may test for speculative bubbles, or fads, by testing whether the two estimates are the same. When the test is applied to some annual U.S. stock market data, the data usually reject the null hypothesis of no bubbles. The test is of general interest since it may be applied to a wide class of linear rational expectations models.
Handle: RePEc:nbr:nberwo:2067
Template-Type: ReDIF-Paper 1.0
Title: Laws as Assets: A Possible Solution to the Time Consistency Problem
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Torsten Persson
Author-Person: ppe28
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: PE
Number: 2068
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2068
File-URL: http://www.nber.org/papers/w2068.pdf
File-Format: application/pdf
Publication-Status: published as "Social Contracts as Assets: A Possible Solution to the Time-Consistency Problem." From American Economic Review, Vol. 78, No. 4, pp. 662-677,(September 1988).
Abstract: This paper presents a new solution to the time-consistency problem that appears capable of enforcing ex ante policy in a variety of settings in which other enforcement mechanisms do not work. The solution involves formulating a law, institution, or agreement that specifies the optimal ex ante policy and that can be sold by successive old generations to successive young generations. Each young generation pays for the law through the payment of taxes. Both old and young generations have an economic incentive to obey the law. For the old generation that owns the law, breaking the law makes the law valueless, and the generation suffers a capital loss. For the young generation the economic advantage of purchasing the existing law exceeds its cost as well as the economic gain from setting up the law.
Handle: RePEc:nbr:nberwo:2068
Template-Type: ReDIF-Paper 1.0
Title: Individual Taxpayer Response to Tax Cuts 1982-1984 with Implications forthe Revenue Maximizing Tax Rate
Author-Name: Lawrence B. Lindsey
Note: PE
Number: 2069
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2069
File-URL: http://www.nber.org/papers/w2069.pdf
File-Format: application/pdf
Publication-Status: published as Lindsey, Lawrence B., 1987. "Individual taxpayer response to tax cuts: 1982-1984 : With implications for the revenue maximizing tax rate," Journal of Public Economics, Elsevier, vol. 33(2), pages 173-206, July.
Abstract: The Economic Recovery Tax Act of 1981 mandated a series of tax rate reductions for the period 1982-1984. They represented the most significant changes in the tax rate structure in nearly two decades. This paper considers the response of taxpayers to these cuts and extends these results to estimate the revenue maximizing top tax rate for the personal income tax The methodological emphasis of this paper is to create a baseline income distribution to describe what level and distribution of income could be expected in the absence of tax changes. This baseline is then compared with actual tax return data to measure the change in taxpayer behavior. Throughout this study the National Bureau of Economic Research's TAXSIM model was used to perform the detailed microsimulation work. This paper finds that at least one sixth, and probably one quarter, of the revenue loss ascribable to the 1981 tax law changes was recouped by changes in taxpayer behavior over the period 1982-1984. It concludes that under the tax base of that period, federal income tax revenue would be maximized at a tax rate of about 35 percent, and total income tax revenue maximized at a total tax rate of 40 percent. The findings also suggest that personal income averaged as much as 2 percent higher than it otherwise would have been as a result of the behavioral response of taxpayers to lower tax rates.
Handle: RePEc:nbr:nberwo:2069
Template-Type: ReDIF-Paper 1.0
Title: Productivity, Wages, and Prices Inside and Outside of Manufacturing in the U.S., Japan, and Europe
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG
Number: 2070
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2070
File-URL: http://www.nber.org/papers/w2070.pdf
File-Format: application/pdf
Publication-Status: published as Gordon, Robert J. "Productivity, Wages, and Prices Inside and Outside of Manufacturing in the U.S., Japan, and Europe," European Economic Review, Vol. 31m No. 3, April 1987, pp. 685-733.
Publication-Status: published as Productivity, Wages, and Prices Inside and Outside of Manufacturing in the U.S., Japan, and Europe, Robert J. Gordon. in International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, de Ménil and Gordon. 1991
Abstract: This paper studies the dynamic behavior of changes in productivity, wages, and prices. Results are based on a new data set that allows a consistent analysis of the aggregate economy, the manufacturing sector, and the nonmanufacturing sector. Results are presented for the U. S., Japan, and an aggregate called "Europe" consisting of eleven European economies. The primary theme of the paper is that differences between Europe and the U. S. have been substantially exaggerated in recent work. Europe has neither greater nominal wage flexibility nor more rigid real wages than the U. S. Evidence that the U. S. exhibits more nominal rigidity is confined to manufacturing, while the U. S. aggregate and nonmanufacturing sectors display as much nominal wage flexibility as Europe, and similar "output sacrifice ratios" as well. These results undermine the case frequently made against demand expansion in Europe on the ground that such a demand expansion would cause only extra inflation with no bonus of extra output as a result of a uniquely vertical European aggregate supply curve. The analysis of real wages also yields new results. A consistent treatment of the income of the self-employed almost completely eliminates the secular uptrend in previously developed wage gap indexes for Japan and Europe between the 1960s and 1980s. If anything real wages in Europe and Japan were too flexible rather than too rigid, in the sense that much of the increase in wage gap indexes in Europe during 1968-70 and in Japan in 1973-74 can be interpreted as autonomous wage push. The component of increases in wage gap indexes to be attributed to a failure of real wages to respond to the post-1972 productivity growth slowdown is relatively minor. The paper's analysis of productivity change confirms the real-wage elasticity of labor input emphasized previously, but shows that the response of productivity to changes in the real wage, and to cyclical output fluctuations, is roughly the same the U, S., Japan, and Europe. The cyclical analysis allows an estimate of trend productivity growth, revealing interesting differences between the manufacturing and nonmanufacturing sectors in the three economies.
Handle: RePEc:nbr:nberwo:2070
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Economics: 1986
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 2071
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2071
File-URL: http://www.nber.org/papers/w2071.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger. "Exchange Rate Economics: 1986," Economic Journal, Vol . 97, No. 385, (March 1987), pp. 1-18.
Abstract: In the past fifteen years key exchange rates have moved in larger and more persistent ways than advocates of flexible rates in the late 1960s would have left anyone free to imagine. Certainly there was no expectation of constancy for nominal exchange rates. But real exchange rate movements of 30 or forty percent were definitely not suggested as a realistic possibility. Moreover where these large movements did occur they did not obviously appear to be connected with fundamentals, and hence seemed difficult to explain in terms of the exchange rate theories at hand. The persistence of rate movements was as surprising as the rapid unwinding of apparent misalignments when they did ultimately occur. The past fifteen years provide a natural dividing line between the Keynesian and monetary approaches of the 1960s, and the more recent analysis that takes into account exchange rate expectations and portfolio issues, which took off in the early 1970s as well as the brand-new approaches that concentrate on (partial equilibrium) microeconomics. To review these ideas the paper starts with a brief look at the U.S. experience with flexible exchange rates. From there it proceeds to the Mundell-Fleming model as a comprehensive framework of analysis. The following sections deal with persistent effects of policy disturbances, links between exchange rates and prices, the political economy of exchange rate movements and the question of policies toward excess capital mobility.
Handle: RePEc:nbr:nberwo:2071
Template-Type: ReDIF-Paper 1.0
Title: Increasing Indebtedness and Financial Stability in the United States
Author-Name: Benjamin M. Friedman
Note: ME
Number: 2072
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2072
File-URL: http://www.nber.org/papers/w2072.pdf
File-Format: application/pdf
Publication-Status: published as From Debt, Financial Stability, and Public Policy, pp. 27-53, (1986). Kansas City: Federal Reserve Bank of Kansas City.
