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Template-Type: ReDIF-Paper 1.0
Title: Testing for Real Effects of Monetary Policy Regime Shifts
Author-Name: Carl E. Walsh
Author-Person: pwa23
Note: ME
Number: 2116
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2116
File-URL: http://www.nber.org/papers/w2116.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, Vol. 20, no. 3, part 1 (1988): 393-401.
Abstract: Huizinga and Mishkin (1986) have recently proposed a simple method for testing whether monetary policy regime changes have affected the ex-ante real rate of interest. This paper shows that care must be taken in choosing the set of variables on which to project the ex-post real rate if inferences about the ex-ante real rate are to be drawn. It is shown that Huizinga. and Mishkin's tests cannot distinguish between shifts in the real rate process and shifts in the inflation process.
Handle: RePEc:nbr:nberwo:2116
Template-Type: ReDIF-Paper 1.0
Title: Social Security and the American Family
Author-Name: Michael J. Boskin
Author-Name: Douglas J. Puffert
Note: PE
Number: 2117
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2117
File-URL: http://www.nber.org/papers/w2117.pdf
File-Format: application/pdf
Publication-Status: published as Boskin and Puffert, "Social Security and the American Family," in Economics of Tax Policy, Lawrence Summers, ed., Cambridge, MA: MIT Press, 1987.
Publication-Status: published as Social Security and the American Family, Michael J. Boskin, Douglas J. Puffert. in Tax Policy and the Economy, Volume 1, Summers. 1987
Abstract: This paper presents the results of a computer simulation of the expected present value of benefits, taxes, and transfers, rates of return, and marginal linkage of benefits and taxes for persons of different income levels and family status. A number of important issues associated with the "deal" and incentives projected to be offered by the current social security system for different family situations are treated: married versus single persons, number of earners in the family and the division of earnings between them, and the special situation of widows and divorcees. The results show tremendous variation for different family situations and often dwarf amounts at stake for most families in the recent debates over income tax reform. We pay particular attention to items such as marriage penalties and subsidies, incentives to postpone divorce and low marginal linkage of expected benefits to incremental taxes paid by women, whether as second earners in a family, divorcees or widows.
Handle: RePEc:nbr:nberwo:2117
Template-Type: ReDIF-Paper 1.0
Title: Why Have Corporate Tax Revenues Declined?
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 2118
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2118
File-URL: http://www.nber.org/papers/w2118.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. and James M. Poterba. "Why Have Corporate Tax Revenues Declined?" Tax Policy and the Economy, L. Summers, editor, Cambridge, MA: MI T Press, 1987, pp. 1-28.
Publication-Status: published as Why Have Corporate Tax Revenues Declined?, Alan J. Auerbach, James M. Poterba. in Tax Policy and the Economy, Volume 1, Summers. 1987
Abstract: This paper examines the source of changes in corporate tax revenues during the last twenty-five years. It finds that legislative changes explain less than half of the revenue decline during this period. Falling corporate profits have had a larger influence on revenue collections than a11 legislative changes taken together, a result that is often obscured in studies focusing solely on the average corporate tax rate. Changes in capital recovery provisions are the most important legislative factor influencing corporate tax revenues, especially in the last five years. The paper also considers the impact of the Tax Reform Act of 1986. The new law will increase the average tax rate on corporate profits by approximately 10 percent. By 1990, the average tax rate will equal its level in the late 1970s, although it will remain substantially below its level in the 1960s and the early 1970s.
Handle: RePEc:nbr:nberwo:2118
Template-Type: ReDIF-Paper 1.0
Title: Tax Evasion and Capital Gains Taxation
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 2119
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2119
File-URL: http://www.nber.org/papers/w2119.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James M. "Tax Evasion and Capital Gains Taxation," American Economic Review, Vol. 77, No. 2, (May 1987), pp. 234-239.
Abstract: This paper uses time-series data to investigate how changes in capital gains tax rates affect taxpayer compliance. It finds that a one percent increase in the marginal tax rate reduces voluntary compliance by between one half and one percent. These results confirm the findings of previous studies based on individual household data. They also suggest that at least one quarter of the observed capital gain realization response to changes in marginal tax rates is due to changes in reporting behavior, rather than portfolio behavior.
Handle: RePEc:nbr:nberwo:2119
Template-Type: ReDIF-Paper 1.0
Title: Household Behavior and the Tax Reform Act of 1986
Author-Name: Jerry A. Hausman
Author-Person: pha893
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 2120
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2120
File-URL: http://www.nber.org/papers/w2120.pdf
File-Format: application/pdf
Publication-Status: published as Hausman, Jerry A. and James M. Poterba. "Household Behavior and the Tax Reform Act of 1986," Journal of Economic Perspectives, Vol. 1, No. 1, 1987, pp . 101-119.
Abstract: This paper evaluates the effects of the 1986 Tax Reform Act on household labor supply and savings. It describes the tax bill's effects on incentives to work and to save, and uses recent econometric estimates of labor supply and savings elasticities to describe the reform's impact on household behavior. Two factors lead us to conclude that the new law will have small aggregate effects. First, most households experience only small changes in their marginal tax rates. Forty-one percent of the taxpaying population will face marginal tax rates as high, or higher, under the new law as under the previous tax code. Only eleven percent of taxpayers receive marginal tax rate reductions of ten percentage points or more. Second, plausible estimates of both the labor supply and savings elasticities suggest that even for those households that receive rate reductions, behavioral changes will be small. Our analysis suggests that the tax reform will increase labor supply by about one percent, and slightly reduce private savings.
Handle: RePEc:nbr:nberwo:2120
Template-Type: ReDIF-Paper 1.0
Title: Labor Supply Preferences, Hours Constraints, and Hours-Wage Tradeoffs
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: Christina H. Paxson
Author-Person: ppa335
Note: LS
Number: 2121
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2121
File-URL: http://www.nber.org/papers/w2121.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, vol. 6, no. 2, pp 254-276, April 1988. Journal of Human Resources, 27 no.2 (Spring 1992): 256-278
Abstract: In a labor market in which firms offer tied hours-wage packages and there is substantial dispersion in the wage offers associated with a particular type of job, the best job available to a worker at a point in time may pay well but require an hours level which is far from the worker's labor supply schedule, or pay poorly but offer desirable hours. Intuitively, one would expect hours constraints to influence the pattern of wage-hours tradeoffs which occur when workers quit to new jobs. Constrained workers may be willing to sacrifice wage gains for better hours. Likewise, workers may accept jobs offering undesirable hours only if the associated wage gains are large. We investigate this issue empirically by examining whether overemployment (underemployment) on the initial job increases (reduces) the partial effect on the wage gain of a positive change in hours for those who quit. We also examine whether overemployment (underemployment) on the new job increases (reduces) the partial effect on the wage gain of a positive change in hours for those who quit. Despite the limitations imposed by small sample sizes and lack of information on the magnitude of hours constraints, our results support the view that an individual requires compensation to work in jobs which, given the individual's particular preferences, offer unattractive hours.
Handle: RePEc:nbr:nberwo:2121
Template-Type: ReDIF-Paper 1.0
Title: How Far Has the Dollar Fallen?
Author-Name: Philippe Bacchetta
Author-Person: pba111
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: EFG ITI IFM
Number: 2122
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2122
File-URL: http://www.nber.org/papers/w2122.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin and Philipe Bacchetta. "How Far Has the Dollar Faller?" Business Economics, Vol. XXII, No. 4, October 1987, pp. 35-39.
Abstract: The present paper introduces a new index of the real value of the dollar relative to 80 other currencies. The individual exchange rates are combined with weights that reflect the recent (1984) multilateral pattern of trade. This new index confirms that the dollar rose very sharply between January 1980 and February 1985 and that about two-thirds of that appreciation was reversed by July 1986. This is true for both our multilateral and bilateral real indices. The analysis also shows that any index that fails to adjust for differences in inflation rates will give a very misleading impression of the dollar's evolution in the 1980s.
Handle: RePEc:nbr:nberwo:2122
Template-Type: ReDIF-Paper 1.0
Title: Alternative Modes of Deficit Financing and Endogenous Monetary and Fiscal Policy 1923-1982
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ME
Number: 2123
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2123
File-URL: http://www.nber.org/papers/w2123.pdf
File-Format: application/pdf
Publication-Status: published as Turnovsky, Stephen J. and Mark Wohar. "Alternative Modes of Deficit Financing and Endogenous Monetary and Fiscal Policy 1923-1982," Journal of Applied Econometrics, Vol. 2, No. 1, February 1987, pp. 1-25.
Abstract: This paper first investigates the effects of alternatives modes of deficit financing on the unemployment rate, inflation rate, and the real interest rate, within the framework of a small complete macroeconomic model. Secondly, it examines the nature of monetary and fiscal reaction functions. The two periods 1923- 1960 and 1961-1982 are considered, with substantial differences in behavior and policy being shown to exist between them The most important conclusion is that long-run monetary neutrality properties shown to exist over the latter period are not intrinsic to the economy, but rather are the result of the stabilization policies being conducted over that period.
Handle: RePEc:nbr:nberwo:2123
Template-Type: ReDIF-Paper 1.0
Title: The Adjustment of Expectations to a Change in Regime: A Study of the Founding of the Federal Reserve
Author-Name: N. Gregory Mankiw
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Author-Name: David N. Weil
Author-Person: pwe24
Note: ME EFG
Number: 2124
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2124
File-URL: http://www.nber.org/papers/w2124.pdf
File-Format: application/pdf
Publication-Status: published as Mankiw, N. Gregory, Jeffrey A. Miron and David N. Weil. "The Adjustment of Expectations to a Change in Regime: A Study of the Founding of the Federal Reserve," American Economic Review, Vo. 77, No. 3, June 1987.
Abstract: The founding of the Federal Reserve System in 1914 led to a substantial change in the behavior of nominal interest rates. We examine the timing of this change and the speed with which it was effected. We then use data on the term structure of interest rates to determine how expectations responded. Our results indicate that the change in policy regime was rapid and that individuals quickly understood the new environment they were facing.
Handle: RePEc:nbr:nberwo:2124
Template-Type: ReDIF-Paper 1.0
Title: The Response of Interest Rates to the Federal Reserve's Weekly Money Announcements: The "Puzzle" of Anticipated Money
Author-Name: Richard Deaves
Author-Name: Angelo Melino
Author-Person: pme69
Author-Name: James E. Pesando
Author-Person: ppe278
Note: ME
Number: 2125
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2125
File-URL: http://www.nber.org/papers/w2125.pdf
File-Format: application/pdf
Publication-Status: published as Deaves, Richard, Angelo Melino, and James E. Pesando. "The Response of Interest Rates to the Federal Reserve's Weekly Money Announcements: The "Puzzle" of Anticipated Money," Journal of Monetary Economics, Vol. 19, No. 3, May 1987, pp. 393-404.
Abstract: Researchers, using the survey conducted by Money Market Services, Inc., have found that the anticipated component in the Federal Reserve's weekly money supply announcement is negatively correlated with the post- announcement change in market yields. We prove that eliminating a (downward) bias in the measure of anticipated money can, in theory, eliminate this puzzle, but that improving the efficiency of an already unbiased measure cannot. We find, using Canadian as well as U.S. interest rate data, that correcting the downward bias in the survey measure reduces, but does not eliminate, the role of anticipated money.
Handle: RePEc:nbr:nberwo:2125
Template-Type: ReDIF-Paper 1.0
Title: The Anatomy of Financial Crises
Author-Name: Barry Eichengreen
Author-Person: pei2
Author-Name: Richard Portes
Author-Person: ppo132
Note: ITI IFM
Number: 2126
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2126
File-URL: http://www.nber.org/papers/w2126.pdf
File-Format: application/pdf
Publication-Status: published as "Anatomy of Financial Crises." From Threats to International Financial Stability, edited by Richard Portes and Alexander K. Swoboda, pp. 10-58. New York: Cambridge University Press, 1987.
Abstract: A financial crisis is a disturbance to financial markets. associated typically with falling asset prices and insolvency among debtors and intermediaries, which spreads through the financial system, disrupting the market’s capacity to allocate capital. In this paper we analyze the generation and propagation of financial crises in an international setting. We provide a perspective on the danger of a serious disruption to the global financial system by comparing the last full-fledged financial crisis - that of the 1930s - with conditions prevailing today. Our definition of a financial crisis implies a distinction between generalized financial crises on the one hand and isolated bank failures, debt defaults and foreign-exchange market disturbances on the other. We represent this distinction in three sets of linkages: between debt defaults; and between exchange-market disturbances and bank failures. In both the 1930s and 1980s, the institutional environment was drastically altered by rapid change in foreign exchange markets, in international capital markets, and in the structure of domestic banking systems. Our comparative analysis underscores the critical role played by institutional arrangements in financial markets as a determinant of the system's vulnerability to destabilizing shocks.
Handle: RePEc:nbr:nberwo:2126
Template-Type: ReDIF-Paper 1.0
Title: Neoclassical and Sociological Perspectives on Segmented Labor Markets
Author-Name: Kevin Lang
Author-Person: pla83
Author-Name: William T. Dickens
Note: LS
Number: 2127
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2127
File-URL: http://www.nber.org/papers/w2127.pdf
File-Format: application/pdf
Publication-Status: published as Industries, Firms and Jobs: Sociological and Economic Approaches, (ed) G. Farkas and P. England, Plenum Press: New York, 1988.
Abstract: Neoclassical theory has been misrepresented in the segmented economy literature. Consequently, most tests of "structural" vs. "neoclassical" models are inadequate. Moreover, segmented economy theorists have concentrated on the least significant departures of segmented models from neoclassical economics. In fact, neoclassical economists have developed elements of a segmented labor market model which is similar to the segmented economy theories. We sketch this model and argue that the neoclassical model gives a precise meaning to the concept of dual or segmented labor markets but does not suggest that a classification system for job characteristics must rely on a single dimension.