Abstract: The U.S. economy's nonfinancial debt ratio has risen since 1980 to a level that is extraordinary in comparison with prior historical experience. Approximately one-half of this rise has consisted of increased indebtedness (relative to income) of borrowers in the economy's private sector, including both individuals and businesses, and it therefore at least potentially represents an increase in the economy-wide exposure to debt default. The U.S. household sector as a whole has increased its holdings of liquid and other readily marketable assets, so that in the aggregate its balance sheet is no less sound than before, but available data make it doubtful that the distribution of the additional assets matches the distribution of the additional debt closely enough to avoid debt service problems in the event of a general economic contraction. By contrast, in the case of businesses, including especially the corporate sector, there are no additional assets to match the additional liabilities, so that balance sheets as well as incomes have become more leveraged. The chief implication of this increased exposure to the threat of financial instability is not only that the U.S. economy is likely to be more prone to financial instability in the event of a major business contraction, but also -- and perhaps more importantly -- that, as a result, U.S. economic policymakers are likely to be more reluctant either to seek or to tolerate a business recession in the first place. Experience suggests that it will be difficult 'to balance the desire to avoid economic downturns with the ability to avoid occasional periods of aggregate excess demand, so that this increased reluctance to tolerate recessions probably implies a more expansionary monetary policy on average than would otherwise be the case. Experience also suggests that a plausible result of such a no-recession monetary policy, sustained over time, is price inflation. This process is self-limiting, however, in that over time inflation reduces the real value of the private sector's outstanding nominal indebtedness, hence reducing the risk of financial instability, and thereby removing the source of policymakers' increased reluctance to tolerate recessions.
Handle: RePEc:nbr:nberwo:2072
Template-Type: ReDIF-Paper 1.0
Title: The Bolivian Hyperinflation and Stabilization
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 2073
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2073
File-URL: http://www.nber.org/papers/w2073.pdf
File-Format: application/pdf
Publication-Status: published as AEA Papers and Proceedings, Vol 77, No. 2, May 1987
Abstract: Chapter 1 gives a brief introduction to the Bolivian economy. Chapter 2 provides an overview of the political economy of macroeconomic policymaking in Bolivia since the 1952 Revolution. Great stress is put on the weakness of fiscal institutions in the face of heavy social and sectoral demands. Chapter 3 highlights some of the main directions of development policy during 1952-85, especially involving public investment spending and trade policy. In chapter 4 we consider important characteristics of Bolivia's international trade, focusing both on structural features (e.g., the heavy dependence on a small number of primary commodities), as well as policy choices. Chapter 5 describes the process of foreign debt accumulation, which was the counterpart of the large budget deficits of the public sector in the 1970s and early 1980s. Chapter 6 lays out the dynamics of the hyperinflation during 1982-85, focusing on the complex causal links among the budget deficit, the money supply, the exchange rate, and the price level. In chapter 7 we detail the process of stabilization since 1985 and discuss some of the general lessons about ending high inflation that might be applied to other economies in the region. Chapter 8 describes the novel arrangements that Bolivia has negotiated in order to escape the severe overhang of external debt. In the concluding chapter 9, we discuss briefly the challenges facing Bolivia in the future, once stabilization has been accomplished.
Handle: RePEc:nbr:nberwo:2073
Template-Type: ReDIF-Paper 1.0
Title: The Global Velocity Curve 1952-1982
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Lars Jonung
Note: ME
Number: 2074
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2074
File-URL: http://www.nber.org/papers/w2074.pdf
File-Format: application/pdf
Publication-Status: published as Bordo, Michael D. and Lars Jonung (eds.) The Long-run Behavior of the Velocity of Circulation: The International Evidence. New York: Cambridge University Press, 1987.
Abstract: This paper provides evidence and an explanation for an empirical regularity in the income velocity of money. Based on a cross country comparison in the post World War II period of 84 countries arrayed from very low to very high per capita income, velocity displays a U shaped pattern. This observed cross country pattern is very similar to one observed in an earlier study by the authors for a number of advanced countries for over a century. The U-shaped pattern of velocity behavior is explained by an approach which stresses the influence of institutional factors. On a secular basis the downward trend in velocity is due to a process of monetization while the upward trend is explained by financial development. On a cross country basis industrialized countries with we1 1 developed financial systems should generally display a rising 'trend in velocity while poor countries at an earlier stage of economics growth should as a rule have falling trends. Velocity in economies "in between" should exhibit a fairly flat pattern with a weak positive or negative trend.
Handle: RePEc:nbr:nberwo:2074
Template-Type: ReDIF-Paper 1.0
Title: How Integrated are World Capital Markets? Some New Tests
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 2075
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2075
File-URL: http://www.nber.org/papers/w2075.pdf
File-Format: application/pdf
Publication-Status: published as Debt, Stabilization and Development: Essays in Memory of Carlos Diaz- Alejandro, edited by G. Calvo, R. Findlay, and Jorge de Macedo, pp. 134- 155. New York: Harper & Row, 1989.
Abstract: This paper present some new empirical evidence on the extent of world capital-market integration. The first set of tests carried out uses data from different countries to compare internationally expected marginal rates of substitution between consumption on different dates. If residents of different countries have access to a nominally risk-free bond denominated in dollars, say, their common expected marginal rate of substitution of future for present dollars should equal the gross nominal return on dollar bonds. Tests of the international equality of expected marginal substitution rates yield evidence consistent with a substantial degree of international capital-market integration after, but not before, 1973. These tests are naturally based on a particular model of intertemporal consumption choice, but direct estimation of the inter-country relationships implied by that model lends support to its assumptions. These last findings are relevant to the current debate in macroeconomics about the role of intertemporal substitution. The second set of tests conducted in this paper concerns correlations between countries' saving and investment rates. For a sample often countries, correlations between annual changes in saving and investment rates over the period 1948-1984 look quite similar to those found in quarterly data. Surprisingly, however, the correlation coefficients are often lower before the mid-1960s than afterward This finding throws further doubt on the interpretation of saving-investment correlation coefficients as structural parameters reflecting the response of domestic investment to shifts in national saving.
Handle: RePEc:nbr:nberwo:2075
Template-Type: ReDIF-Paper 1.0
Title: International Debt Service and Economic Growth: Some Simple Analytics
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: ITI IFM
Number: 2076
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2076
File-URL: http://www.nber.org/papers/w2076.pdf
File-Format: application/pdf
Abstract: Any arrangement that is to serve as a long-term framework for international debt management must permit a politically acceptable rate of economic growth in the debtor countries while gradually improving the financial positions of the creditor banks. In addition, a realistic debt management strategy must maintain enough new lending to the debtor countries to provide an incentive for continued compliance with debt service responsibilities. This paper establishes the conditions under which these three goals are compatible. The analysis indicates that Argentina, Brazil and Mexico are now all capable of achieving significant rates of economic growth without debt write-downs or interest rate reductions. They do require additional amounts of credit but the resulting increases in the absolute size of their debts is compatible with declining ratios of debt to their own exports and to the total earnings of the creditor banks. Stated differently, limiting the ratio of debt service payments to GNP to country-specific standards, whether by long-term agreements or by annual negotiations, can achieve economic growth while improving the financial conditions of the creditor banks.
Handle: RePEc:nbr:nberwo:2076
Template-Type: ReDIF-Paper 1.0
Title: International Finance
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 2077
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2077
File-URL: http://www.nber.org/papers/w2077.pdf
File-Format: application/pdf
Publication-Status: published as From The New Palgrave: A Dictionary of Economics, edited by John Eatwell, Murray Milgate, and Peter Newman, Vol. 2, E to J, pp. 898-906. New York: Stockton Press, 1987.
Abstract: This essay written for The New Palgrave dictionary of Ecnomics provides a selective and interpretive account of the development of thought on international financial questions. Attention is focused on the process of international adjustment and on the proper definition of external balance. Since the first descriptions of the price-specie-flow mechanism in Humes time, the definition of external balance has evolved in response to changes in the world economy's structure. The foreign reserve constraint so central under the gold standard or in the early Bretton Woods years is less important under conditions of high international capital mobility. Increasingly, the current account and the national intertemporal budget constraint are emphasized in discussions of international adjustment. In analogy with the idea of a high-employment government budget surplus, a working definition of external balance might be a current account that maintains the highest possible steady consumption level consistent with the economy's expected intertemporal budget constraint. Intertemporal approaches to external balance become more difficult to apply when countries face credit rationing as a result of nonrepayment risk.
Handle: RePEc:nbr:nberwo:2077
Template-Type: ReDIF-Paper 1.0
Title: Contractionary Devaluation, and Dynamic Adjustment of Exports and Wages
Author-Name: Felipe Larrain
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 2078
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2078
File-URL: http://www.nber.org/papers/w2078.pdf
File-Format: application/pdf
Abstract: Recent macroeconomic models of developing countries have emphasized the possibility of contactionary devaluations, stressing that domestic aggregate demand is likely to be reduced by the devaluations while aggregate supply may respond only slowly to the change in relative prices brought about by the devaluation. These results have been obtained in static models. In this paper we add wage and export-sector dynamics to the models of contractionary devaluation, and show that the effects which produce contractionary devaluations in the short term can produce limit cycles in the long run. The economy never returns to long-run equilibrium following a devaluation, but rather moves with fixed periodicity through successive phases of boom and bust.
Handle: RePEc:nbr:nberwo:2078
Template-Type: ReDIF-Paper 1.0
Title: Why did the Bank of Canada Emerge in 1935?
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Angela Redish
Author-Person: pre9
Note: ME
Number: 2079
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2079
File-URL: http://www.nber.org/papers/w2079.pdf
File-Format: application/pdf
Publication-Status: published as Bordo, Michael D. and Angela Redish. "Why did the Bank of Canada Emerge in 1935?" Journal of Economic History, Vol. XLVII, No. 2, June 1987, pp. 405-4 17.
Abstract: Three possible explanations for the emergence of the Canadian central bank in 1935 are examined: that it reflected the need of competitive banking systems for a lender of the last resort; that it was necessary to anchor the unregulated Canadian monetary system after the abandonment of the gold standard in 1929; and that it was a response to political rather than purely economic pressures. Evidence from a variety of sources (contemporary statements to a Royal Commission, the correspondence of chartered bankers, newspaper reports, academic writings and the estimation of time series econometric models) rejects the first two hypotheses and supports the third.
Handle: RePEc:nbr:nberwo:2079
Template-Type: ReDIF-Paper 1.0
Title: Deficits with Distortionary Taxes: International Dimensions
Author-Name: Jacob A. Frenkel
Author-Name: Assaf Razin
Author-Person: pra388
Note: EFG ITI IFM
Number: 2080
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2080
File-URL: http://www.nber.org/papers/w2080.pdf
File-Format: application/pdf
Publication-Status: published as IMF Staff Papers. vol.25,no.1 pp57-87, March 1988
Abstract: This paper deals with the international effects of budget deficits arising from distortionary tax and transfer policies. The analysis demonstrates that the consequences of tax policies and the characteristics of the international transmission mechanism depend critically on the precise composition of taxes. Specifically, the international effects of budget deficits of a given size differ sharply according to the types of taxes used to generate the deficit. We show that in determining the effects of taxes it is useful to divide the various distortionary taxes into two groups: those that stimulate current external borrowing (national dissaving) and those that stimulate current external lending (national saving). A pro-borrowing tax policy raises the world rate of interest while a pro-lending tax policy lowers it. The resulting change in the rate of interest is the channel through which the effects of budget deficits are transmitted to the rest of the world. The key propositions are illustrated by a series of examples involving consumption taxes (VAT), taxes on income of labor and capital and taxes on international borrowing.
Handle: RePEc:nbr:nberwo:2080
Template-Type: ReDIF-Paper 1.0
Title: The Export Performance of Swedish and U.S. Multinationals
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 2081
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2081
File-URL: http://www.nber.org/papers/w2081.pdf
File-Format: application/pdf
Publication-Status: published as "The Export Performance of U.S. and Swedish Multinationals." From Review of Income and Wealth, Series 35, No. 3, pp. 245-264, (September 1989).
Abstract: While the U.S. and Sweden both lost more than 20 per cent of their shares of world and developed countries' exports of manufactures over the 15 years or so after the mid-1960's, the export shares of their multinational firms stayed fairly stable or even increased. The multinationals, while first increasing and then holding fairly constant their shares of exports by their home countries, raised the proportion of their worldwide exports that they supplied from their overseas affiliates. These developments suggest that the declining trade shares of the U.S. and Sweden were not due mainly to deterioration in the innovativeness or inventiveness of American and Swedish firms or declines in their management ability or in their technological capabilities, but rather to economic developments in the firms' home countries. The finding that firms have done better as exporters than their home countries 4s strengthened when we look at different industry groups. In both the U.S. and Sweden, and in all industry groups, with one exception, the multinationals' export shares increased relative to those of their home countries. The margins were often wide, and were mostly larger for Swedish firms than for U.S. firms. In general, though the basic story was quite similar for the U.S. and Sweden, there were some notable differences. One was that the share of exports originating in affiliates was lower for Sweden than for the U.S. To a large extent, this difference in the siting of export production reflected the much greater export orientation of Swedish parents relative to U.S. parents, presumably a consequence of the relatively small size of the Swedish domestic market. Another difference between U.S. and Swedish multinationals was that while the U.S. firms' share in world manufacturing exports remained stable over the studied period, the Swedish firms' share rose by 14 per cent. We are so far not in a position to say whether this was because Swedish firms increased their competitiveness more than U.S. firms or because there was a higher conversion of Swedish firms into multinational status.
Handle: RePEc:nbr:nberwo:2081
Template-Type: ReDIF-Paper 1.0
Title: Tobin's Q and Financial Policy
Author-Name: Robert S. Chirinko
Author-Person: pch94
Note: EFG ME
Number: 2082
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2082
File-URL: http://www.nber.org/papers/w2082.pdf
File-Format: application/pdf
Publication-Status: published as From Journal of Monetary Economics, Vol. 19, No. 1, pp. 69-87, (January 1987).
Abstract: Recent research in macroeconomics has emphasized the importance of linking the financial and real sectors and the need for working with optimizing models. Tobin’s Q model of investment would appear to provide a framework that can satisfy these two criteria. In contrast to the original presentation of the Q model, the formal development has not recognized that the firm actively participates in a number of financial markets; in this broader context, we show that Q is likely to be an uninformative and possibly misleading signal for investment expenditures . We then endeavor to turn this negative theoretical result to positive advantage in resolving a number of empirical problems with Q models, but the modifications dictated by the theory receive little support from the data.
Handle: RePEc:nbr:nberwo:2082
Template-Type: ReDIF-Paper 1.0
Title: The Value of Patents as Indicators of Inventive Activity
Author-Name: Zvi Griliches
Author-Name: Ariel Pakes
Author-Person: ppa20
Author-Name: Bronwyn H. Hall
Author-Person: pha54
Note: PR
Number: 2083
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2083
File-URL: http://www.nber.org/papers/w2083.pdf
File-Format: application/pdf
Publication-Status: published as Griliches, Zvi, Ariel Pakes and Bronwyn H. Hall. "The Value of Patents as Indicatiors of Inventive Activity," Economic Policy and Technical Performance, eds. P. Dasgupta and P. Stoneman, pp. 97-124. Cambridge: Cambridge University Press, 1987.
Abstract: This paper summarizes a number of studies which use patent data to examine different aspects of technological change. It describes our firm level data set construction effort; reports on the relationship between RLD expenditures and the level of patenting; analyzes the relationship between patents, R&D, and tire stock market value of firms; reports on the estimation of the value of patent rights based on European patent renewal data; and describes the use of patent data to estimate the importance of R&D spillovers. It concludes that patent data represent a valuable resource for the analysis of technological change. They can be used to study longer-run interfirm differences in inventive activity and as a substitute for R&D data where they are not available in the desired detail. It is possible also to use a firm's distribution of patenting by field to infer its position in "technological space" and use it in turn to study how R&D spills over from one firm to another. Moreover, patent renewal data, which are also becoming available in the U.S., allow one to construct more relevant "quality weighted" inventive "output" measures .
Handle: RePEc:nbr:nberwo:2083
Template-Type: ReDIF-Paper 1.0
Title: Optimal Monetary Growth with Accomodating Fiscal Policy in a Small Open Economy
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 2084
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2084
File-URL: http://www.nber.org/papers/w2084.pdf
File-Format: application/pdf
Publication-Status: published as Turnovsky, Stephen J. "Optimal Monetary Growth with Accomodating Fiscal Policy in a Small Open Economy," Journal of International Money and Finance, Vol. 6, No. 2, June 1987, pp. 179-193.