Handle: RePEc:nbr:nberwo:2127
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy, Asset Prices, and Growth: A General Equilibrium Analysis
Author-Name: Lawrence H. Goulder
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 2128
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2128
File-URL: http://www.nber.org/papers/w2128.pdf
File-Format: application/pdf
Publication-Status: published in 1986 Proceedings of the 79th Annual Conference on Taxation , Columbus: National Tax Association, 1987, pp. 119-125
Publication-Status: published as Journal of Public Economics, vol. 39, 1989
Abstract: This paper presents a multisector general equilibrium model that is capable of providing integrated assessments of the economy's short- and long- run responses to tax policy changes. The model contains an explicit treatment of firm's investment decisions according to which producers exhibit forward- looking behavior and take account of adjustment costs inherent in the installation of new capital. This permits an examination of both short-run effects of tax policy on industry profits and asset prices as well as 1ong-term effects on capital accumulation. The model contains considerable detail on U.S. industry, corporate financial policies, and the U.S. tax system. Simulation results reveal that the effects of tax policy differ significantly depending on whether the policy is oriented toward new or old capital measures like the investment tax credit stimulate investment without conferring significant windfall gains on corporate shareholders. Corporate tax rate reductions with the same revenue cost, on the other hand, yield large windfalls to shareholders while providing only a modest stimulus to investment in plant and equipment.
Handle: RePEc:nbr:nberwo:2128
Template-Type: ReDIF-Paper 1.0
Title: Ultimate Sources of Aggregate Variability
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: EFG
Number: 2129
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2129
File-URL: http://www.nber.org/papers/w2129.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 77, no. 2 pp. 87-92 May 1987
Abstract: What, ultimately, is different from quarter to quarter or year to year that accounts for the fact that macroeconomic variables change over these intervals? That is, which are the biggest ultimate sources, in terms we may say of tastes, technology, endowments, government policy, industrial organization, labor-management relations, speculative behavior, or the like, that change to cause this variability? There are a bewildering variety of claims in the literature for such ultimate sources. Far fewer efforts have been made to give a breakdown of the variance of macroeconomic aggregates by source. The two notable such breakdowns to date are by Bigou (1929) and Fair (1987). The nature of the evidence for such breakdowns is discussed here, and the possibility that a partial breakdown may be well-determined is put forward. An unsuccessful attempt is made to detect a component of macroeconomic fluctuations that is due to the weather.
Handle: RePEc:nbr:nberwo:2129
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Deficits, Exchange Rate Crises and Inflation
Author-Name: Sweder van Wijnbergen
Author-Person: pva412
Note: ITI IFM
Number: 2130
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2130
File-URL: http://www.nber.org/papers/w2130.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 58, no. 193 (1991): 81-92.
Abstract: The analysis focuses on the government budget constraint and the resolution of inconsistent implications of different policy instruments under that constraint. We show how, under floating exchange rates, external shocks or internal structural reforms may cause jumps in inflation and the exchange rate through their impact on the government budget. In order to achieve a sustainable reduction in inflation an exchange rate freeze or crawling peg is shown to require restrictions not only on domestic credit, but also on the rate of increase in interest-bearing public debt. We endogenize regime collapse by introducing rational speculation against the central bank, and show that if an exchange rate freeze collapses, post-collapse inflation will exceed the rate prevailing before the freeze started.
Handle: RePEc:nbr:nberwo:2130
Template-Type: ReDIF-Paper 1.0
Title: New Estimates of State and Local Government Tangible Capital and Net Investment
Author-Name: Michael J. Boskin
Author-Name: Marc S. Robinson
Author-Name: Alan M. Huber
Note: PE
Number: 2131
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2131
File-URL: http://www.nber.org/papers/w2131.pdf
File-Format: application/pdf
Publication-Status: published as (Boskin, Michael J., Marc S. Robinson, Terrance O'Reilly and Praveen Kumar) Published as "Errata: New Estimates of the Value of Federal Mineral Rights and Land", American Economic Review, Vol. 76, no. 4 (1986).
Abstract: Measures of the state and local government capital stock and investment are necessary inputs into several areas of economic analysis, including the measurement of national wealth and its growth. We estimate net investment and depreciation of state and local government nonresidential capital. In aggregate, we estimate a net state and local nonresidential capital stock of $1.8 trillion in 1985, 17% larger than that estimated by the Bureau of Economic Analysis. Net state and local government investment has exceeded the state and local deficit annually for the last forty-five years. While the fraction of state and local purchase of goods and services devoted to net investment has fallen, it has exceeded federal government net capital formation except during defense buildups and has averaged more than 40% of private fixed nonresidential net investment since 1951. Similar comparisons reveal that the state and local government net capital stock substantially exceeds state and local debt, and is about twice the federal government capital stock.
Handle: RePEc:nbr:nberwo:2131
Template-Type: ReDIF-Paper 1.0
Title: Should Tax Reform Level the Playing Field?
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: PE
Number: 2132
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2132
File-URL: http://www.nber.org/papers/w2132.pdf
File-Format: application/pdf
Abstract: While frequently invoked, the level playing field ideal and its practical embodiment in tax legislation has received relatively little analysis. This paper examines the economic arguments surrounding the level playing field doctrine. I conclude that leveling the playing field is an issue of little economic importance and that efforts to level the playing field like those recently enacted are likely to create more important nonneutralities than those they eliminate. They may however contribute to the perceived fairness of the tax system.
Handle: RePEc:nbr:nberwo:2132
Template-Type: ReDIF-Paper 1.0
Title: Monetary Growth, Inflation, and Economic Activity in a Dynamic Macro Model
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ME
Number: 2133
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2133
File-URL: http://www.nber.org/papers/w2133.pdf
File-Format: application/pdf
Publication-Status: published as Turnovsky, Stephen J., "Monetary Growth, Inflation, and Economic Activity in a Dynamic Macro Model," International Economic Review, Vol. 28, No. 3, October 1987.
Abstract: This paper analyzes the effects of an increase in the monetary growth rate within a dynamic optimizing macroeconomic model. Both the short-run and long-run effects, and therefore the adjustments along the transitional path, depend critically upon the tax structure and the firm's corresponding optimal financial decisions. With all bond financing, the effects depend upon the extent to which interest payments are tax deductible for corporations. If this is sufficiently high, the effects of an increase in the monetary growth rate are generally expansionary. With low interest deductibility, or if the tax structure induces equity financing, the effects arc generally contractionary.
Handle: RePEc:nbr:nberwo:2133
Template-Type: ReDIF-Paper 1.0
Title: Is Consumption Too Smooth?
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Angus Deaton
Author-Person: pde30
Note: EFG
Number: 2134
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2134
File-URL: http://www.nber.org/papers/w2134.pdf
File-Format: application/pdf
Publication-Status: published as "Why is Consumption So Smooth?" From Review of Economic Studies, Vol. 56,pp. 357-374, (1989).
Abstract: For thirty years, it has been accepted that consumption is smooth because permanent income is smoother than measured income. This paper considers the evidence for the contrary position, that permanent income is in fact less smooth than measured income, so that the smoothness of consumption cannot be straightforwardly explained by permanent income theory. Quarterly first differences of labor income in the United States are well described by an AR(1) with a positive autoregressive parameter. Innovations to such a process are "more than permanent;" there is no deterministic trend to which the series must eventually return, and good or bad fortune in one period can be expected to be at least partially repeated in the next. Changes to permanent income should therefore be greater than the innovations to measured income, and changes in consumption should be more variable than innovations to measured income. In fact, changes in consumption are much less variable than are income innovations. We consider two possible explanations for this paradox, first, that innovations to labor income are in reality much less persistent than appears from an AR(l), and second, that consumers have more information than do econometricians, so that only a fraction of the estimated innovations are actually unexpected by consumers. The univariate time series results are less than decisive, but the balance of the evidence, whether from fitting ARMA models or from examining the spectral density, is more favorable to the view that innovations are persistent than to the opposite view, that there is slow reversion to trend. The information question is taken up within a bivariate model of income and savings that can accommodate the feedback from saving to income that is predicted by the permanent income theory if consumers have superior information. Nevertheless, our results are the same; changes in consumption are typically smaller than those warranted by the change in permanent income. We show that our finding of "excess smoothness" is consistent with the earlier findings of "excess sensitivity" of consumption to income. Our analysis is conducted within a "logarithmic" version of the permanent income hypothesis, a formulation that recognizes that rates of growth of income and saving ratios have greater claim to stationarity than do changes in income and saving flows.
Handle: RePEc:nbr:nberwo:2134
Template-Type: ReDIF-Paper 1.0
Title: Why Do Fixed-Effects Models Perform So Poorly? The Case of Academic Salaries
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 2135
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2135
File-URL: http://www.nber.org/papers/w2135.pdf
File-Format: application/pdf
Publication-Status: published as Southern Economic Journal, Vol.56, No. 1, pp. 39-45, (July 1989).
Abstract: A large and growing line of research has used longitudinal data to eliminate unobservable individual effects that may bias cross-section parameter estimates. The resulting estimates, though unbiased, are generally quite imprecise. This study shows that the imprecision can arise from the measurement error that commonly exists in the data used to represent the dependent variable in these studies. The example of economists' salaries, which are administrative data free of measurement error, demonstrates that estimates based on changes in longitudinal data can be precise. The results indicate the importance of improving the measurement of the variables to which the increasingly high-powered techniques designed to analyze panel data are applied. The estimates also indicate that the payoff to citations to scholarly work is not an artifact of unmeasured individual effects that could be biasing previous estimates of the determinants of academic salaries.
Handle: RePEc:nbr:nberwo:2135
Template-Type: ReDIF-Paper 1.0
Title: Optimal Monetary Growth
Author-Name: Andrew B. Abel
Author-Person: pab10
Note: EFG
Number: 2136
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2136
File-URL: http://www.nber.org/papers/w2136.pdf
File-Format: application/pdf
Publication-Status: published as Abel, Andrew B. "Optimal Monetary Growth," Journal of Monetary Economics, Vol. 19, No. 3, May 1987, pp 437-450.
Abstract: In the absence of monetary superneutrality, inflation affects capital accumulation and the demand for real balances. This paper derives the combination of monetary and lump-sum fiscal policy which maximizes the sum of discounted utilities of representative consumers in present and future generations. Under the optimal policy package, the steady state has a zero nominal interest rate and has monetary contraction at the rate of intergenerational discount. As the rate of intergenerational discount rate approaches zero, optimal policy maximizes steady state utility of the representative consumer. In this case, the optimal steady state is characterized by a constant nominal money supply.
Handle: RePEc:nbr:nberwo:2136
Template-Type: ReDIF-Paper 1.0
Title: Collective Bargaining and the Division of the Value of the Enterprise
Author-Name: John M. Abowd
Author-Person: pab175
Note: LS
Number: 2137
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2137
File-URL: http://www.nber.org/papers/w2137.pdf
File-Format: application/pdf
Publication-Status: published as "The Effect of Wage Bargains on the Stock Market Value of the Firm" From The American Economic Review, Vol. 79, No. 4, pp. 774-800, (September 1989)
Abstract: The enterprise (firm) is modeled as a collection of formal and informal contracts providing various factors of production with claims on the income stream in consideration of assets or services supplied to the enterprise. The strongly efficient bargaining model implies that the division of the quasi-rents will result in dollar for dollar exchanges of wealth between the union members and the shareholders. The leading inefficient bargaining models do not imply such tradeoffs in general. The model is tested by considering contract settlements during the years 1976 to 1982 as recorded by the Bureau of National Affairs in Collective Bargaining Negotiations and Contracts. Security price data for the firms were merged with these bargaining unit level settlement data. The tests provide substantial confirmation of the dollar for dollar wealth tradeoff between union members and shareholders.
Handle: RePEc:nbr:nberwo:2137
Template-Type: ReDIF-Paper 1.0
Title: Our LDC Debts
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 2138
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2138
File-URL: http://www.nber.org/papers/w2138.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) The United States in the World Economy. Chicago: University of Chicago Press, 1988.
Publication-Status: published as "Our LDC Debts." from The United States in the World Economy, edited by Martin Feldstein, pp. 161-196, Chicago: The University of Chicago Press, 1988.
Publication-Status: published as Our LDC Debts, Rudiger Dornbusch, Thomas S. Johnson, Anne O. Krueger. in The United States in the World Economy, Feldstein. 1988
Abstract: The U.S. has significant interests involved in the world debt problem. It affects the profitability and even the stability of our banking system, but the debt problem also matters because debt service requires trade surpluses for debt- ors. Debtor countries have made their goods extra competitive, are selling in our market and are competing with our exports. The debt problem is therefore a part, though perhaps a small part, of the U.S. trade crisis. Finally we have a major foreign policy stake in the debt crisis in that debt collection brings about social and political instability. The paper sets out debt facts, followed with a brief look at the origins of the debt problem. The "transfer problem" is the general framework in which we discuss the problem of debt service for the debtor countries. We then discuss bank exposure and the quality of debts. The paper then addresses the trade implications of debt service and concludes with an overview of alternative proposals for solving the debt problem.
Handle: RePEc:nbr:nberwo:2138
Template-Type: ReDIF-Paper 1.0
Title: Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes."
Author-Name: Henry S. Farber
Author-Name: Max H. Bazerman
Note: LS
Number: 2139
Creation-Date: 1987-01
Order-URL: http://www.nber.org/papers/w2139
File-URL: http://www.nber.org/papers/w2139.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. CIV, No. 1, pp. 99-120, (February 1989).
Abstract: One prominent explanation for disagreement in bargaining is that the parties have divergent and relatively optimistic expectations regarding the ultimate outcome if they fail to agree. The fact that settlement rates are much higher where final-offer arbitration is the dispute settlement procedure than where conventional arbitration is the dispute settlement procedure is used as the basis of a test of the role of divergent expectations in causing disagreement in negotiations. Calculations of identical-expectations contract zones using existing estimates of models of arbitrator behavior yield larger identical-expectations contract zones in conventional arbitration than in final-offer arbitration. This evidence clearly suggests that divergent expectations alone are not an adequate explanation of disagreement in labor-management negotiations. A number of alternative explanations for disagreement are suggested and evaluated.
Handle: RePEc:nbr:nberwo:2139
Template-Type: ReDIF-Paper 1.0
Title: The Real Effects of Foreign Inflation in the Presence of Currency Substitution
Author-Name: Charles Engel
Author-Person: pen14
Note: ITI IFM
Number: 2140
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2140
File-URL: http://www.nber.org/papers/w2140.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Volume 8, March 1989 "The Trade Balance and the Real Exchange Rate under Currency Substitution pp. 47-58
Abstract: The paper explores optimizing models of small open economies that hold foreign money balances. Particular attention is paid to the impact of foreign inflation on the real exchange rate and other real variables. At first, an environment in which foreign money is the only traded asset is explored. This is compared to a more general setting in which many assets can be traded. The effect of foreign inflation on domestic real variables depends on: 1) the degree to which it causes a substitution out of traded assets as a whole and into non-traded assets, and 2) the change in real returns on the portfolio of traded assets held by domestic residents.