Abstract: This paper emphasizes how the choice of the optimal monetary growth rate in a small open economy under perfect capital mobility depends upon the accommodating policy chosen to maintain the overall budget constraint in the economy. When this occurs through lump sum taxation, the optimal monetary growth rate is shown to be the "distorted" Friedman monetary rule. If the adjustment occurs through the income tax rate, the optimal monetary growth rate involves a Phelps-type tradeoff between the income tax rate and the inflation tax rate. The framework is suited for analyzing optimal macroeconomic policy in general and the latter part of the paper considers an optimal monetary-fiscal package.
Handle: RePEc:nbr:nberwo:2084
Template-Type: ReDIF-Paper 1.0
Title: Growing in Debt: The 'Farm Crisis' and Public Policy
Author-Name: Charles W. Calomiris
Author-Person: pca421
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: James H. Stock
Author-Person: pst148
Note: ME
Number: 2085
Creation-Date: 1986-11
Order-URL: http://www.nber.org/papers/w2085
File-URL: http://www.nber.org/papers/w2085.pdf
File-Format: application/pdf
Publication-Status: published as Calomiris, Charles W., R. Glenn Hubbard and James H. Stock. "The Farm Debt Crisis and Public Policy," Brookings Papers on Economic Activity, Vol. 2, 1986, pp. 441-479.
Abstract: U.S. farms, and with them agricultural lending institutions, are currently experiencing their most severe stress since the 1930s. As international trade in farm products has expanded, so has the sensitivity of farm incomes to fluctuations in domestic and world economic conditions. Thus, while price stabilization, acreage reduction, and related policies in place since the 1930s were relatively successful in stabilizing farm income during the 1950s and 1960s, they are likely to be less effective in achieving this goal in the future. Our analysis of state-level panel data indicates that disruptions in agricultural credit markets can have real effects on farm output. That finding is consistent with the conventional wisdom that, unlike credit markets for large firms or for firms for which monitoring is less costly, agricultural financial markets require close customer arrangements. Local financial institutions, for which such relationships are best developed, are often unable for institutional reasons to diversify their loan risks either within agriculture or across other geographically separated activities. The deviations from perfect markets indicate an economic rationale -- in addition to the usual political, social, and national defense rationales -- for government intervention in agricultural credit markets. Our empirical evidence supports the view that maintaining customer relationships in agricultural finance is important. Because of the Farm Credit System's ability to pool agricultural loan risks nationally and its access to national capital markets, it will continue to be an important lender in agricultural credit markets.
Handle: RePEc:nbr:nberwo:2085
Template-Type: ReDIF-Paper 1.0
Title: Is Everything Neutral?
Author-Name: B. Douglas Bernheim
Author-Person: pbe81
Author-Name: Kyle Bagwell
Author-Person: pba409
Note: PE
Number: 2086
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2086
File-URL: http://www.nber.org/papers/w2086.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 96, No. 2, pp. 308-338, (April 1988). Reprinted in K.D. Hoover (ed.) the New Classical Macroeconomics, Edward
Publication-Status: published as Elger Publishing Ltd: London, 1992
Abstract: In his well-known analysis of the national debt, Robert Barro introduced the notion of a "dynastic family." This notion has since become a standard research tool, particularly in the areas of public finance and macroeconomics. In this paper, we critique the assumptions upon which the dynastic mode1 is predicated, and argue that this framework is not a suitable abstraction in contexts where the objective is to analyze the effects of public policies. We reach this conclusion by formally considering a world in which each generation consists of a large number of distinct individuals, as opposed to one representative individual. We point out that family linkages form complex networks, in which each individual may belong to many dynastic groupings. The resulting proliferation of linkages between families gives rise to a host of neutrality results, including the irrelevance of all public redistributions, distortionary taxes, and prices. Since these results are not at all descriptive of the real world, we conclude that, in some fundamental sense, the world is not even approximately dynastic. These observations call into question all policy related results based on the dynastic framework, including the Ricardian equivalence hypo thesis.
Handle: RePEc:nbr:nberwo:2086
Template-Type: ReDIF-Paper 1.0
Title: Does the Estate Tax Raise Revenue?
Author-Name: B. Douglas Bernheim
Author-Person: pbe81
Note: PE
Number: 2087
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2087
File-URL: http://www.nber.org/papers/w2087.pdf
File-Format: application/pdf
Publication-Status: published as Bernheim, B. Douglas. "Does the Estate Tax Raise Revenue?" Tax Policy and the Economy, Vol. 1, pp. 113-138. Cambridge, MA: MIT Press, 1987.
Publication-Status: published as Does the Estate Tax Raise Revenue?, B. Douglas Bernheim. in Tax Policy and the Economy, Volume 1, Summers. 1987
Abstract: Proponents of transfer taxation argue that levies on gifts and estates serve the dual purposes of breaking up large concentrations of private wealth, while raising significant revenues. A number of commentators have recently questioned the first of these purported advantages, on the grounds that a variety of available estate planning techniques allow wealthy individuals to pass on vast resources essentially tax free. Most techniques entail the use of intra vivos transfers, and are particularly effective when these transfers are made as early in life as possible. In this paper, I argue that the use of these same estate planning techniques also largely neutralize the second objective of transfer taxation by depressing income tax revenues. This effect is reinforced by the tendency for estate taxation to encourage charitable bequests. Although it is difficult to quantify the indirect revenue effects with a high degree of precision, I find that, prior to the Tax Reform Act of 1986, these effects could easily have offset all revenues collected through the estate tax. The recent Tax Reform Act only partially vitiates this conclusions.
Handle: RePEc:nbr:nberwo:2087
Template-Type: ReDIF-Paper 1.0
Title: A Constant Recontracting Model of Sovereign Debt
Author-Name: Jeremy I. Bulow
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: ITI IFM
Number: 2088
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2088
File-URL: http://www.nber.org/papers/w2088.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 95, No. 6, December 1988.
Abstract: Few sovereign debtors have repudiated their obligations entirely. But despite the significant sanctions at the disposal of lenders, many borrowers have been able to consistently negotiate for reduced repayments. This paper presents a model of the on-going bargaining process that determines repayment levels. We derive a bargaining equilibrium in which countries with large debts achieve negotiated partial default. The ability to credibly threaten more draconian penalties in the event of repudiation may be of no benefit to lenders. Furthermore, unanticipated increases in world interest rates may actually help the borrowers by making lenders more inpatient for a negotiated settlement. Finally, Western governments may be induced to make payments to facilitate reschedulings even though efficient agreements will be reached without their intervention.
Handle: RePEc:nbr:nberwo:2088
Template-Type: ReDIF-Paper 1.0
Title: Employee Response to Compulsory Short-Time Work
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Author-Name: Joyce P. Jacobsen
Note: LS
Number: 2089
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2089
File-URL: http://www.nber.org/papers/w2089.pdf
File-Format: application/pdf
Publication-Status: published as Industrial Relations, Vol. 30, No. 3, pp. 501-513, (Fall 1991).
Abstract: This paper reports the results of a survey of over 1500 employees who faced compulsory reductions of 10 percent in hours of work and earnings during the second half of 1985. The workers were asked how they used the free time and how they viewed the program, and their answers were analyzed in relation to their economic and social characteristics. On average, the workers spent 12 percent of the free time in uncompensated work for the company, 43 percent in other work (mostly housework, childcare, and other nonmarket chores), and 45 percent in leisure-time activities such as resting, reading, and hobbies. Ceteris paribus, education and income were positively related to percentage of time spent in company work, and age was negatively related. Time spent in other work rose with the presence of children, especially for women. Employee reaction to the program was generally favorable; married women were most positive and married men least positive. Workers 45 years of age and over were significantly more positive than those 35-44. There was a strong connection between time use and reaction to the program; workers who spent more of their free time working without pay at the company or in home production were much less positive than those who spent more time in leisure activities.
Handle: RePEc:nbr:nberwo:2089
Template-Type: ReDIF-Paper 1.0
Title: Comparable Worth in a General Equilibrium Model of the U.S. Economy
Author-Name: Perry C. Beider
Author-Name: B. Douglas Bernheim
Author-Person: pbe81
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Author-Name: John B. Shoven
Note: LS
Number: 2090
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2090
File-URL: http://www.nber.org/papers/w2090.pdf
File-Format: application/pdf
Publication-Status: published as Beider, Perry C., B. Douglas Bernheim, Victor R. Fuchs and John B. Shoven."Comparable Worth in a General Equilibrium Model of the U.S. Economy," Research in Labor Economics, 1988. Vol.9, pp1-52, Ronald C. Ehrenberg, editor JAI Press, Greenwich, Ct.
Abstract: This paper presents a computable general equilibrium model that simulates the effects on employment, output, wages, and economic efficiency of introducing comparable worth into the U.S. economy. The model calculates economy-wide aggregate impacts and disaggregated results for individuals grouped by sex, marital status, and education. The effects depend on the hiring rules that would accompany comparable worth, the source of existing male-female wage differentials, the extent of coverage of comparable worth, the intra-household behavior of married couples, and demand and supply elasticities. If, after comparable worth is introduced, employers are constrained to employ men and women in historical proportions, the adverse effects on aggregate employment, output, and efficiency would be much larger than if the employment constraint is based on applicant proportions. If existing wage gaps are the result of sex differences in productivity, the adverse of facts of comparable worth are relatively large; but if they are the result of discrimination, the efficiency losses are much smaller. If only part of the economy is subject to comparable worth, the efficiency loss is reduced under the productivity gap assumption, but increased if the wage gap is the result of discrimination. The redistributive effects of comparable worth on married men and women are sensitive to assumptions about intra-household behavior and the size of the gains from marriage. By contrast, unmarried women appear to benefit from comparable worth under most sets of assumptions while unmarried men lose.
Handle: RePEc:nbr:nberwo:2090
Template-Type: ReDIF-Paper 1.0
Title: New Developments in Corporate Finance and Tax Avoidance: Some Evidence
Author-Name: John B. Shoven
Note: PE
Number: 2091
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2091
File-URL: http://www.nber.org/papers/w2091.pdf
File-Format: application/pdf
Abstract: The financial behavior of corporations has changed greatly in the last ten years. Previously most of the cash that stockholders received from corporations took the form of dividends, and economists' models that have dividends as the ultimate determinant of equity values were not far off the mark. This paper documents how much things have changed. There are strong tax incentives for nondividend cash payments between corporations and shareholders. These payments can take the form of a repurchase by the company of its own shares, or the acquisition of the shares in another company. There has been tremendous growth in the magnitude of nondividend cash payments. In the early 1970s these payments amounted to roughly 15 percent of dividends. By 1984, they exceeded dividends, and in 1985 the amounted to $120 billion, or almost 50 percent more than total dividends in the economy. The paper shows that dividends per unit equity have not fallen. Rather, the acquisition of equity has allowed firms to retain relatively constant debt equity ratios in the past five years despite strong equity markets. Firms have chosen to absorb equity and issue debt, roughly holding leverage constant, and have thus saved large amounts of taxes. The paper estimates that the cost to the Treasury of treating share purchase payments differently than dividends was more than $25 billion in 1985. It also finds that future corporate tax collections are significantly reduced by the resulting decline in corporate equity. The paper suggests that the existing model of dividend driven equity valuation must be discarded. It simply is not consistent with the facts. Further research on the form of payments between firms and their shareholders is clearly merited.
Handle: RePEc:nbr:nberwo:2091
Template-Type: ReDIF-Paper 1.0
Title: Firm Size and Foreign Direct Investment
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 2092
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2092
File-URL: http://www.nber.org/papers/w2092.pdf
File-Format: application/pdf
Publication-Status: published as "Firm Size and Foreign Operation of Multinationals." From The Scandinavian Journal of Economics, Vol. 93, No. 1, pp. 101-107, (1991).
Abstract: This paper examines the importance of firm size in explaining foreign direct investment with data from American and Swedish firms. The results suggest that firm size only has a threshold effect on foreign investment, an effect on the decision to invest abroad. Once, however, a firm has jumped the initial barriers to foreign production, size has no effect on the fraction of the firm's resources devoted to foreign activity. Among firms that invest in foreign production large firms do not appear to have any particular advantage over small investing firms.
Handle: RePEc:nbr:nberwo:2092
Template-Type: ReDIF-Paper 1.0
Title: Imperfect Information, Credit Markets and Unemployment
Author-Name: Bruce C. Greenwald
Author-Name: Joseph E. Stiglitz
Note: EFG LS
Number: 2093
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2093
File-URL: http://www.nber.org/papers/w2093.pdf
File-Format: application/pdf
Publication-Status: published as Greenwald, Bruce C. and Joseph E. Stiglitz. "Imperfect Information, Credit Markets and Unemployment," European Economic Review, Vol. 31, 1987, pp. 444-45 6.
Abstract: This paper describes how imperfect information in both capital and labor markets can, in a context of maximizing firms and perfectly flexible prices and wages, give rise to cyclical variations in unemployment whose character closely resembles that of observed business cycles.
Handle: RePEc:nbr:nberwo:2093
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy and Stock Prices
Author-Name: Thomas Downs
Author-Name: Patric H. Hendershott
Note: ME PE
Number: 2094
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2094
File-URL: http://www.nber.org/papers/w2094.pdf
File-Format: application/pdf
Publication-Status: published as Downs, Thomas and Patric H. Hendershott. "Tax Policy and Stock Prices," National Tax Journal, Vol. XL, No. 2, (June 1987), pp. 183-190.
Abstract: Windfall profits and losses accrue to investors only when expected after-tax returns or discount rates change, and major tax policy shifts are likely to alter these variables. This study introduces a cashflow valuation model for estimating the windfalls to owners of U.S. nonfinancial corporations caused by the enactment of tax changes. The model is illustrated by analysis of two reform packages, the Treasury Proposal of November 1984 and the Tax Reform Act of 1986. We find that the original Treasury plan would have boosted stock prices by 20 to 30 percent; an increase of 10 to 12 percent is computed for the Tax Reform Act of 1986. This anomalous result -- a $125 to $140 billion dollar corporate tax increase (over five years) raising stock prices -- occurs because the tax increase is on new capital, not old capital. The stock market largely values expected returns on the existing capital stock, and these returns benefit from the adverse treatment of new investment.
Handle: RePEc:nbr:nberwo:2094
Template-Type: ReDIF-Paper 1.0
Title: Forecasting the Depression: Harvard Versus Yale
Author-Name: Ray C. Fair
Author-Person: pfa24
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Author-Name: Kathryn M. Dominguez
Author-Person: pdo227
Note: EFG
Number: 2095
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2095
File-URL: http://www.nber.org/papers/w2095.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 78, No. 4, pp. 595-612, (September 1988).
Publication-Status: published as Dominguez, Kathryn M & Fair, Ray C & Shapiro, Matthew D, 1988. "Forecasting the Depression: Harvard versus Yale," American Economic Review, American Economic Association, vol. 78(4), pages 595-612, September.
Abstract: Was the Depression forecastable? After the Crash, how long did it take contemporary economic forecasters to realize how severe the downturn was going to be? How long should it Have taken them to come to this realization? These questions are addressed by studying the predictions of the Harvard Economic Service and Yale's Irving Fisher during 1929 and the early 1930's. The data assembled by the Harvard and Yale forecasters are subjected to modern statistical analysis to learn whether their verbal pronouncements were consistent with the data. We find that both the Harvard and Yale forecasters were systematically too optimistic, yet nothing in the data suggests that the optimism was unwarranted.