Handle: RePEc:nbr:nberwo:2140
Template-Type: ReDIF-Paper 1.0
Title: Saving and Investment in an Open Economy with Non-Traded Goods
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: Kenneth Kletzer
Note: ITI IFM
Number: 2141
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2141
File-URL: http://www.nber.org/papers/w2141.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Volume 30, November 1989, pp. 735-752
Abstract: We examine a model of a small open economy in which there is free international mobility of financial capital, investment in capital goods and a non-traded good. Such an environment is rich enough to explain several phenomena that are inexplicable in more barren models. We suggest an explanation of why saving and investment may be correlated even with no restrictions on trade in assets. We explain why a high saving country may nonetheless borrow from abroad to finance investment. We also provide an optimizing model of stages in the balance of payments.
Handle: RePEc:nbr:nberwo:2141
Template-Type: ReDIF-Paper 1.0
Title: Brazil's Tropical Plan
Author-Name: Eliana A. Cardoso
Author-Name: Rudiger Dornbusch
Note: EFG
Number: 2142
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2142
File-URL: http://www.nber.org/papers/w2142.pdf
File-Format: application/pdf
Publication-Status: published as Cardoso, Eliana A. and Rudiger Dornbusch. "Brazil's Tropical Plan," American Economic Review, Vol. 77, No. 2, May 1987, pp. 288-292.
Abstract: This paper highlights the institutional features of the inflation process and contrasts two stabilization efforts in 1964-66 and in 1986.The inflation process in Brazil is highly institutional. It does not resemble hyperinflations where pricing and wage setting are geared to the exchange rate by the hour, making it possible to stop inflation by simply containing money creation and fixing the exchange rate. The two stabilization programs demonstrate that an incomes policy is an essential ingredient to non-recessionary stabilization. But they also show that demand restraint is inevitable if disinflation is to be viable. The 1964 program was gradualist and two-handed, relying on the supply side on wage repression. The 1986 plan was a heterodox shock treatment centered around an uncompromising price freeze and paying insufficient attention to the need for fiscal restraint.
Handle: RePEc:nbr:nberwo:2142
Template-Type: ReDIF-Paper 1.0
Title: Money and the Consumption Goods Market in China
Author-Name: Richard Portes
Author-Person: ppo132
Author-Name: Anita Santorum
Note: ITI IFM
Number: 2143
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2143
File-URL: http://www.nber.org/papers/w2143.pdf
File-Format: application/pdf
Publication-Status: published as Portes, Richard and Anita Santorum. "Money and the Consumption Goods Marketin China," Journal of Comparative Economics, Vol. 11, No. 3, (September 1987).
Abstract: This paper studies the relations between money and other macroeconomic variables as well as excess demand in the consumption goods market for the case of China, 1954-83. We explicitly recognize the endogeneity of money in the CPE and do not impose (but instead test) some common restrictive assumptions; we assess the extent of aggregate excess demand (supply) in a macroeconomic disequilibrium model; and we allow at the macro level for the possible coexistence of micro markets in different states of excess demand or supply (shortages or slacks). We find bidirectional causality between money and income; that M[sub0] behaves in a manner more suited to building simple, conventional models than does M[sub 2]; and that there has been a mixed pattern of excess supplies and demands over the three decades.
Handle: RePEc:nbr:nberwo:2143
Template-Type: ReDIF-Paper 1.0
Title: Recent Evidence on Budget Deficits and National Savings
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: ME EFG PE
Number: 2144
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2144
File-URL: http://www.nber.org/papers/w2144.pdf
File-Format: application/pdf
Publication-Status: published as "Finite Lifetimes and the Effects of Budget Deficits on National Saving." From Journal of Monetary Economics, Vol. 20, No. 2, pp. 369-391,(September 1987).
Abstract: This paper examines the recent United States experience with sustained budget deficits and concludes that the events of the last five years cast significant doubt on the proposition that the timing of taxes does not affect national savings. Rather than raising private saving, the recent deficits have if anything coincided with reduced saving and increased consumption. These findings suggest that realistic analysis of fiscal policies must recognize that consumers are liquidity constrained and/or myopic.
Handle: RePEc:nbr:nberwo:2144
Template-Type: ReDIF-Paper 1.0
Title: Compensation and Firm Performance
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: George T. Milkovich
Note: LS
Number: 2145
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2145
File-URL: http://www.nber.org/papers/w2145.pdf
File-Format: application/pdf
Publication-Status: published as Ehrenberg R.G. and G.T. Milkovich."Compensation and Firm Performance," Human Resources and the Performance of Firms, eds. M. Kleiner et al. Madison, Wisconsin: Industrial Relations Research Association, (1987).
Publication-Status: published as Shared Modes of Compensation and Firm Performance U.K. Evidence, Martin Conyon, Richard B. Freeman. in Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980–2000, Card, Blundell, and Freeman. 2004
Abstract: This paper uses stochastic simulation and my U.S. econometric model to examine the optimal choice of monetary policy instruments. Are the variances, covariances, and parameters in the model such as to favor one instrument over the other, in particular the interest rate over the money supply? The results show that the interest rate and the money supply are about equally good as policy instruments in terms of minimizing the variance of real GNP. The variances of some of the components of GNP are, however, much larger when the money supply is the policy instrument, as is the variance of the change in stock prices. Therefore, if one's loss function is expanded beyond simply the variance of real GNP to variances of other variables, the interest rate policy does better. The results thus provide some support for what seems to be the Fed's current choice of using the interest rate as its primary instrument. Stochastic simulation is also used to estimate how much of the variance of real GNP is due to the error terms in the demand for money equations. The results show that the contribution is not very great even when the money supply is the policy instrument.
Handle: RePEc:nbr:nberwo:2145
Template-Type: ReDIF-Paper 1.0
Title: Supply Shocks in Macroeconomics
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Note: EFG
Number: 2146
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2146
File-URL: http://www.nber.org/papers/w2146.pdf
File-Format: application/pdf
Publication-Status: published as Shapiro, Matthew D. "Supply Shocks in Macroeconomics," The New Palgrave, London: Macmillan, 1987.
Publication-Status: published as Shapiro, Matthew D. "Are Cyclical Fluctuations In Productivity Due More To Supply Shocks Or Demand Shocks?," American Economic Review, 1987, v77(2), 118-124.
Abstract: Supply shocks played an important role in macroeconomic fluctuations during the 1970's. Supply shocks are also increasingly important in Keynesian and neo-classical models of the business cycle. This paper is a short survey of these theoretical models. It also discusses the history of supply shocks in recent business cycles.
Handle: RePEc:nbr:nberwo:2146
Template-Type: ReDIF-Paper 1.0
Title: Are Cyclical Fluctuations in Productivity Due More to Supply Shocks or Demand Shocks?
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Note: EFG
Number: 2147
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2147
File-URL: http://www.nber.org/papers/w2147.pdf
File-Format: application/pdf
Publication-Status: published as Shapiro, Matthew D. "Are Cyclical Fluctuations in Productivity Due More to Supply Shocks of Demand Shocks?" From The American Economic Review, Vol. 77, No. 2, pp. 118-124, (May 1987).
Abstract: Measured productivity is strongly procyclical. Real business cycle theories suggest that actual fluctuations in productivity are the source of fluctuations in aggregate output. Keynesian theories maintain that fluctuations in aggregate output come from shocks to aggregate demand. Keynesian theories appeal to labor hoarding or off the production function behavior to explain the procyclicality of productivity. If observed productivity shocks are true productivity shocks, a function of factor prices should covary exactly with productivity. In annual data for U.S. industries, that function of factor prices and conventionally-measured productivity move together very closely. Moreover, their difference is uncorrelated with aggregate output.
Handle: RePEc:nbr:nberwo:2147
Template-Type: ReDIF-Paper 1.0
Title: Incentive Effects of Price Rises and Payment-System Changes on Chinese Agricultural Productivity Growth
Author-Name: John McMillan
Author-Person: pmc60
Author-Name: John Whalley
Author-Person: pwh8
Author-Name: Zhu Li Jing
Note: ITI IFM
Number: 2148
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2148
File-URL: http://www.nber.org/papers/w2148.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, vol. 97 (4), August 1989, pp. 781-807."The Impact of China's Economic Reforms on Agricultural Productivity Growth"
Abstract: This paper analyzes the relative importance of the major factors underlying the post-1978 increase in China's agricultural productivity. We present a method for assessing the role of price increases and strengthened individual incentives due to the introduction of the responsibility system. Data on pre- and post-1978 Chinese agricultural performance are used to calculate incentive indices, giving the fraction of their marginal product that peasants received under the pre-1978 regime.
Handle: RePEc:nbr:nberwo:2148
Template-Type: ReDIF-Paper 1.0
Title: The Life-Cycle Permanent-Income Model and Consumer Durables
Author-Name: Avner Bar-Ilan
Author-Person: pba154
Author-Name: Alan S. Blinder
Author-Person: pbl41
Note: EFG
Number: 2149
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2149
File-URL: http://www.nber.org/papers/w2149.pdf
File-Format: application/pdf
Publication-Status: published as Annales d'Economie et de Statistique No. 9,,, pp.71-91, Jan-March 1988
Publication-Status: published as Avner Bar-Ilan & Alan S. Blinder, 1988. "The Life Cycle Permanent-Income Model and Consumer Durables," Annals of Economics and Statistics, GENES, issue 9, pages 71-91.
Abstract: This paper presents an extension of the life-cycle permanent-income model of consumption to the case of a durable good whose purchase involves lumpy trans- actions costs. Where individual behavior is concerned, the implications of the model are different in some respects from those of standard consumption theory. Specifically, rather than choose an optimal path for the service flow from durables, the optimizing consumer will choose an optimal range and try to keep his service flow inside that range. The dynamics implied by this behavior is different from that of the stock adjustment model. Properties of aggregate durables consumption are derived by explicit aggregation. In particular, it is shown that expenditures on durables display very large short-run elasticity to changes in permanent income. Empirical tests of the sort suggested by Hall (1978) generally produce results that are in line with the predictions of the theory.
Handle: RePEc:nbr:nberwo:2149
Template-Type: ReDIF-Paper 1.0
Title: Optimal Choice of Monetary Policy Instruments in a Macroeconometric Model
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: EFG
Number: 2150
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2150
File-URL: http://www.nber.org/papers/w2150.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol.XXII, No.2, pp.301-315, September 1988.
Abstract: This paper uses stochastic simulation and my U.S. econometric model to examine the optimal choice of monetary policy instruments. Are the variances, covariances, and parameters in the model such as to favor one instrument over the other, in particular the interest rate over the money supply? The results show that the interest rate and the money supply are about equally good as policy instruments in terms of minimizing the variance of real GNP. The variances of some of the components of GNP are, however, much larger when the money supply is the policy instrument, as is the variance of the change in stock prices. Therefore, if one's loss function is expanded beyond simply the variance of real GNP to variances of other variables, the interest rate policy does better. The results thus provide some support for what seems to be the Fed's current choice of using the interest rate as its primary instrument. Stochastic simulation is also used to estimate how much of the variance of real GNP is due to the error terms in the demand for money equations. The results show that the contribution is not very great even when the money supply is the policy instrument .
Handle: RePEc:nbr:nberwo:2150
Template-Type: ReDIF-Paper 1.0
Title: The Dollar and Real Interest Rates
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Richard H. Clarida
Author-Person: pcl69
Note: ME ITI IFM
Number: 2151
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2151
File-URL: http://www.nber.org/papers/w2151.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, John Y. and Richard M. Clarida. "The Dollar and Real Interest Rates," Carnegie-Rochester Conference Series on Public Policy, Vol. 27, August 1987.
Abstract: In this paper, we investigate the link between the real foreign exchange value of the dollar and real interest rates since 1979. We argue that it is important to consider the possibility that real exchange rate movements reflect movements of the long-run equilibrium exchange rate as well as real interest differentials. We use a state-space approach to estimate the importance of shifts in the long-run equilibrium exchange rate, the persistence of the ex ante short-term real interest differential, and the effect of this differential on the exchange rate. Using U.S., Canadian, British, German and Japanese data from October 1979 to March 1986, we find that movements in the dollar real exchange rate have been dominated by unanticipated shifts in the expected long-run real exchange rate. Ex ante real interest differentials have not been persistent or variable enough to account for a major part of exchange rate variation. We use Mussa's (1984) rational expectations model of the real exchange rate and the current account to interpret our results.
Handle: RePEc:nbr:nberwo:2151
Template-Type: ReDIF-Paper 1.0
Title: Monopolistic Competition and Labor Market Adjustment in the Open Economy
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 2152
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2152
File-URL: http://www.nber.org/papers/w2152.pdf
File-Format: application/pdf
Publication-Status: published as Aizenman, Joshua. "Monopolistic Competition and Labor Market Adjustment in the Open Economy," in The Misalignment of Exchange Rates, ed. by Richard C . Marston, Chicago: University of Chicago Press, 1988.
Publication-Status: published as Aizenman, Joshua. "Monopolistic Competition, Relative Prices, And Output Adjustment In The Open Economy," Journal of International Money and Finance, 1989, v8(1), 5-28.
Publication-Status: published as Monopolistic Competition and Labor Market Adjustment in the Open Economy, Joshua Aizenman. in Misalignment of Exchange Rates: Effects on Trade and Industry, Marston. 1988
Abstract: This paper explains prices, output and employment adjustment In an open economy characterized by a monopolistic competitive market structure where goods prices are flexible while wages are determined by contracts that pre-set the wage path for several periods. The paper solves the rational expectation equilibrium in an economy characterized by staggered, unsynchronized wage negotiation, for which the degree of contract staggering IS endogenously determined. It investigates the adjustment of output, exchange rate and prices to nominal and real shocks, and to what extent that adjustment depends on the market power enjoyed by each producer and the substitutability between domestic and foreign goods. It also studies the potential role of indexation clauses, like wage indexation to nominal income. The analysis shows that unexpected monetary shocks can generate persistent aggregate output and relative price shocks, whose nature is determined by the degree of substitutability between domestic and foreign goods. Greater substitutability induces a greater output and employment effects and smaller prices effects in the short and the Intermediate run. On the other hand, greater substitutability is shown to reduce the persistency and duration of the adjustment. If the income elasticity of the demand for money is less than unity the presence of nominal wage contracts tends to magnify the responsiveness of the economy to real shocks, and a larger degree of substitutability will magnify the short-run and the intermediate-run adjustment of prices and output to real shocks, and will reduce the needed adjustment of relative prices.