Handle: RePEc:nbr:nberwo:2095
Template-Type: ReDIF-Paper 1.0
Title: Amnesty, Enforcement and Tax Policy
Author-Name: Herman B. Leonard
Author-Name: Richard J. Zeckhauser
Author-Person: pze7
Note: PE
Number: 2096
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2096
File-URL: http://www.nber.org/papers/w2096.pdf
File-Format: application/pdf
Publication-Status: published as Tax Policy and the Economy, Lawrence Summers (ed.), MIT Press 1987, pp55-86
Publication-Status: published as Amnesty, Enforcement, and Tax Policy, Herman B. Leonard, Richard J. Zeckhauser. in Tax Policy and the Economy, Volume 1, Summers. 1987
Abstract: Amnesties are widely used in society to rehabilitate past sinners, to collect resources, such as library books, that would otherwise be unrecoverable, and to make enforcement easier by reducing the ranks of delinquents. Over the past four years, tax amnesties have emerged as a major instrument of state revenue policy. Twenty states conducted amnesties. Record collections were made by New York ($360 million) and Illinois (income tax amnesty dollars 3.4% of collections). Amnesties took in dollars that would probably have escaped otherwise, and tax rolls were bolstered. Tax amnesties also have costs, however. They may anger honest taxpayers, diminish the legitimacy of the tax system by pardoning past evasion, and decrease compliance by making future amnesties seem more likely. Shou1.d the federal government, aswirl in tax reform and suffering from an estimated $100 billion tax evasion problem, now offer an amnesty of its own? What type of federal program would most likely be offered? What would it be likely to accomplish? State tax amnesties have generally bean coupled with enhanced enforcement efforts, a feature intended to preserve the legitimacy of the tan system. The amnesty/enforcement combination twists the penalty schedule, lowering it non raising it later, in that way encouraging prompt payment. With no past sins to hide, future compliance also becomes less costly, hence more probable. Any federal amnesty, we predict, would be accompanied by a strengthening of enforcement. After reviewing the state experience, we speculatively estimate that a federal amnesty/enforcement to annual revenues on the order of $10 billion.
Handle: RePEc:nbr:nberwo:2096
Template-Type: ReDIF-Paper 1.0
Title: Assessing Dynamic Efficiency: Theory and Evidence
Author-Name: Andrew B. Abel
Author-Person: pab10
Author-Name: N. Gregory Mankiw
Author-Name: Lawrence H. Summers
Author-Person: psu137
Author-Name: Richard J. Zeckhauser
Author-Person: pze7
Note: EFG PR
Number: 2097
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2097
File-URL: http://www.nber.org/papers/w2097.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 56, No. 1, pp. 1-20, (January 1989).
Abstract: The issue of dynamic efficiency is central to analyses of capital accumulation and economic growth. Yet the question of what operating characteristics of an economy subject to productivity shocks should be examined to determine whether or not it is efficient has not been resolved. This paper develops criterion based on observables for determining whether or not an economy is dynamically efficient. The criterion involves a comparison of the cash flows generated by capital with the volume of investment. Its application to the United States economy and the economies of other major OECD nations suggests that they are dynamically efficient.
Handle: RePEc:nbr:nberwo:2097
Template-Type: ReDIF-Paper 1.0
Title: Real Estate and the Tax Reform Act of 1986
Author-Name: Patric H. Hendershott
Author-Name: James R. Follain
Author-Name: David C. Ling
Author-Person: pli857
Note: PE
Number: 2098
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2098
File-URL: http://www.nber.org/papers/w2098.pdf
File-Format: application/pdf
Publication-Status: published as Follain, James R., Patric H. Hendershott and David C. Ling, "Effects on Real Estate," Tax Reform and the U.S. Economy, Pechman (ed.), The Brookings Institution, 1987, pp. 71-94.
Abstract: In contrast to the conventional wisdom, real estate activity in the aggregate is not disfavored by the 1986 Tax Act. Within the broad aggregate, however, widely different impacts are to be expected. Regular rental and commercial activity will be slightly disfavored, while historic and old rehabilitation activity will be greatly disfavored. In contrast, owner- occupied housing, far and away the largest component of real estate, is favored, both directly by an interest rate decline and indirectly owing to the increase in rents. Low-income rental housing may be the most favored of all real estate activities. The rent increase for residential properties will be 10 to 15 percent with our assumption of a percentage point decline in interest rates. For commercial properties, the expected rent increase is 5 to 10 percent. The market value decline, which will be greater the longer and further investors think rents will be below the new equilibrium, is unlikely to exceed 4 percent in fast growth markets, even if substantial excess capacity currently exists. In no-growth markets with substantial excess capacity, market values could decline by as much as 8 percent from already depressed levels. Average housing costs will decrease slightly for households with incomes below about $60,000, but increase by 5 percent for those with incomes above twice this level. With the projected increase in rents, homeownership should rise for all income classes, but especially for those with income under $60,000. The aggregate home ownership rate is projected to increase by three percentage points in the long run in response to the Tax Act. The new passive loss limitations are likely to lower significantly the values of recent loss-motivated partnership deals and of properties in areas where the economics have turned sour (vacancy rates have risen sharply). The limitations should have little impact on new construction and market rents, however. Reduced depreciation write-offs, lower interest rates, and higher rents all act to lower expected passive losses. Moreover, financing can be restructured to include equity-kickers or less debt generally at little loss of value.
Handle: RePEc:nbr:nberwo:2098
Template-Type: ReDIF-Paper 1.0
Title: The Record and Improvability of Economic Forecasting
Author-Name: Victor Zarnowitz
Note: EFG
Number: 2099
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2099
File-URL: http://www.nber.org/papers/w2099.pdf
File-Format: application/pdf
Publication-Status: published as Zarnowitz, Victor. "The Record and Improvability of Economic Forecasting." Economic Forecasts: A Worldwide Survey, Vol. 3, No. 12, (December 1986), pp. 22-30.
Publication-Status: published as The Record and Improvability of Economic Forecasting, Victor Zarnowitz. in Business Cycles: Theory, History, Indicators, and Forecasting, Zarnowitz. 1992
Abstract: Have macroeconomic forecasts grown more or less accurate over time? This paper assembles, examines, and interprets evidence bearing on this question. Contrary to some critics, there are no indications that U.S. forecasts have grown systematically worse, that is, less accurate, more biased, or both. Neither do any definite trends in a positive direction emerge from comparisons of annual and quarterly multiperiod forecasts and time-series projections for the principal aggregative variables. The argument is developed and to some extent documented that major failures of forecasting are related to the incidence of slowdowns and contractions in general economic activity. Not only the forecasts of real GNP growth and unemployment but also those of nominal GNP growth and inflation often go seriously wrong when such setbacks occur. Forecasters tend to rely heavily on the persistence of trends in spending, output, and the price level. More attention to data and techniques that are sensitive to business cycle movements and turning points could help improve their record.
Handle: RePEc:nbr:nberwo:2099
Template-Type: ReDIF-Paper 1.0
Title: The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME EFG
Number: 2100
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2100
File-URL: http://www.nber.org/papers/w2100.pdf
File-Format: application/pdf
Publication-Status: published as Review of Financial Studies 1988, Vol. 1, No. 3, pp. 195-228, (1988).
Abstract: A linearization of a rational expectations present value model for corporate stock prices produces a simple relation between the log dividend-price ratio and mathematical expectations of future log real dividend changes and future real discount rates. This relation can be tested using vector autoregressive methods. Three versions of the linearized model, differing in the measure of discount rates, are tested for U. S. time series 1871-1986: versions using real interest rate data, aggregate real consumption data, and return variance data. The results yield a metric to judge the relative importance of real dividend growth, measured real discount rates and unexplained factors in determining the dividend-price ratio.
Handle: RePEc:nbr:nberwo:2100
Template-Type: ReDIF-Paper 1.0
Title: Did Henry Ford Pay Efficiency Wages?
Author-Name: Daniel M.G. Raff
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG PR
Number: 2101
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2101
File-URL: http://www.nber.org/papers/w2101.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol.5, No. 4, Pt. 2, pp. S57-S86, (October 1987).