Handle: RePEc:nbr:nberwo:2152
Template-Type: ReDIF-Paper 1.0
Title: Inflation Stabilization with Incomes Policy Support: A Review of the Experience in Argentina, Brazil and Israel
Author-Name: Rudiger Dornbusch
Author-Name: Mario Henrique Simonsen
Note: ITI IFM
Number: 2153
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2153
File-URL: http://www.nber.org/papers/w2153.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger and Mario Henrique Simonsen. "Inflation Stabilization with Incomes Policy Support," Inflation Stabilization with Incomes Policy Support, pp. 1-48. New York: Group of Thirty, 1987.
Abstract: In 1985-86 Argentina, Brazil and Israel initiated programs of stabilization after episodes of high and sharply accelerating inflation. Among the key features of each stabilization program were the use of wage- price controls, a fixed exchange rate and fiscal correction as well as a significant expansion in the nominal quantity of money. The combination of fiscal correction and incomes policy has come to be known as "heterodox" stabilization policy, thus opposing it to the conventional IHF programs which emphasize tight monetary and fiscal policies as the exclusive instrument of stabilization. The stabilization programs in Argentina and Israel have now been in force for over a year and the more recent one in Brazil for half a year. There is accordingly enough evidence to make a first judgment on the success and the limitations of these new schemes. At the same time it is worthwhile spelling out some of the special features of stabilization and the resulting intellectual case for heterodox programs. The paper focuses on the conceptual issues related to the use of incomes policy in the context of stabilization when inertia is a central feature, The analysis includes the relation between deficits and inflation, inertial inflation and the basics of monetary reform. We also review the actual stabilization experience in Argentina, Brazil and Israel. The paper concludes with a discussion of the political dimension of stabilization, showing the extraordinary political popularity of the new programs.
Handle: RePEc:nbr:nberwo:2153
Template-Type: ReDIF-Paper 1.0
Title: Specification of the Joy of Giving: Insights from Altruism
Author-Name: Andrew B. Abel
Author-Person: pab10
Author-Name: Mark Warshawsky
Note: ME
Number: 2154
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2154
File-URL: http://www.nber.org/papers/w2154.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 70, No. 1, February 1988, pp. 145- 149.
Abstract: This paper analyzes the joy of giving bequest motive in which the utility obtained from leaving a bequest depends only on the size of the bequest. It exploits the fact that this formulation can be interpreted as a reduced form of an altruistic bequest motive to derive a relation between the value of the altruism parameter and the value of the joy of giving parameter. Using previous discussions of an a priori range of plausible values for the altruism parameter we then derive plausible restrictions on the joy of giving parameter. We demonstrate that this parameter may well be orders of magnitude larger than assumed in the existing literature.
Handle: RePEc:nbr:nberwo:2154
Template-Type: ReDIF-Paper 1.0
Title: Dynamic Factor Models of Consumption, Hours, and Income
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: Ana Paula Martins
Author-Name: Aloysius Siow
Author-Person: psi13
Note: LS
Number: 2155
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2155
File-URL: http://www.nber.org/papers/w2155.pdf
File-Format: application/pdf
Publication-Status: published as Altonji, Joseph G., Ana Paula Martins and Aloysius Siow. "Dynamic Factor Models Of Consumption, Hours And Income," Research in Economics, 2002, v56(1,Mar), 3-59.
Abstract: This paper addresses two questions. First, what are the key factors that affect a consumer's lifetime budget constraint and how do they evolve over the lifecycle? Second, how do consumers respond to changes in these factors? We examine the permanent income hypothesis and the Keynesian consumption model using a dynamic factor model of consumption, hours, wages, unemployment, and income. We show that a quarterly dynamic factor model with restrictions on the lag structure nay be used with annual panel data to account for the fact that in many micro panel data sets the variables relevant to a study are measured at different time intervals and/or are aggregates for the calendar year. By using several income indicators we are able to extend the panel data studies of Hall and Mishkin and Bernanke to allow for measurement error. We are also able to study the response of income and consumption to some of the factors which determine them. In addition, we study a dynamic factor representation of a joint lifecycle model of consumption and labor supply. We provide estimates of the effect of wages, unemployment, and other income determinants on the marginal utility of income as well as estimates of the substitution effects of wage change on labor supply and consumption.
Handle: RePEc:nbr:nberwo:2155
Template-Type: ReDIF-Paper 1.0
Title: The Development of Keynesian Macroeconomics
Author-Name: Bennett T. McCallum
Note: EFG
Number: 2156
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2156
File-URL: http://www.nber.org/papers/w2156.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. "The Development of Keynesian Macroeconomics," American Economic Review, Vol. 77, No. 2, May 1987, pp. 125-129.
Abstract: This paper provides an outline of the historical development of Keynesian macroeconomics. It first argues that the business-cycle model of J.M. Keynes's General Theory featured analytical ingredients that were present in earlier writings and attained its theoretical precision only in contributions made later. Remaining sections of the paper focus on the key characteristic of Keynesian theory, namely, a postulated stickiness of nominal prices that enables aggregate demand to play a greater role in output determination than it does in flexible-price classical analysis. Three approaches that have been historically important are ones relying upon (i) equilibria conditional on given prices, (i ) algebraic Phillips-type price adjustment relations, and (iii) equilibrium analysis 'with incomplete information. The paper reviews difficulties with each of these and concludes with a discussion of relevant issues of today.
Handle: RePEc:nbr:nberwo:2156
Template-Type: ReDIF-Paper 1.0
Title: Money: Theoretical Analysis of the Demand for Money
Author-Name: Bennett T. McCallum
Author-Name: Marvin S. Goodfriend
Author-Person: pgo19
Note: ME
Number: 2157
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2157
File-URL: http://www.nber.org/papers/w2157.pdf
File-Format: application/pdf
Publication-Status: published as McCallum, Bennett T. and Marvin S. Goodfriend. "Demand for Money: Theoreticl Studies," The New Palgrave: A Dictionary of Economics, ed. by J. Eatwell, P. Newman and M. Milgate. London: The Macmillan Press and New York: Stockton Press, 1987.
Publication-Status: published as McCallum, Bennett T. and Marvin S. Goodfriend. "Theoretical Analysis Of The Demand For Money," FRB Richmond - Economic Review, 1988, v74(1), 16-24.
Abstract: This paper, prepared for the New Palgrave, attempts to summarize current mainstream views concerning the theory of money demand. A model is sketched in which a representative household is depicted as seeking to maximize utility over an infinite planting horizon, with each period's consumption and leisure appearing as arguments of the utility function. The household chooses to hold non-interest-bearing money, even in the presence of assets with positive pecuniary yields, because it facilitates transactions and thereby reduces the amount of time and/or energy required in the process of "shopping', i.e., acquiring goods to be consumed. Two distinct types of implied money-demand functions are derived: a "proper" demand function with arguments exogenous to the household and a portfolio balance relationship that is more similar in specification to the type of equation that normally appears in the money-demand literature. One section of the paper briefly reviews the historical evolution of ideas pertaining to money-demand theory, and suggests that major contributors have included Marshall, Hicks, and Sidrawki. A final section considers ongoing controversies concerning the role of uncertainty, the use of overlapping-generation and cash-in-advance approaches, and the interpretation of empirical results apparently suggestive of extremely slow portfolio adjustments.
Handle: RePEc:nbr:nberwo:2157
Template-Type: ReDIF-Paper 1.0
Title: Finite Lifetimes, Borrowing Constraints, and Short-Run Fiscal Policy
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Kenneth L. Judd
Author-Person: pju19
Note: ME
Number: 2158
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2158
File-URL: http://www.nber.org/papers/w2158.pdf
File-Format: application/pdf
Abstract: Recent developments in public finance in the analysis of dynamic government debt policies have emphasized effects on the distribution of real resources across generations. At the same time, macroeconomists have emphasized the importance of the length of the time horizon over which agents optimize their decisions about consumption for judging the effects of fiscal policy on aggregate demand. Much of the discussion of these issues has focused on whether linkages among generations are sufficient to give consumers infinite horizons. To the extent that horizons are finite, debt burdens can be shifted to future generations, and substitutions of debt for taxes have real effects. This paper argues that, as a matter of quantitative significance, theoretical and empirical emphasis on the importance of finite horizons for the analysis of many fiscal policies is misplaced. Studies of the role of finite horizons in determining the effects of short-run fiscal policies on consumption have been conducted largely under the assumption of perfect capital markets. We show that while the marginal propensity to consume (MPC) out of temporary tax changes is nonzero in finite- horizon models, it is not very large. We demonstrate that the MPC is, however, quite sensitive to the importance of restrictions on borrowing in the economy. The clear implication is that shifting emphasis from the length of the planning horizon to the structure of capital markets is an important step for empirical research.
Handle: RePEc:nbr:nberwo:2158
Template-Type: ReDIF-Paper 1.0
Title: Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Henrik Horn
Note: ITI IFM
Number: 2159
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2159
File-URL: http://www.nber.org/papers/w2159.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. CIII, No. 415, Issue 4,pp. 767-787, (November 1988).
Abstract: In industries with imperfect consumer information, the lack of a reputation puts latecomers at a competitive disadvantage vis-a-vis established firms. We consider whether the existence of such informational barriers to entry provides a valid reason for temporarily protecting infant producers of experience goods and services. Our model incorporates both moral hazard in an individual firm's choice of quality and adverse selection among potential entrants into the industry. We find that infant-industry protection often exacerbates the welfare loss associated with these market imperfections.
Handle: RePEc:nbr:nberwo:2159
Template-Type: ReDIF-Paper 1.0
Title: Keynesian, New Keynesian, and New Classical Economics
Author-Name: Bruce C. Greenwald
Author-Name: Joseph E. Stiglitz
Note: EFG
Number: 2160
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2160
File-URL: http://www.nber.org/papers/w2160.pdf
File-Format: application/pdf
Publication-Status: published as Greenwald, Bruce and Joseph E. Stiglitz. "Keynesian, New Keynesian and New Classical Economics," Oxford Economic Papers, Vol. 39, 1987, pp. 119-132.
Abstract: Much of the new theory of macro-economics that has been built upon micro-economic models of imperfect information leads to conclusions which are surprisingly close in spirit to Keynes' original analysis. This paper summarizes the macro-economic implications of information-based models of efficiency wages, credit-rationing and the breakdown of financial markets for equity-type securities. It shows how these models lead to behavior by firms and interactions among economic agents that account for many of the phenomena identified by Keynes in qualitative terms which were largely lost in subsequent formalizations of the Keynesian model. These imperfect information macro-models provide consistent theoretical explanations in the Keynesian spirit in unemployment, investment concentrated business cycles, rigid prices and the effectiveness of monetary and fiscal policy interventions. In doing so, they reconcile macro and micro-economic analysis in a way that has so far been achieved neither by the traditional Keynesians, who assumed away the micro-dimension of the problem, nor by the new classical economists who assumed away the macro-dimension of the problem.
Handle: RePEc:nbr:nberwo:2160
Template-Type: ReDIF-Paper 1.0
Title: Suing Solely to Extract a Settlement Offer
Author-Name: Lucian Arye Bebchuk
Author-Person: pbe72
Number: 2161
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2161
File-URL: http://www.nber.org/papers/w2161.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Legal Studies, vol. 17, June 1988,pp. 437-450.
Abstract: In many disputes, the expected value to the plaintiff from going to trial is negative, either because the chances of winning are small or because the litigation costs are large. While such a plaintiff would not go to trial, he might sue in the hope of extracting a settlement offer: the defendant might make such an offer if he is uncertain as to whether or not the expected value to the plaintiff of going to trial is negative. This paper seeks to identify the factors that determine: (i) whether a plaintiff who does not intend to go to trial will nonetheless succeed in extracting an offer; and (ii) how much will such a plaintiff succeed in extracting.
Handle: RePEc:nbr:nberwo:2161
Template-Type: ReDIF-Paper 1.0
Title: The Liberalization of the Current Capital Accounts and the Real ExchangeRate
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 2162
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2162
File-URL: http://www.nber.org/papers/w2162.pdf
File-Format: application/pdf
Publication-Status: published as "Tariffs, Capital Controls, and Equilibrium Real Exchange Rates." From Canadian Journal of Economics, Vol. 22, No. 1, pp. 79-92, (February 1989).
Abstract: In this paper a general equilibrium intertemporal model with optimizing consumers and producers is developed to analyze how different policies geared at liberalizing the current and capital accounts of the balance of payments affect the equilibrium real exchange rate (RER). In particular, the effects of a reduction in the level of import tariffs and of a change in the tax on foreign borrowing on the equilibrium RER are investigated. In the case of import tariffs, both a temporary and an anticipated liberalization are considered. It is shown that in the case of tariffs reduction it is not possible to know a priori whether the equilibrium RER will appreciate or depreciate. However, a liberalization of the capital account will always result in an equilibrium real appreciation in the current period. It is then argued that analyses of this type are essential to evaluate whether observed movements in the RER represent a misalignment situation or if they are an equilibrium phenomenon. The case of the recent liberalization attempts in the Southern Cone are also discussed.
Handle: RePEc:nbr:nberwo:2162
Template-Type: ReDIF-Paper 1.0
Title: The International Monetary System: Should it be Reconsidered?
Author-Name: Jacob A. Frenkel
Note: ITI IFM
Number: 2163
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2163
File-URL: http://www.nber.org/papers/w2163.pdf
File-Format: application/pdf
Publication-Status: published as Frenkel, Jacob A. "The International Monetary System: Should It Be Reformed?" American Economic Review, Vol. 77, No. 2, (May 1987), pp. 205-210.
Abstract: This paper addresses the question of reform of the international monetary system. It starts by identifying the sources of disenchantment with the performance of the present regime of floating exchange rates and by outlining the reasons for the lack of convergence of views about the characteristics of the desired system. A central theme in the discussion is that a reform of the monetary system without a fundamental change in macroeconomic policies may be harmful. The analysis proceeds by examining the broader issues and principles relevant for an evaluation of reform. The key questions are: what should be reformed, what are the costs of reform and when should the reform occur. In this context special attention is given to the "target-zones" proposal for exchange rate management. The paper concludes with the observation that a reform of the system should not be viewed as an instrument for crisis management dominated by short-term considerations, but rather should be guided by long-term perspective. It is argued that if the root cause of the current economic difficulties is fiscal imbalances in the world economy, then a drastic reform of the international monetary system (if one is needed) might better wait until nations restore a more sustainable course of fiscal management.
Handle: RePEc:nbr:nberwo:2163
Template-Type: ReDIF-Paper 1.0
Title: Macro-Economic Equilibrium and Credit Rationing
Author-Name: Joseph E. Stiglitz
Author-Name: Andrew Weiss
Note: EFG
Number: 2164
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2164
File-URL: http://www.nber.org/papers/w2164.pdf
File-Format: application/pdf
Publication-Status: published as Stiglitz, Joseph E. and Andrew Weiss. "Keynesian, New Keynesian and New Classical Econmics," Oxford Economic Papers, Vol. 39, 1987, pp. 119-132.
Abstract: In this paper we investigate the macro-economic equilibria of an economy in which credit contracts have both adverse selection and incentive effects. The terms of credit contracts include both an interest rate and a collateral requirement. We show that in this richer model all types of borrowers may be rationed. Interest rates charged borrowers may move either pro or counter-cyclically. If pro-cyclical shocks have a greater effect on the success probabilities of risky techniques than on safe ones, then the interest rate offered depositors may also move counter-cyclically. Finally, we show that the impact of monetary policy on the macro-economic equilibrium is affected by whether or not the economy is in a regime in which credit is rationed.
Handle: RePEc:nbr:nberwo:2164
Template-Type: ReDIF-Paper 1.0
Title: Project Appraisal and Foreign Exchange Constraints: A Simple Exposition
Author-Name: Charles R. Blitzer
Author-Name: Partha Dasgupta
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 2165
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2165
File-URL: http://www.nber.org/papers/w2165.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal, Vol. 91, no. 361 (1981): 58-74.
Abstract: In an earlier paper, we showed that the value of shadow prices depends on how the government contemplates re- equilibrating the economy to the perturbation associated with any project, except in the extreme case where the government has chosen all policy instruments optimally. Only under restrictive conditions will relative shadow prices for traded goods equal relative international prices. We develop here a general methodology for calculating shadow prices, which expresses the prices as a weighted average of domestic and international prices. The formulae provide the conditions under which the border price rule is valid. For instance, so long as there are non-traded goods, even if the government leaves tariffs unchanged (so that relative domestic prices of traded goods remain unchanged), unless the government completely neutralizes the induced change in domestic income, there will be changes in the prices of non-traded goods. These will preclude the use of the border price rule.
Handle: RePEc:nbr:nberwo:2165
Template-Type: ReDIF-Paper 1.0
Title: Central Policies for Local Debt: The Case of Teacher Pensions
Author-Name: Robert P. Inman
Author-Name: David J. Albright
Note: PE
Number: 2166
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2166
File-URL: http://www.nber.org/papers/w2166.pdf
File-Format: application/pdf
Publication-Status: Published as "Appraising the Funding Status of Teacher Pensions: An Econometric Approach", NTJ, Vol. 39, no. 1 (1986): 21-34.
Abstract: The recent debt crises in New York City and Cleveland, the deterioration of public infra-structures in certain of our states and larger cities, and the occasional bankruptcy of smaller pension plans suggest that not all of local finance stands on a sound fiscal base. This paper examines the trends in funding for one form of state and local government debt--teacher pensions underfundings -- and asks what a central government might do to check any unwanted growth in these liabilities. The analysis concludes (i) that this form of state-local debt is sizeable and growing, (ii) that state and local governments have an implicit pay-as-you-go bias in pension financing which encourages the growth of debt, but (iii) central government benefit and funding regulations or debt relief policies can slow, or even reverse, that growth.
Handle: RePEc:nbr:nberwo:2166
Template-Type: ReDIF-Paper 1.0
Title: Validating Hiring Criteria
Author-Name: Andrew Weiss
Author-Name: Henry Landau
Note: LS
Number: 2167
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2167
File-URL: http://www.nber.org/papers/w2167.pdf
File-Format: application/pdf
Abstract: We construct a model in which firms use workers' productivities in determining their job assignments. A worker's productivity must exceed some lower bound to satisfy the minimum qualifications for a particular job. If the worker's productivity exceeds some upper bound he is promoted. Under these conditions it is possible that the better educated and more experienced individuals would be the least productive workers on every job, even though, for each worker, education and experience increases his productivity. Whether this anomalous result occurs depends on the underlying distribution of ability in the population and the job assignment policy delineated above. One implication of our analysis is that firms that use hiring criteria that accurately predict a worker's success on the job may not be able to validate those criteria through measurements of the performance of the workers that they had hired. EEOC rules that require hiring criteria to be validated in that fashion may penalize firms with the most efficient hiring and promotion standards.
Handle: RePEc:nbr:nberwo:2167
Template-Type: ReDIF-Paper 1.0
Title: Stock Market Prices Do Not Follow Random Walks: Evidence From a Simple Specification Test
Author-Name: Andrew W. Lo
Author-Person: plo171
Author-Name: A. Craig MacKinlay
Note: ME
Number: 2168
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2168
File-URL: http://www.nber.org/papers/w2168.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Financial Studies, Vol. 1, No. 1, pp. 41-66, (1988).
Abstract: In this paper, we test the random walk hypothesis for weekly stock market returns by comparing variance estimators derived from data sampled at different frequencies. The random walk model is strongly rejected for the entire sample period (1962-1985) and for all sub-periods for a variety of aggregate returns indexes and size-sorted portfolios. Although the rejections are largely due to the behavior of small stocks, they cannot be ascribed to either the effects of infrequent trading or time-varying volatilities. Moreover, the rejection of the random walk cannot be interpreted as supporting a mean-reverting stationary model of asset prices, but is more consistent with a specific nonstationary alternative hypothesis.
Handle: RePEc:nbr:nberwo:2168
Template-Type: ReDIF-Paper 1.0
Title: Permanent and Transitory Components in Macroeconomic Fluctuations
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: N. Gregory Mankiw
Note: EFG
Number: 2169
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2169
File-URL: http://www.nber.org/papers/w2169.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, John and N. Gregory Mankiw. "American Economic Review, Vol. 77, No. 2, May 1987, pp. 111-117.
Abstract: Fluctuations in real GNP have traditionally been viewed as transitory deviations from a deterministic time trend. The purpose of this paper is to review some of the recent developments that have led to a new view of output fluctuations and then to provide some additional evidence. Using post-war quarterly data, it is hard to reject the view that real GNP is as persistent as a random walk with drift. We also consider the hypothesis that the recent finding of persistence are due to the failure to distinguish the business cycle from other fluctuations in real GNP. We use the measured unemployment rate to decompose output fluctuations. We find no evidence for the view that business cycle fluctuations are more quickly trend-reverting.
Handle: RePEc:nbr:nberwo:2169
Template-Type: ReDIF-Paper 1.0
Title: Alternative Compensation Arrangements and Productive Efficiency in Partnerships: Evidence from Medical Group Practice
Author-Name: Martin Gaynor
Author-Person: pga1
Author-Name: Mark Pauly
Note: EH
Number: 2170
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2170
File-URL: http://www.nber.org/papers/w2170.pdf
File-Format: application/pdf
Publication-Status: published as "Compensation and Productive Efficiency in Partnerships: Evidence from Medical Group Practice." From Journal of Political Economy, Vol. 98, No. 3, pp. 544-573, (June 1990).
Abstract: Although the role of the services sector in the economy has grown increasingly large, and partnerships are a prevalent form of organization in this sector, relatively little is known about the behavior and performance of these firms. In this paper an attempt is made to fill that gap by developing and testing a model of the effect of alternative compensation arrangements on productive efficiency in medical group practices. The technique employed is two-stage production frontier estimation. This technique provides direct estimates of productive efficiency and allows for differences across agents in ability or responsiveness to financial incentives. In the frontier literature productive efficiency is assumed to be exogenously given. In this paper it is determined endogenously, thus a simple econometric technique correcting for this endogeneity in estimating the production frontier is employed. In addition, the measures of efficiency themselves can be made dependent variables for explicit econometric analysis of the determinants of efficiency. Overall, the empirical results are consistent with theoretical work on internal theory of the firm, which predicts that productivity compensation schemes will work well for firms with non-joint production and observable output. These two criteria are met by medical group practices. The treatment of measured efficiency as an endogenous variable is unique and allows some interesting insights into the determinants of productive efficiency. We find that relating compensation to productivity does increase the quantity and efficiency of production, as theory has hypothesized. The number of members in a group decreases both the quantity produced and the efficiency with which that output is produced. Experience does lead to greater productivity and efficiency. Medical groups in general are measured as being no less efficient than an average manufacturing firm, but Health Maintenance Organizations are less efficient than average.
Handle: RePEc:nbr:nberwo:2170
Template-Type: ReDIF-Paper 1.0
Title: Are Prices Too Sticky?
Author-Name: Laurence M. Ball
Author-Person: pba605
Author-Name: David Romer
Author-Person: pro406
Note: EFG
Number: 2171
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2171
File-URL: http://www.nber.org/papers/w2171.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. 104, Issue 3, pp. 507-524,(August 1989).
Abstract: This paper shows that small costs of changing nominal prices can lead to rigidities that cause highly inefficient fluctuations in real variables. As a result, aggregate demand stabilization can be very desirable even though the frictions that cause fluctuations in aggregate demand to have real effects are slight. Inefficient price rigidity arises because rigidity has a negative externality: rigidity in one firm's price increases the variability of real aggregate demand, which hurts all firms. The externality can be arbitrarily large relative to the private costs of rigidity.
Handle: RePEc:nbr:nberwo:2171
Template-Type: ReDIF-Paper 1.0
Title: Public Debt Guarantees and Private Capital Flight
Author-Name: Jonathan Eaton
Author-Person: pea5
Note: ITI IFM
Number: 2172
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2172
File-URL: http://www.nber.org/papers/w2172.pdf
File-Format: application/pdf
Publication-Status: published as Eaton, Jonathan. "Public Debt Guarantees and Private Capital Flight," The World Bank Economic Review, Vol. I, No. 3, pp. 377-395. (1987)
Abstract: Significant amounts of private capital have flowed out of several of the more heavily indebted developing countries. This outflow, often called "capital flight ," largely escapes taxation by the borrowing-country government, and has generated concern about the prospects for future servicing of the debt. Imperfect contract enforcement may lead to implicit or explicit government guarantee of foreign debt. The model developed below demonstrates that a government policy of guaranteeing private debt can, in turn, generate more than one outcome. One such outcome replicates the allocation under perfect contract enforcement: national savings is invested domestically and foreign debt is repaid. The tax obligation implied by potential nationalization of private debt, however, can also lead to another outcome in which national capital flees and foreign debt may not be repaid.
Handle: RePEc:nbr:nberwo:2172
Template-Type: ReDIF-Paper 1.0
Title: Measuring the Effect of Subsidized Training Programs on Movements In andOut of Employment
Author-Name: David Card
Author-Person: pca271
Author-Name: Daniel Sullivan
Author-Person: psu257
Note: LS
Number: 2173
Creation-Date: 1987-02
Order-URL: http://www.nber.org/papers/w2173
File-URL: http://www.nber.org/papers/w2173.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 56, (May 1988).
Abstract: We present a variety of alternative estimates of the effect of training on the probability of employment for adult male participants in the 1976 Comprehensive Employment and Training Act (CETA) program. Our results suggest that CETA participation increased the probability of employment in the three years after training by from 2 to 5 percentage points. Classroom training programs appear to have had significantly larger effects than on-the--job programs, although the estimated effects of both kinds of programs are consistently positive. We also find that movements in and out of employment for the trainees and a control group of nonparticipants are reasonably well described by a first-order Markov process, conditional on individual heterogeneity. In the context of this model, CETA participation appears to have increased both the probability of moving into employment, and the probability of continuing employment.
Handle: RePEc:nbr:nberwo:2173
Template-Type: ReDIF-Paper 1.0
Title: Optimal Liability when the Injurer's Information about the Victim's Loss is Imperfect
Author-Name: A. Mitchell Polinsky
Author-Person: ppo94
Note: LE
Number: 2174
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2174
File-URL: http://www.nber.org/papers/w2174.pdf
File-Format: application/pdf
Publication-Status: published as Polinsky, A. Mitchell "Optimal Liability when the Injurer's Information about the Victim's Loss is Imperfect," International Review of Law and Economics, Vol. 7, No. 2, pp. 139-147, (December 1987).
Abstract: A central result in the economic theory of liability is that, if an injurer's liability equals the victim's loss, then either the rule of strict liability or the rule of negligence can induce the injurer to behave properly. However, for this result to hold, the injurer must know the victim's loss before the injurer decides whether to engage in the harmful activity and, g fortiori, before any harm has occurred. This paper reevaluates the rules of strict liability and negligence when the injurer's information is imperfect. Two questions are addressed: Under each rule, should the level of liability imposed on the injurer still equal the victim's loss? Are the rules of strict liability and negligence still equally desirable? With respect to the first question, it is demonstrated that the optimal level of liability generally is not equal to the victim's loss. With respect to the second question, it is shown that if the injurer's liability equals the victim's loss, then the two rules are equivalent, but if liability is set optimally under each rule, then strict liability generally induces the injurer to behave in a more appropriate way.
Handle: RePEc:nbr:nberwo:2174
Template-Type: ReDIF-Paper 1.0
Title: Tariffs, Terms of Trade, and the Real Exchange Rate in an Intertemporal Optimizing Model of the Current Account
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 2175
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2175
File-URL: http://www.nber.org/papers/w2175.pdf
File-Format: application/pdf
Publication-Status: published as and the Current Account", Economica, Vol. 56, no. 223 (1989): 343-358.
Publication-Status: published as (With J. Ostry) Published as "Anticipated Protectionist Policies, Real Exchange Rates, and the Current Account: The Case of Rigid Wages",Journal of International Money and Finance, Vol. 9, no. 2 (1990). Published as "Temporary Terms-to-Trade Disturbances, the Real Exchange Rate
Abstract: In this paper a minimal general equilibrium intertemporal model, with optimizing consumers and producers, is developed to analyze the process of real exchange rate determination. The model is completely real, and considers a small open economy that produces and consumes three goods each period. The model is also used to analyze the way in which the current account responds to several shocks. The working of the model is illustrated for the case of two disturbances: the imposition of import tariffs, and external terms of trade shocks. In the case of import tariffs, a distinction is made between temporary, anticipated, and permanent changes. It is shown that, without imposing rigidities or adjustment costs, interesting paths for the equilibrium real exchange rate can be generated. In particular "overshooting" and movements in opposite directions in periods one and two can be observed. Precise conditions under which temporary import tariffs will improve the current account are derived. Finally, several ways in which the model can be extended to take into account other issues such as changes in the fiscal deficit, and financial deregulation are discussed in detail.