Abstract: This paper examines Henry Ford's introduction of the five-dollar day in 1914 in an effort to evaluate the relevance of efficiency wage theories of wage and employment determination. Our general conclusion is that the Ford experience is strongly supportive of the relevance of these theories. Ford's decision to dramatically increase wages is most plausibly portrayed as the consequence of labor problems of the kind stressed by efficiency wage theorists. The structure of the five dollar day program is consistent with the predictions of efficiency wage theories. There is vivid evidence that the five-dollar day resulted in substantial queues for Ford jobs. Finally, significant increases in productivity and profits at Ford accompanied the introduction of the five-dollar day.
Handle: RePEc:nbr:nberwo:2101
Template-Type: ReDIF-Paper 1.0
Title: A Standard Monetary Model and the Variability of the Deutschemark-DollarExchange Rate
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: ITI EFG IFM
Number: 2102
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2102
File-URL: http://www.nber.org/papers/w2102.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 23, 1987, pp. 57-76.
Abstract: This paper uses a novel teat to see whether the Herse (1985) and Woo (1985) models are consistent with the variability of the deutschemark - dollar exchange rate 1974-1984. The answer, perhaps surprisingly, is yes. Both models, however, explain the month to month variability as resulting in a critical way from unobservable shocks to money demand and purchasing power parity. It would therefore be of interest in future work to model one or both of these shocks as explicit functions of economic variables.
Handle: RePEc:nbr:nberwo:2102
Template-Type: ReDIF-Paper 1.0
Title: Tax Reform and Adjustment Costs: The Impact on Investment and Market Value
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 2103
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2103
File-URL: http://www.nber.org/papers/w2103.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Vol. 30, No. 4, pp. 939-962, (November 1989)
Abstract: This paper derives analytical measures of the combined effects of tax changes and adjustment costs on investment and market value. Unlike earlier measures, the effective tax rate derived is valid in the presence of adjustment costs and anticipated tax changes. The derived measure of the impact of tax changes on market value permits one to estimate the effects of various tax changes on market value and its components, discounted pure profits and normal returns to capital, and to decompose changes in the value of capital into changes in the marginal value of new capital and changes in the relative value of new and existing capital. These measures are used to evaluate tax changes similar to those introduced by the recent U.S. tax reform.
Handle: RePEc:nbr:nberwo:2103
Template-Type: ReDIF-Paper 1.0
Title: Married Women's Retirement Behavior
Author-Name: Silvana Pozzebon
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Note: LS
Number: 2104
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2104
File-URL: http://www.nber.org/papers/w2104.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Population Economics, Vol. 2, pp. 39-53, 1989.
Abstract: In this paper we examine the economic and family determinants of married women's retirement behavior. A model of wives' retirement decisions is developed and tested empirically using data on working married women. Estimated response parameters are compared to those obtained previously for male workers. Our findings are directly relevant to policy questions regarding pension and Social Security reform.
Handle: RePEc:nbr:nberwo:2104
Template-Type: ReDIF-Paper 1.0
Title: Interest Rate and Exchange Rate Determination
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: EFG
Number: 2105
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2105
File-URL: http://www.nber.org/papers/w2105.pdf
File-Format: application/pdf
Abstract: Since Meese and Rogoff's (1983) results, the view has become fairly widespread that structural models of exchange rates are not very good. There is, however, somewhat of a dichotomy in the literature between those who deal with small models, where the focus is almost exclusively on exchange rates, and those who deal with large macroeconometric models, where exchange rates make up only a small subset of the endogenous variables. Most of the emphasis has been on the first approach, and it may be that exchange rate determination within the context of large models has not been given a sufficient hearing. Exchange rate and interest rate equations are estimated and analyzed for 17 countries in this paper. This study is part of a larger project of constructing a multicountry econometric model. One of the aims of the paper is to see if the exchange rate equations that are part of my multicountry model also suffer from the Meese and Rogoff criticism. The results show that the view that structural exchange rate models are not very good may be too pessimistic.
Handle: RePEc:nbr:nberwo:2105
Template-Type: ReDIF-Paper 1.0
Title: International Evidence on the Demand for Money
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: EFG
Number: 2106
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2106
File-URL: http://www.nber.org/papers/w2106.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Economics and Statistics, Vol. LXIX, No. 3, pp. 473-480, (August 1987).
Abstract: One of the current questions in the literature on the demand for money is whether the adjustment of actual to desired money holdings is in nominal or real terms. This paper describes a simple procedure than can be used to test the nominal against the real hypothesis. The test is carried out for 27 countries. The paper also tests the structural stability of the demand for money equations and the correctness of the dynamic specification. The results are strongly in favor of the nominal adjustment hypothesis. The estimated equations are quite good in terms of the number of coefficient estimates that are of the right sign and that are significant. The equations also stand up well when tested against a more general dynamic specification. There is, however, some evidence of structural instability before and after 1973, although the instability is generally moderate. The instability does not affect the conclusion that the nominal adjustment hypothesis dominates the real adjustment hypothesis.
Handle: RePEc:nbr:nberwo:2106
Template-Type: ReDIF-Paper 1.0
Title: Regional Effects of Taxes in Canada: An Applied General Equilibrium Approach
Author-Name: Rich Jones
Author-Name: John Whalley
Author-Person: pwh8
Note: PE
Number: 2107
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2107
File-URL: http://www.nber.org/papers/w2107.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics. vol. 37, pp.1-28. 1988. Quarterly Journal of Economics, Vol. 105, No. 2, pp. 353-374, May 1990.
Abstract: This paper reports on an applied general equilibrium regional model for Canada which is used to investigate the regional effects of taxes. Earlier, literature on regional tax effects is reviewed and the main features of the model are briefly described. Existing literature on regional tax effects is largely non-quantitative, and does not discuss several important regional features of taxes, such as taxes which are predominantly on products or industries located in particular regions. Results suggest that regional effects of taxes can be significant, and in the Canadian case at least, do not tend to counterbalance one another. In general, richer regions tend to lose and poorer regions gain from federal taxes, but other regional characteristics such as manufacturing/non-manufacturing, or resource/non-resource can be important.
Handle: RePEc:nbr:nberwo:2107
Template-Type: ReDIF-Paper 1.0
Title: Unions and Job Security in the Public Sector
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 2108
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2108
File-URL: http://www.nber.org/papers/w2108.pdf
File-Format: application/pdf
Publication-Status: published as From When Public Sector Workers Unionize, edited by Richard B. Freeman and Casey Ichniowski, pp. 271-296. Chicago: The University of Chicago Press, 1988.
Publication-Status: published as Unions and Job Security in the Public Sector, Steven G. Allen. in When Public Sector Workers Unionize, Freeman and Ichniowski. 1988
Abstract: This study examines the effect of unions on job security in the public and private sectors. Despite much lower unemployment rates for public than private sector workers, once one controls for differences in worker and job characteristics, the odds of being unemployed are identical for nonunion workers in the public and private sectors. The picture is quite different for union workers, who face greater odds of becoming unemployed than nonunion workers in private sector jobs but much lower chances of becoming unemployed in the public sector. The ability of unions to reduce layoff and unemployment rates in the public sector seems attributable to the political power to prevent budget cuts and the absence of Unemployment Insurance subsidies or supplemental unemployment benefits.
Handle: RePEc:nbr:nberwo:2108
Template-Type: ReDIF-Paper 1.0
Title: Real Business Cycles and the Lucas Paradigm
Author-Name: Richard T. Froyen
Author-Name: Roger N. Waud
Note: ME EFG
Number: 2109
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2109
File-URL: http://www.nber.org/papers/w2109.pdf
File-Format: application/pdf
Publication-Status: published as Froyen, Richard T. and Roger N. Waud. "Real Business Cycles and the Lucas Paradigm." From Economic Inquiry, Vol. XXVI, No. 2, pp. 183-201, (April 1988).
Abstract: When the Lucas paradigm is generalized to include real effects, the effects of real factors and monetary factors on the business cycle are always interrelated. Furthermore, in such models monetary factors can affect the long-run behavior or real output, contrary to the commonly held view that they can't. Real business cycle models and Lucas-type models are different paradigms not in the sense of real versus monetary, but in the interrelation- ships between real and monetary factors intrinsic to the Lucas paradigm as contrasted to the dichotomy between real and monetary factors implied by the real business cycle literature.