Handle: RePEc:nbr:nberwo:2175
Template-Type: ReDIF-Paper 1.0
Title: Carrots and Sticks: Pay, Supervision and Turnover
Author-Name: Jonathan S. Leonard
Author-Person: ple190
Note: LS
Number: 2176
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2176
File-URL: http://www.nber.org/papers/w2176.pdf
File-Format: application/pdf
Publication-Status: published as Leonard, Jonathan S. "Carrots and Sticks: Pay, Supervision and Turnover," Journal of Labor Economics, Vol. 5, No. 4, Part 2, October 1987, pp. 5136-5 152.
Abstract: Large and persistent differences across industries in wages paid for given occupations have commonly been observed. Recently, the efficiency wage model (EWM) has been advanced as an explanation for these wage differentials. The shirking version of the EWM assumes a trade-off between self-supervision and external supervision. The turnover version assumes turnover is costly to the firm. Variation across firms in the cost of monitoring/shirking or turnover then are hypothesized to account for wage variation across firms for homogeneous workers. This paper presents empirical evidence of the trade-off of wage premiums for supervisory intensity and turnover. A new sample of 200 firms in one sector in one state in 1982 is analyzed. Little evidence is found to support either version of EWM. The substantial variation in wages for narrowly defined occupations across firms remains largely unexplained.
Handle: RePEc:nbr:nberwo:2176
Template-Type: ReDIF-Paper 1.0
Title: Currency Incontrovertibility, Trade Taxes and Smuggling
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Note: ITI IFM
Number: 2177
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2177
File-URL: http://www.nber.org/papers/w2177.pdf
File-Format: application/pdf
Publication-Status: published as Macedo, Jorge Braga de. "Currency Incontrovertibility, Trade Taxes and Smuggling," Journal of Developmental Economics. Volume: 27, Issue: 1-2 (October 1987)
Abstract: In the classic analysis of smuggling importers choose the optimal mix of legal and illegal trade, given trade taxes and the technology of detection. This paper introduces an inconvertible currency in the framework, so that illegal trade is valued at a rate higher than the (fixed) official exchange rate. Sections 1 and 2 show how the smuggling ratio and the domestic price markup for the import and export good are simultaneously determined. With balanced legal and illegal trade, changes in the (long-run) black market premium are a weighted average of changes in trade taxes, whereas changes in the smuggling ratios depend on the ratio of trade taxes. Thus, an import tariff and an export subsidy rising at the same rate would keep smuggling ratios constant but imply a rising black market premium (section 3 and 4). To determine the quantity of exports and imports, a model of the economy is presented in section 5, featuring the production of exports and non-traded goods and the consumption of imports and non-traded goods, as well as a government confiscating the amounts of traded goods unsuccessfully smuggled. Then export production may fall, and welfare may rise, if trade taxes have a negative effect on the relative price of exports and imports stronger than the positive effect on smuggled exports and imports, which is always welfare-reducing. Section 6 introduces the short-run determination of the black market premium via portfolio balance. In this case, rising rade taxes may be associated with a premium rising even faster if there is unreported capital flight and conversely.
Handle: RePEc:nbr:nberwo:2177
Template-Type: ReDIF-Paper 1.0
Title: The Theory and the Facts of How Markets Clear: Is Industrial Organization Valuable for Understanding Macroeconomics?
Author-Name: Dennis W. Carlton
Author-Person: pca14
Note: EFG
Number: 2178
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2178
File-URL: http://www.nber.org/papers/w2178.pdf
File-Format: application/pdf
Publication-Status: published as Schmalensee, Richard and Robery D. Willig (eds.) Handbook of Industrial Organization, Volume 1. Amsterdam: North-Holland, 1989.
Abstract: This paper examines what industrial organization economists know and don't know about how markets clear. It reviews the empirical evidence which shows that, at least for some industries, price behavior is peculiar with prices failing to adjust over long periods of time. The paper discusses several existing theoretical explanations for the peculiar behavior such as fixed cost to changing price information asymmetries and theories of dynamic oligopoly. The paper goes on to develop some new theories to explain the observed behavior. The new explanations rely heavily on the importance of a seller's knowledge of his customers and on the optimality of non-price rationing. The paper discusses what relation, if anything, macroeconomics has to industrial organization.
Handle: RePEc:nbr:nberwo:2178
Template-Type: ReDIF-Paper 1.0
Title: Economic Liberalization and the Equilibrium Real Exchange rate in Developing Countries
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 2179
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2179
File-URL: http://www.nber.org/papers/w2179.pdf
File-Format: application/pdf
Publication-Status: published as Debt, Stabilization & Development, edited by Guillermo Calvo et al, pp. 163-184. Oxford: Basil Blackwell Ltd., 1989.
Abstract: This paper deals with the relation between commercial policy and "the" equilibrium real exchange rate. The paper clarifies the meaning of real exchange rate by comparing five different definitions that are currently found in the literature, The analysis focuses on the effects of an economic liberalization program that reduces import tariffs on the equilibrium real exchange rate under a number of alternative assumptions regarding capital mobility. From a policy perspective this is an important issue, since countries that embark on liberalization are usually concerned with avoiding real exchange rate misalignment and overvaluation. The effects of terms of trade shocks on the equilibrium real exchange rate are also investigated.
Handle: RePEc:nbr:nberwo:2179
Template-Type: ReDIF-Paper 1.0
Title: The Revenues-Expenditures Nexus: Evidence from Local Government Data
Author-Name: Douglas Holtz-Eakin
Author-Name: Whitney K. Newey
Author-Person: pne241
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 2180
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2180
File-URL: http://www.nber.org/papers/w2180.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Vol. 30, No. 2, pp. 415-429, (May 1989).
Abstract: This paper examines the intertemporal linkages between local government expenditures and revenues. In the terminology that has become standard in the literature on vector autoregression analysis, the issue is whether revenues Granger-cause expenditures, or expenditures Granger-cause revenues. The main results that emerge from an analysis of fiscal data from 171 municipal governments over the period 1972-1980 are that: 1) one or two years are sufficient to summarize the relevant dynamic interrelationships; 2) there are important intertemporal linkages between expenditures, taxes and grants; and 3) past revenues help predict current expenditures, but past expenditures do not alter the future path of revenues. This last finding is contrary to results that have emerged from previous analyses of federal fiscal data, and hence suggests the need for additional research on the differences in the processes generating local and federal decisions.
Handle: RePEc:nbr:nberwo:2180
Template-Type: ReDIF-Paper 1.0
Title: Estimating Models with Intertemporal Substitution Using Aggregate Time Series Data
Author-Name: Martin S. Eichenbaum
Author-Person: pei4
Author-Name: Lars Peter Hansen
Author-Person: pha303
Note: EFG
Number: 2181
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2181
File-URL: http://www.nber.org/papers/w2181.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business & Economic Statistics, Vol. 8, No. 1, pp. 53-69, (January 1990).
Abstract: In conducting empirical investigations of the permanent income model of consumption and the consumption-based intertemporal asset pricing model, various authors have imposed restrictions on the nature of the substitutability of consumption across goods and over time. In this paper we suggest a method for testing some of these restrictions and present empirical results using this approach. Our empirical analyses focuses on three questions: (i) Can the services from durable and nondurable goods be treated as perfect substitutes? (ii) Are preferences completely separable between durable and nondurable goods? (iii) What is the nature of intertemporal substitutability of nondurable consumption? When consumers' preferences are assumed to be quadratic, there is very little evidence against the hypothesis that the services from durable goods and nondurable goods are perfect substitutes. These results call into question the practice of testing quadratic models of aggregate consumption using data on nondurables and services only. When we consider S branch specifications, we find more evidence against perfect substitutability between service flows, but less evidence against strict separability across durable and nondurable consumption goods. Among other things, these findings suggest that the empirical shortcomings of the intertemporal asset pricing model cannot be attributed to the neglect of durable goods.
Handle: RePEc:nbr:nberwo:2181
Template-Type: ReDIF-Paper 1.0
Title: High Tech Trade Policy
Author-Name: Kala Krishna
Author-Person: pkr26
Note: ITI IFM
Number: 2182
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2182
File-URL: http://www.nber.org/papers/w2182.pdf
File-Format: application/pdf
Publication-Status: published as Krishna, Kala. "High Tech Trade Policy," Issues in US - EC Trade Relations,ed. by R. Baldwin, C. Hamilton and A. Sapir. Chicago: UCP, 1988.
Publication-Status: published as High-Tech Trade Policy, Kala Krishna. in Issues in US-EC Trade Relations, Baldwin, Hamilton, and Sapir. 1988
Abstract: This paper analyzes the role of network externalities and expectations about them in the formulation of trade policy. Their effects are studied in duopoly situations when products are compatible and when they are incompatible and when multimarket effects are possible. Network externalities and expectations regarding the size of the network affect optimal trade policy in three ways. First, the presence of expectations effects creates a role for 'policy if. there are differences between the way the externalities operate and expectations about how they operate. Second, when goods are compatible, the existence of network externalities can cake goods complementary which reverses the direction of optimal policy. .Third, since multimarket effects occur naturally with network externalities and compatible products, purely domestic policies, which are legal under GATT, can have international profit shifting effects which may be in the national 'interest.
Handle: RePEc:nbr:nberwo:2182
Template-Type: ReDIF-Paper 1.0
Title: Can People Compute? An Experimental Test of the Life Cycle Consumption Model
Author-Name: Stephen Johnson
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: William Samuelson
Note: PE AG
Number: 2183
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2183
File-URL: http://www.nber.org/papers/w2183.pdf
File-Format: application/pdf
Publication-Status: published as Kotlikoff, Laurence J. (ed.) Essays on Saving, Bequests, Altruism, and Life-Cycle Planning. MIT Press, 2001.
Abstract: This paper presents the results of an experimental study of the life cycle model in which subjects were asked to make preferred consumption choices under hypothetical life cycle economic conditions. The questions in the experiment are designed to test the model's assumption of rational choice and to elicit information about preferences. The subjects' responses suggest a widespread inability to make coherent and consistent consumption decisions. Errors in consumption decision-making appear to be very substantial and, in many cases, systematic. In addition, the experiment's data strongly reject the standard homothetic, time-separable life cycle model. The principal specific findings of the laboratory experiment are: (1) Subjects displayed significant inconsistencies in their consumption decisions; each of the subjects, in at least two pairs of economically identical situations, chose consumption values that differed by 20 percent or more. From the perspective of the standard life cycle model, error in decision-making accounts, on average, for roughly half of the variation in consumption. (2) A sizeable fraction of subjects undervalued future earnings relative to present assets; i.e., they systematically overdiscounted future earnings. (3) Almost all subjects exhibited oversaving behavior, apparently because they underestimated the power of compound interest. (4) The hypothesis that intertemporal consumption preferences are uniform across individuals is strongly rejected. Indeed, the demographic characteristics of subjects are significant determinants of consumption choice in the experiment.
Handle: RePEc:nbr:nberwo:2183
Template-Type: ReDIF-Paper 1.0
Title: Factors Affecting the Output and Quit Propensities of Production Workers
Author-Name: Roger Klein
Author-Name: Richard H. Spady
Author-Name: Andrew Weiss
Note: LS
Number: 2184
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2184
File-URL: http://www.nber.org/papers/w2184.pdf
File-Format: application/pdf
Publication-Status: published as Klein, Roger, Richard H. Spady, and Andrew Weiss. "Factors Affecting the Output and Quit Propensities of Production Workers," The Review of Economic Studies, Vol. 58, no. 5 (October 1991), pp. 929-953.
Abstract: We have used a proprietary data set of newly hired semi-skilled production workers at one location of a large unionized firm to investigate several issues in labor economics. This data set is unique in several respects: the workers in our sample faced the same wage schedules, had the same promotional opportunities, the same job tenure (zero), similar working conditions, and had jobs for which we were able to record their physical output. We analyze these data by formulating a simultaneous equation model to explain wages, output, education, and a worker's quit decision. The model is estimated by maximum likelihood and subjected to a variety of specification tests. Such tests include a comparison of the standard error estimates that form the basis for White's information test, and White's version of a Hausman specification test. Our principal findings are: 1. Individuals that choose more education than we would expect from their observed characteristics have lower than expected quit propensities. We argue that this low quit propensity is one of the unmeasured (and unobserved) attributes that sorting models posit are correlated with education and hence distort the usual estimates of rates of return to education. 2. The performance of non-whites in our sample was no lower than that of whites. However, on their previous jobs non-whites received lower wages than did whites. 3. The output per hour of males in our sample was higher than that of females; however, we were unable to conclude from our data whether these productivity differences could explain the higher wages received by men on their previous jobs. Moreover, this output difference may be transitory and may diminish with on-the-job learning. 4. The expected value of alternative wages had a positive (but not statistically very significant) effect on quit rates. Workers with better alternative opportunities were more likely to quit (all workers had the same opportunities on their current job). 5. Finally we found that workers with high output levels were more likely to quit than were workers with average output levels.
Handle: RePEc:nbr:nberwo:2184
Template-Type: ReDIF-Paper 1.0
Title: Hiring Procedures in the Firm: Their Economic Determinants and Outcomes
Author-Name: Harry J. Holzer
Author-Person: pho162
Note: LS
Number: 2185
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2185
File-URL: http://www.nber.org/papers/w2185.pdf
File-Format: application/pdf
Publication-Status: published as Holzer, Harry J. "Hiring Procedures in the Firm: Their Economic Determinants and Outcomes," Human Resources and Firm Performance, ed. by Richard Block, et. al. Industrial Relations Research Association, 1987.
Abstract: This paper presents an economic analysis of recruitment and screening procedures chosen by firms as they hire new workers. After reviewing the relevant literature within the labor economics and human resources fields, I outline an employer search model in which firms choose hiring procedures as well as reservation productivity levels. The outcomes determined by these choices (e-g., expected vacancy durations, expected worker productivity and characteristics, and total resources devoted to hiring) are considered as well. I then present some empirical evidence on the determinants and outcomes of hiring procedures from a survey of firms. Among other things, the results show some evidence of higher productivity and lower turnover among those hired through referrals from current employees. Total time spent on hiring when using these referrals is also shown to be lower than when other methods are used. However, those hired through these referrals are less likely to be young or female than are those hired through other methods. The implications of these findings for "efficiency" and "equity" considerations are then discussed.
Handle: RePEc:nbr:nberwo:2185
Template-Type: ReDIF-Paper 1.0
Title: New Directions in the Relationship Between Public and Private Debt
Author-Name: Benjamin M. Friedman
Note: ME
Number: 2186
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2186
File-URL: http://www.nber.org/papers/w2186.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. "New Directions in the Relation Between Public and Private Debt." Science, Vol. 236, No. 4800, (April 24, 1987), pp. 397-403.
Abstract: Until the 1980s the outstanding indebtedness of government and private-sector borrowers in the United States exhibited sufficient negative covariation that total outstanding debt remained steady relative to nonfinancial economic activity. Three hypotheses -- one based on lenders' behavior, one on borrowers? behavior, and one on credit market institutional arrangements -- provide potential explanations for this phenomenon. Since 1980 the U.S. debt markets have departed from these previously prevailing patterns, however, as both government and private borrowing have risen sharply.
Handle: RePEc:nbr:nberwo:2186
Template-Type: ReDIF-Paper 1.0
Title: Existing Estimates, New Estimates, and New Interpretations of World War I and its Aftermath
Author-Name: Christina D. Romer
Author-Person: pro407
Note: EFG
Number: 2187
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2187
File-URL: http://www.nber.org/papers/w2187.pdf
File-Format: application/pdf
Publication-Status: published as Romer, C. "World War I and the Postwar Depression: A Reinterpretation Based on Alternative Estimates of GNP," Journal of Monetary Economics, Vol. 22 , No. 1, July 1988, pp. 91-115.
Abstract: The paper examines the official Commerce Department estimates of gross national product for 1909-1928 and finds that they are far inferior to the less commonly used Kendrick GNP estimates. The paper then derives a revised version of the Kendrick series that alters significantly the representation of annual movements in the Kendrick series before 1919. This endorsement of a revised Kendrick GNP series in place of the official Commerce Department estimates before 1929 suggests new interpretations of the effect of World War I on the American economy and the nature and cause of the depression of 1921.
Handle: RePEc:nbr:nberwo:2187
Template-Type: ReDIF-Paper 1.0
Title: Money, Imperfect Information and Economic Fluctuations
Author-Name: Bruce Greenwald
Author-Name: Joseph E. Stiglitz
Note: EFG
Number: 2188
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2188
File-URL: http://www.nber.org/papers/w2188.pdf
File-Format: application/pdf
Publication-Status: published as Kohn, Meir and Sho-Chieh Tsiang (eds.) Finance constraints, expectations, and macroeconomics. Oxford; New York; Toronto and Melbourne: Oxford University Press, Clarendon Press, 1988.
Abstract: This paper summarizes the macro-economic and, in particular, monetary and financial market implications of recent developments in the micro-economic theory of imperfect information. These micro-economic models which lead to credit-rationing on the one hand and limitations in the availability of equity type financing on the other can account for a wide range of observed business cycle and monetary phenomena. These include (a) unemployment, (b) the existence of Keynesian-type multiples, (c) the observed lack of production smoothing in response to cyclical fluctuations in demand, (d) the impact of monetary policy on business activity despite the absence of significant changes in real interest rates, and (e) price rigidities which arise from rational firm decisions (not as an a priori assumption).
Handle: RePEc:nbr:nberwo:2188
Template-Type: ReDIF-Paper 1.0
Title: Pareto Efficient and Optimal Taxation and the New New Welfare Economics
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 2189
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2189
File-URL: http://www.nber.org/papers/w2189.pdf
File-Format: application/pdf
Publication-Status: published as Stiglitz, Joseph. "Pareto Efficient and Optimal Taxation and the New New Welfare Economics." From Handbook of Public Economics, edited by Alan J. Auerbach and Martin Feldstein, pp. 991-1042. Amsterdam: Elsevier Science Publishers B.V. (North-Holland), 1987.
Abstract: This paper surveys recent developments in the theory of pareto efficient taxation. This literature attempts to characterize those tax structures which, given the limitations on the government's information and other limitations on the government's ability to impose taxes, maximize the welfare of one individual (group of individuals) subject to the government obtaining a given revenue and subject to other (groups of) individuals attaining certain specified levels of utility. Utilitarian (or other) social welfare functions can then be used to select among these pareto efficient tax structures. While the original goal of this line of research, which was to provide a "scientific" basis for arguing for a progressive tax structure, has not been achieved--and does not seem achievable--important insights have been gleaned, which should enable governments to make better choices of tax policies in the future. On the other hand, this research has cast serious doubt on the relevance of many long standing results, including those of Ramsey concerning the structure of commodity taxes.
Handle: RePEc:nbr:nberwo:2189
Template-Type: ReDIF-Paper 1.0
Title: International Competition in the Products of U.S. Basic Industries
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 2190
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2190
File-URL: http://www.nber.org/papers/w2190.pdf
File-Format: application/pdf
Publication-Status: published as Eichengreen, Barry. "International Competition in the Products of U.S. Basic Industries," The United States in the World Economy, ed. by Martin Feldstein, pp. 279-353. Chicago: University of Chicago Press, 1988.
Publication-Status: published as International Competition in the Products of U.S. Basic Industries, Barry Eichengreen, Charles W. Parry, Philip Caldwell. in The United States in the World Economy, Feldstein. 1988
Abstract: This paper provides an overview of recent trends in the U.S. basic industries. It first documents the dramatic fall in their shares of domestic employment and global production. It then considers explanations for these industries' relative -- and, in some instances, absolute -- decline. Those explanations fall into two categories: domestic explanations which focus on the decisions of labor, management and government, and international explanations which focus on the tendency of the product cycle to continually shift the production of established products and standardized processes to newly-industrializing countries. This review suggests that the recent difficulties of the U.S. basic industries have resulted not from one or the other of these factors but from their interplay. Insofar as product-cycle-based shifts in the international pattern of comparative advantage have contributed to recent difficulties, some decline in the U.S. basic industries is both inevitable -- barring increased protection -- and justifiable on efficiency grounds. Insofar as labor, management and government decisions share responsibility, the recent difficulties of U.S. basic industries may be at least partially reversible.
Handle: RePEc:nbr:nberwo:2190
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Takeover Activity on Corporate Research and Development
Author-Name: Bronwyn H. Hall
Author-Person: pha54
Note: PR
Number: 2191
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2191
File-URL: http://www.nber.org/papers/w2191.pdf
File-Format: application/pdf
Publication-Status: published as Hall, Bronwyn H. "The Effect of Takeover Activity on Corporate Research and Development," Corporate Takeovers: Causes and Consequences, ed. Alan J. Auerbach, Chicago: UCP, 1988.
Publication-Status: published as The Effect of Takeover Activity on Corporate Research and Development, Bronwyn H. Hall. in Corporate Takeovers: Causes and Consequences, Auerbach. 1988
Abstract: It is widely thought that increases in corporate mergers and acquisitions of the sort which the United States has experienced in the recent past lead to a reduction in such long term investment activities as R&D because of a shortened horizon on the part of managers. This paper uses a newly created dataset containing all acquisitions of publicly traded firms in the manufacturing sector in the last ten years to answer some basic questions which pertain to this issue. I find that the firms involved in acquisitions and mergers where both partners are in the manufacturing sector have roughly the same pattern of R&D spending as the sector as a whole and that the acquisition itself does not cause a reduction in R&D activity on the part of these firms. Moreover, the R&D capital thus acquired is valued more highly by the acquiring firm than by the stock market. On the other hand, I also find that the substantial increase in the number and size of acquisitions made by privately held firms in the eighties is concentrated primarily on firms with low R&D intensity which also are in non-R&D intensive industries. Because the pattern of low investment in R&D is longstanding, and because the firms taken over have less rather than more R&D capital than the industry as a whole, it seems unlikely that the recent increase in takeover activity has had a significantly negative effect on R&D spending in these industries.
Handle: RePEc:nbr:nberwo:2191
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Taxation on the Merger Decision
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: David Reishus
Note: PE
Number: 2192
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2192
File-URL: http://www.nber.org/papers/w2192.pdf
File-Format: application/pdf
Publication-Status: published as Corporate Takeovers: Causes and Consequences, edited by Alan J. Auerbach,pp. 157-183. Chicago: The University of Chicago Press, 1988.
Publication-Status: published as The Effects of Taxation on the Merger Decision, Alan J. Auerbach, David Reishus. in Corporate Takeovers: Causes and Consequences, Auerbach. 1988
Abstract: This paper presents estimates of the tax benefits generated by a sample of U.S. mergers and acquisitions involving two public corporations over the period 1968-83 and estimates a "marriage model" based on differences between these mergers and another sample of "pseudomergers" that did not occur to determine the impact of these tax benefits on the probability of two firms combining. Our findings reject the hypothesis that leverage played a large role in fostering these transactions, and that the tax losses and credits of acquired firms likewise exerted no impact on merger activity. Though the use of such benefits by acquiring firms to shield profits of other firms did increase the level of activity, the impact was quite small. On the whole, our results suggest that the changes in tax provisions with respect to mergers introduced by the Tax Reform Act of 1986 will have a small impact on U.S. mergers and acquisitions.
Handle: RePEc:nbr:nberwo:2192
Template-Type: ReDIF-Paper 1.0
Title: Hegemonic Stability Theories of the International Monetary System
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 2193
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2193
File-URL: http://www.nber.org/papers/w2193.pdf
File-Format: application/pdf
Publication-Status: published as From Can Nations Agree? Essays on International Economic Cooperation,edited by Ralph Bryant, pp. 255-298. Washington, DC: The Brookings Institution, 1989.
Abstract: Specialists in international relations have argued that international regimes operate smoothly and exhibit stability only when dominated by a single, exceptionally powerful national economy. In particular, this "theory of hegemonic stability" has been applied to the international monetary system. The maintenance of the Bretton Woods System for a quarter century through 1971 is ascribed to the singular power of the United States in the postwar world, while the persistence of the classical gold standard is similarly ascribed to Britain's dominance of the 19th-century international economy. In contrast, the instability of the interwar gold-exchange standard is attributed to the absence of a hegemonic power. This paper assesses the applicability of hegemonic stability theory to international monetary relations, approaching the question from both theoretical and empirical vantage points. While that theory is of some help for understanding the relatively smooth operation of the classical gold standard and early Bretton Woods System as well as some of the difficulties of the interwar years, much of the evidence proves to be difficult to reconcile with the hegemonic stability view.
Handle: RePEc:nbr:nberwo:2193
Template-Type: ReDIF-Paper 1.0
Title: Incentives and Worker Behavior: Some Evidence
Author-Name: Andrew Weiss
Note: LS
Number: 2194
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2194
File-URL: http://www.nber.org/papers/w2194.pdf
File-Format: application/pdf
Publication-Status: published as Cooperation, Incetntives and Risk Sharing; ed. Haig Nalbantian; Rowman and Littlefield publishers, 1987
Abstract: This paper is concerned with three types of incentive programs. First, individual wage incentives that cause a worker's efforts to have a major effect on his pay. Second, group incentives in which the pay of an individual is determined by the output of a group of workers-a group can be as small as a four member work team or as large as the whole firm. Finally, seniority based payment schemes in which the pay of a worker rises rapidly with his tenure with the firm. We show that these payment schemes have the effects in practice that we would predict from optimizing behavior by workers. We find that group incentives tend to compress the productivity distribution of workers. This is because the relative performance of the most productive workers tends to fall, and the most and least productive workers have relatively high quit rates when workers are paid on group incentives. We also present evidence that suggests that the low quit rates in large Japanese firms may be due to steep wage-tenure profiles in those firms.
Handle: RePEc:nbr:nberwo:2194
Template-Type: ReDIF-Paper 1.0
Title: The Importance of Economic Policy in Development: Contrasts Between Korea and Turkey
Author-Name: Anne O. Krueger
Note: ITI IFM
Number: 2195
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2195
File-URL: http://www.nber.org/papers/w2195.pdf
File-Format: application/pdf
Publication-Status: published as Krueger, A. "The Importance of Economic Policy in Development: Contrasts Between Korea and Turkey," in Protection and Competition in International Trade, Essays in Honor of W.M. Corden, ed. by Henryk Kierzkowski, Oxford, England: Basil Blackwell, 1987.
Publication-Status: published as Reprinted in Estudios de Economia, Universidad fde Chile, Vol. 15, No. 2, Auguust 1988, pp. 229-265.
Abstract: In the mid-1950's, Turkey was a much richer country than Korea. With about the same population, Turkish GNP was about three times that of Korea, Turkish exports were fifteen times those of Korea, and the Turkish savings rate was much higher than Korean. By 1980, the situation was dramatically reversed, as Turkish income was 40 percent below Korea's, Turkish exports were less than one-fourth those of Korea and the Turkish savings rate was about two-thirds of Korea' s. This paper examines the variables that affected economic growth and shows the critical importance of the different policy choices in the two countries.
Handle: RePEc:nbr:nberwo:2195
Template-Type: ReDIF-Paper 1.0
Title: Privatization, Information and Incentives
Author-Name: David E. M. Sappington
Author-Person: psa323
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 2196
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2196
File-URL: http://www.nber.org/papers/w2196.pdf
File-Format: application/pdf
Publication-Status: published as Sappington, David E.M. and Joseph E. Stiglitz. "Privatization, Informationand Incentives," Journal of Policy Analysis and Management, Vol. 6, No. 4, 1987, pp. 567-582.
Abstract: In this paper, the choice between public and private provision of goods and services is considered. In practice, both modes of operation involve significant delegation of authority, and thus appear quite similar in some respects. The argument here is that the main difference between the two mod- concerns the transactions cats faced by the government when attempting to intervene in the delegated production activities. Such intervention is generally less costly under public ownership than under private ownership. The greater ease of intervention under public ownership can have its advantages; but the fact that a promise not to intervene is more credible under private production can also have beneficial incentive effects, The Fundamental Privatization Theorem (analogous to The Fundamental Theorem of Welfare Economics) is presented, providing conditions under which government production cannot improve upon private production. The restrictiveness of these conditions is evaluated.