Handle: RePEc:nbr:nberwo:2109
Template-Type: ReDIF-Paper 1.0
Title: Terms of Trade, Exchange Rates and Labor Markets Adjustment in Developing Countries
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 2110
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2110
File-URL: http://www.nber.org/papers/w2110.pdf
File-Format: application/pdf
Publication-Status: published as "Terms of Trade, Tariffs, and Labor Market Adjustment in Developing Countries." From The World Bank Economic Review, Vol. 2, No. 2, pp. 165- 185, (May 1988).
Abstract: This paper uses three models of a small open economy to analyze the effects of terms of trade and exchange rate changes (i.e. devaluations) on labor market adjustment. First, a three goods (exportables, importables, non-tradables), four factors model is developed and used to investigate how an exogenous worsening of the intern.ationa1 terms of trade affect labor allocation and wages. Second, a more traditional three goods, two factors model is used, and its results are compared to those of the first case. The analysis is carried out under alternative assumptions regarding wage flexibility: full flexibility, economy-wide (real) wage rigidity, and sector specific real wage rigidity. Finally, a three final goods model with imported intermediate inputs is used to investigate the effects of devaluations on aggregate and sectoral employment. Here the conditions under which a devaluation will be contractionary (i.e. will result in a reduction of employment) are determined.
Handle: RePEc:nbr:nberwo:2110
Template-Type: ReDIF-Paper 1.0
Title: The Other Side of the Trade Imbalance: What Will Japan Do?
Author-Name: Ryuzo Sato
Author-Name: John A. Rizzo
Author-Person: pri334
Note: IFM
Number: 2111
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2111
File-URL: http://www.nber.org/papers/w2111.pdf
File-Format: application/pdf
Abstract: With the mounting U.S. trade deficit, much attention has centered on the role of U.S. macroeconomic policy and economic structure as contributing factors. This paper contends that the economic structure and policies of Japan have also done much to contribute to the trade imbalance. Institutional features of Japan's macroeconomy and industrial structure which have promoted her large trade surplus are discussed and industrial policies evaluated. Given the nature and magnitude of the role played by Japan in causing the bilateral trade imbalance, the next question the paper addresses is how Japan might best act to alleviate this imbalance. This section of the paper examines fiscal, monetary and other policy initiatives Japan might take to reduce the trade imbalance. The evidence stresses the desirability of expanding Japan's services industries, particularly leisure-related services.
Handle: RePEc:nbr:nberwo:2111
Template-Type: ReDIF-Paper 1.0
Title: Sources of Output and Price Variability in a Macroeconometric Model
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: EFG
Number: 2112
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2112
File-URL: http://www.nber.org/papers/w2112.pdf
File-Format: application/pdf
Publication-Status: published as "Sources of Economic Fluctuations in the United States." From The Quarterly Journal of Economics, Vol. CIII, No. 2, pp. 313-332, (May 1988).
Abstract: There has been much recent discussion about the ultimate sources of macroeconomic variability. A number of authors attribute most of this variability to only a few sources, sometimes only one. Although there may be only a few important sources, this is far from obvious, since economies seem complicated. The purpose of this paper is to provide quantitative estimates of various sources of variability using my U.S. econometric model. Stochastic simulation is used to estimate how much the overall variances of real GNP and the GNP deflator are reduced when various shocks are suppressed in the model. The results show two main things. The first is that the contribution of a given shock to the variance can vary considerably as the length ahead of the prediction varies. What is important for the one-quarter-ahead prediction may not be important for the eight-quarter-ahead prediction, and vice versa. The second is that the results imply that there are many important sources of variability for real GNP. It is not the case that one or two sources dominate. This is less true for the GNP deflator, however, where there are two very important sources, shocks to the price and wage equations and shocks to the price of imports, and one moderately important one, shocks to the government exogenous variables.
Handle: RePEc:nbr:nberwo:2112
Template-Type: ReDIF-Paper 1.0
Title: A Guide to Target Zones
Author-Name: Jacob A. Frenkel
Author-Name: Morris Goldstein
Note: ITI IFM
Number: 2113
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2113
File-URL: http://www.nber.org/papers/w2113.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. and Morris Goldstein. "A Guide to Target Zones." International Monetary Fund, Staff Papers, Vol. 33, No. 4, (December 1986), pp. 633-673.
Abstract: This paper identifies key issues surrounding the advisability and practicality of adopting "target zones" for the exchange rates of major currencies. Pour fundamental questions concerning the definition of and the rationale for target zones are addressed: first, what is generally meant by a "target zone" approach to exchange rate management and how can "hard" and "soft" versions of this approach be defined; second, what are the perceived deficiencies in the existing exchange rate system of managed floating which motivate the call for the adoption of target zones; third, how might target zones remedy these deficiencies; and fourth, what factors are behind much of the skepticism over and opposition to target zones? In addition, the paper deals with a series of operational questions of a more technical nature that weigh heavily on the practicality of implementing a target zone approach. The issues discussed include the following: how would the target zones be calculated; what currencies would be included in the system of target zones; how wide should the target zones be and how frequently should they be revised; and what policy instruments would be employed to keep actual exchange rates within the target zones, and with what consequences for other policy objectives? The purpose of the paper is not to make the case either for or against the adoption of target zones. Rather, the intention is to raise and discuss factors that should be considered in any serious discussion of the topic.
Handle: RePEc:nbr:nberwo:2113
Template-Type: ReDIF-Paper 1.0
Title: A Note on Optimal Public Enforcement with Settlements and Litigation Costs
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Author-Name: Daniel L. Rubinfeld
Note: LE
Number: 2114
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2114
File-URL: http://www.nber.org/papers/w2114.pdf
File-Format: application/pdf
Publication-Status: published as Research in Law and Economics, vol. 12, pp. 1-8, 1989.
Abstract: This note reexamines the theory of optimal public enforcement when litigation costs are incurred if the defendant is prosecuted at trial, and when an out-of-court settlement is possible. Using a numerical example, it is shown that settlements and litigation costs can substantially alter the optimal system of public enforcement. It is also shown that failing to take these considerations into account can significantly lower the achievable level of social welfare.
Handle: RePEc:nbr:nberwo:2114
Template-Type: ReDIF-Paper 1.0
Title: Market Structure and Cyclical Fluctuations in U.S. Manufacturing
Author-Name: Ian Domowitz
Author-Person: pdo3
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Bruce C. Petersen
Author-Person: ppe145
Note: EFG
Number: 2115
Creation-Date: 1986-12
Order-URL: http://www.nber.org/papers/w2115
File-URL: http://www.nber.org/papers/w2115.pdf
File-Format: application/pdf
Publication-Status: published as Domowitz, Ian, R. Glenn Hubbard and Bruce C. Petersen. "Market Structures and Cyclical Fluctuations in U.S. Manufacturing," Review of Economics and Statistics, Vol. LXX, No. 1, pp. 55-66 (February 1988).
Abstract: The relevance of imperfect competition for models of aggregate economic fluctuations has received increased attention from researchers in both macroeconomics and industrial organization. Measuring properly the size of industry markups of price over marginal cost is important both for assessing the role of market structure and for determining the extent to which excess capacity is a significant feature accompanying imperfect competition in American industry. Using a panel data set on four-digit Census manufacturing industries, this paper expands recent work by Robert Hall on the importance of market structure for understanding cyclical fluctuations. We outline a methodology for estimating industry markups of price over cost and the influence of market structure on cyclical movements in total factor productivity. While we find evidence to support the proposition that price exceeds marginal cost in U.S. manufacturing, our results offer only limited support for the notion that markups are importantly related to differences in industry concentration, though the effect of unionization is important. Concentration effects are important only in industries producing durable goods or differentiated consumer goods. In addition, much of the estimated markup of price over marginal cost is accounted for by fixed costs related to overhead labor, advertising, and central office expenses; we do not find compelling evidence of substantial evidence of excess capacity in most industries.
Handle: RePEc:nbr:nberwo:2115