Handle: RePEc:nbr:nberwo:2196
Template-Type: ReDIF-Paper 1.0
Title: City Taxes and Property Tax Bases
Author-Name: Katharine L. Bradbury
Author-Name: Helen F. Ladd
Author-Person: pla158
Number: 2197
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2197
File-URL: http://www.nber.org/papers/w2197.pdf
File-Format: application/pdf
Publication-Status: published as Ladd, Helen F. & Bradbury, Katharine L., 1988. "City Taxes and Property Tax Bases," National Tax Journal, National Tax Association;National Tax Journal, vol. 41(4), pages 503-523, December.
Abstract: This paper investigates the simultaneous relationship between tax rates and city property tax bases using data for 86 large U.S. cities in 1967, 1972, 1977, and 1982. We find that a 10 percent increase in the city's property tax rate decreases the city's tax base by about 1.5 percent. In addition, local income taxes and taxes levied by overlying jurisdictions (such as county and state governments) also have negative impacts on the city's property tax base. Local sales taxes, in contrast, appear to have little impact. We conclude that taxes affect local property values more than is typically implied by previous studies that have investigated the impacts of state and local taxes on firms' location decisions.
Handle: RePEc:nbr:nberwo:2197
Template-Type: ReDIF-Paper 1.0
Title: The Gold-Exchange Standard and the Great Depression
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 2198
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2198
File-URL: http://www.nber.org/papers/w2198.pdf
File-Format: application/pdf
Publication-Status: published as Eichengreen, Barry. Elusive Stability: Essays in the History of International Finance 1919-1939. New York: Cambridge University Press, 1990.
Abstract: A number of explanations for the severity of the Great Depression focus on the malfunctioning of the international monetary system. One such explanation emphasizes the deflationary monetary consequences of the liquidation of foreign-exchange reserves following competitive devaluations by Great Britain and her trading partners. Another emphasizes instead the international monetary policies of the Federal Reserve and the Rank of France. This paper analyzes both the exceptional behavior of the U.S. and France and the shift out of foreign exchange after 1930. While both Franco-American gold policies and systemic weaknesses of the international monetary system emerge as important factors in explaining the international distribution of reserves, the first of these factors turns out to play the more important role in the monetary stringency associated with the Great Depression.
Handle: RePEc:nbr:nberwo:2198
Template-Type: ReDIF-Paper 1.0
Title: Why Was there Mandatory Retirement? or the Impossibility of Efficient Bonding Contracts
Author-Name: Kevin Lang
Author-Person: pla83
Note: LS
Number: 2199
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2199
File-URL: http://www.nber.org/papers/w2199.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, 1989
Abstract: Lazear has argued that hours constraints, in general, and mandatory retirement, in particular, form part of an efficient labor market contract designed to increase output by inhibiting worker shirking. Since the contract is efficient, legislative interference is welfare reducing. However, in any case where bonding is costly, the hours constraints will not be chosen optimally. Although it is theoretically possible that bonding is costless, in this case the earnings profile is indeterminate and we should never observe monitoring aimed at reducing shirking. It therefore appears that bonding should be modelled as costly. If so, the role of policy depends on the source of bonding costs, the set of feasible contracts and the policy options which are available to government.
Handle: RePEc:nbr:nberwo:2199
Template-Type: ReDIF-Paper 1.0
Title: Should Social Security Benefits Increase with Age?
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 2200
Creation-Date: 1987-03
Order-URL: http://www.nber.org/papers/w2200
File-URL: http://www.nber.org/papers/w2200.pdf
File-Format: application/pdf
Publication-Status: Published as "Should Social Security Benefits Be Means Tested?", JPE, Vol. 95, no. 3 (1987): 468-484.
Abstract: This paper shows that the optimal relation between social security benefits and retiree age depends on balancing the advantage of providing an otherwise unavailable actuarially fair annuity against the lower rate of return earned in a pay-as-you-go social security system. The ability of compulsory social security programs to provide an actuarially fair annuity implies that benefits should increase with age while the lower return on social security contributions than on private saving implies that a larger fraction of total benefits should be paid during the early years of retirement. In an economy that contains a mixture of rational life cycle savers and completely myopic individuals who do no saving, it is optimal for benefits to decline during the earlier part of the retirement period and then to begin rising. Numerical calculations based on actual macroeconomic parameters and representative survival probabilities suggest that the optimal age for minimum benefits occurs before age 75.
Handle: RePEc:nbr:nberwo:2200
Template-Type: ReDIF-Paper 1.0
Title: Imperfect Information and Staggered Price Setting
Author-Name: Laurence Ball
Author-Person: pba605
Author-Name: Stephen G. Cecchetti
Author-Person: pce4
Note: ME
Number: 2201
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2201
File-URL: http://www.nber.org/papers/w2201.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 78, No. 5, December 1988, pp. 999-1018
Abstract: Many Keynesian macroeconomic models are based on the assumption that firms change prices at different times. This paper presents an explanation for this "staggered" price setting. We develop a model in which firms have imperfect knowledge of the current state of the economy and gain information by observing the prices set by others. This gives each firm an incentive to set its price shortly after as many firms as possible. Staggering can be the equilibrium outcome. In addition, the information gains can make staggering socially optimal even though it increases aggregate fluctuations.
Handle: RePEc:nbr:nberwo:2201
Template-Type: ReDIF-Paper 1.0
Title: Successful Adjustment in a Multi-Sectoral Economy
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 2202
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2202
File-URL: http://www.nber.org/papers/w2202.pdf
File-Format: application/pdf
Publication-Status: published as From International Economic Journal, Vol. 2, No. 1, pp. 85-99, (Spring 1988).
Abstract: This study analyzes the adjustment to a fiscal reform in a dependent economy. It evaluates the economic factors that are relevant for making the choice between a cut in employment versus a cut in wages as a means of reducing the fiscal wage bill. We demonstrate that in the presence of costly short-run mobility of labor there is a natural advantage to a wage policy over employment policy. Fiscal deficits can be dealt with successfully by a wage policy and with the corresponding adjustment in government demand. These policies may have only marginal consequences on production of traded gds in the short run in the presence of costs of adjustment. Over time the gain in the production of traded goods is determined by the credibility of the fiscal reform. It is shown that the absence of credibility may have major consequences on the adjustment, because it will depress the magnitude of the private investment associated with the fiscal reform.
Handle: RePEc:nbr:nberwo:2202
Template-Type: ReDIF-Paper 1.0
Title: Peso Problems, Bubbles, and Risk in the Empirical Assessment of Exchange-Rate Behavior
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 2203
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2203
File-URL: http://www.nber.org/papers/w2203.pdf
File-Format: application/pdf
Publication-Status: published as Financial Risk: Theory, Evidence and Implications, edited by Courtenay C. Stone, pp. 181-196. Norwell, MA: Kluwer Academic Publishers, 1989.
Abstract: One of the most puzzling aspects of the post-1973 floating exchange rate system has been the apparently inefficient predictive performance of forward exchange rates. This paper explores some aspects of each of three leading explanations of forward-rate behavior. The paper first develops a simple rational-expectations model of the "peso problem" that generates some key empirical regularities of the foreign exchange market: seemingly predictable and conditionally heteroskedastic forward forecast errors, along with possible directional misprediction by the forward premium. The implications of bubbles for tests of forward-rate predictive efficiency are discussed next. It is argued that the existence of bubbles is extremely difficult (if not impossible) to establish empirically. Even though some types of bubble would distort standard tests on the relation between spot and forward exchange rates, it seems unlikely that there bubbles have been an important factor. Finally, the paper examines foreign-exchange asset pricing under risk aversion and suggests that a convincing account of forward-rate behavior should also help explain the results found in testing other asset-pricing theories, such as the expectations theory of the interest-rate term structure.
Handle: RePEc:nbr:nberwo:2203
Template-Type: ReDIF-Paper 1.0
Title: Country Risk and the Organization of International Capital Transfer
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Mark Gersovitz
Note: ITI IFM
Number: 2204
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2204
File-URL: http://www.nber.org/papers/w2204.pdf
File-Format: application/pdf
Publication-Status: published as Calvo, G., R. Findlay, P. Kouri and J. deMacedo (eds.) Debt, Stabilization and Development. Oxford: Basil Blackwell, 1989.
Abstract: Foreign portfolio investment is threatened by the risk of default and repudiation, while direct foreign investment is threatened by the risk of expropriation. These two contractual forms of investment can differ substantially in: (1) the amount of capital they can transfer from abroad to capital-importing countries; (2) the shadow cost of capital and (3) their implications for the tax policy of the host. The interaction of public borrowing from abroad with investments abroad by private citizens of the borrowing country can imply multiple equilibria with very different welfare consequences. One equilibrium involves private inflows and repayment of public debt. Another is characterized by capital flight and default.
Handle: RePEc:nbr:nberwo:2204
Template-Type: ReDIF-Paper 1.0
Title: Firm Size and R&D Intensity: A Re-Examination
Author-Name: Wesley M. Cohen
Author-Name: Richard C. Levin
Author-Name: David C. Mowery
Note: PR
Number: 2205
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2205
File-URL: http://www.nber.org/papers/w2205.pdf
File-Format: application/pdf
Publication-Status: published as Cohen, Wesley M., Richard C. Levin and David C. Mowery. "Firm Size and R&D Intensity: A Re-Examination," Journal of Industrial Economics, Vol. XXXV, No. 4, June 1987, pp. 543-565.
Abstract: Using data from the Federal Trade Commission's Line of Business Program and survey measures of technological opportunity and appropriability conditions, this paper finds that overall firm size has a very small, statistically in- significant effect on business unit R & D intensity when either fixed industry effects or measured industry characteristics are taken into account. Business unit size has no effect on the R & D intensity of business units that perform R & D, but it affects the probability of conducting R & D. Business unit and firm size jointly explain less than one per cent of the variance in R & D intensity; industry effects explain nearly half the variance.
Handle: RePEc:nbr:nberwo:2205
Template-Type: ReDIF-Paper 1.0
Title: International Adjustment Under the Classical Gold Standard: Evidence for the U.S. and Britain, 1879-1914
Author-Name: Charles W. Calomiris
Author-Person: pca421
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Note: ME
Number: 2206
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2206
File-URL: http://www.nber.org/papers/w2206.pdf
File-Format: application/pdf
Publication-Status: published as Bauoumi, T., B. Eichengreen and M. Taylor (eds.) Modern Perspectives on the Gold Standard. New York: Cambridge University Press, 1996.
Abstract: Links between disturbances in financial markets and those in real activity have long been the focus of studies of economic fluctuations during the period prior to World War I. We emphasize that domestic autonomy was substantially limited by internationally integrated markets for goods and capital. Such findings are important for studying business cycles during the period; for example, when prices are flexible, observed cyclical movements can be related to a credit-market transmission of deflationary shocks. Recent studies of the classical gold standard have revived interest in the process by which macroeconomic shocks were transmitted internationally during this period. The principal competing approaches - the "price-specie- flow," mechanism and the more modem "internationalist" view - differ according to the means by which international equilibrium is reestablished after a disturbance occurs in capital, money, or commodity markets. We present and interpret separate pieces of evidence on gold flows, interest rates, and selected commodity prices, all of which shed light on the alternative assumptions employed in the price-specie-flow and modern approaches. We employ a monthly data set for the U.S. and Britain for the pre-World War 1 frameworks. Using the "structural VAR" approach of Bernanke and Sims, we compare the actual historical importance of shocks and the observed patterns of short-run adjustment to shocks with the prediction of each of the two models. The evidence supports the "internationalist" view of close international linkages over the "specie-flow" view of circuitous linkages and domestic autonomy in money and capital markets.
Handle: RePEc:nbr:nberwo:2206
Template-Type: ReDIF-Paper 1.0
Title: Economic Rents Derived from Hospital Privileges in the Market for Podiatric Services
Author-Name: Richard G. Frank
Author-Name: Jonathan P. Weiner
Author-Name: Donald M. Steinwachs
Author-Name: David S. Salkever
Author-Person: psa1313
Note: EH
Number: 2207
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2207
File-URL: http://www.nber.org/papers/w2207.pdf
File-Format: application/pdf
Publication-Status: published as Frank, Richard C., Jonathan P. Weiner, Donald M. Steinwachs and David S. Salkever. "Economic Rents Derived from Hospital Privileges in the Market for Podiatric Services," Journal of Health Economics, Vol. 6, pp. 319-337 1987.
Abstract: This study examines the relative impacts of human capital and market conditions on the economic rents associated with hospital privileges in the market for footcare. An empirical model of hospital privileges for podiatrists is formulated based on the Pauly-Redisch model of hospital behavior. The privilege model is then incorporated into a model of podiatrists' earnings via a selection adjustment as proposed by Heckman and Lee. The results indicate the persistence of economic rents even after controlling for unobserved "quality" factors.
Handle: RePEc:nbr:nberwo:2207
Template-Type: ReDIF-Paper 1.0
Title: U.S. and Foreign Competition in the Developing Countries of the Asian Pacific Rim
Author-Name: Robert E. Baldwin
Note: ITI IFM
Number: 2208
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2208
File-URL: http://www.nber.org/papers/w2208.pdf
File-Format: application/pdf
Publication-Status: published as Baldwin, Robert E. "U.S. and Foreign Competition in the Developing Countries of the Asian Pacific Rim," The United States in the World Economy, ed. by Martin Feldstein. Chicago: UCP, 1988.
Publication-Status: published as US and Foreign Competition in the Developing Countries of the Asian Pacific Rim, Robert E. Baldwin, Robert S. Ingersoll, Woo-choong Kim. in The United States in the World Economy, Feldstein. 1988
Abstract: This paper examines changes since the early 1960s in the export shares of the United States and its major competitors in the markets of the developing countries of the Asian Pacific Rim (APR), defined to include Hong Kong, Korea, Taiwan, Singapore, the Philippines, Malaysia, Thailand, Indonesia, and China. A technique for revealing a country's factor-price advantages or disadvantages in its trade with another country is also used to analyze the U.S. comparative cost position relative to the countries of the region. Among the findings are that the U.S. export share in the APR market has remained roughly constant over the period and that the United States has a relative factor-price advantage with all the developing countries of the region in physical capital and skilled labor and- a disadvantage in unskilled labor. For land and natural resources, the picture is mixed. The competitive performance of these developing countries in the markets of the United States, Canada, Japan, the European Community, Australia and New Zealand, and in the region itself is also studied, revealing the familiar result that the developing countries of the region and Japan have increased their market shares significantly since the 1960s. In addition, the volume and distribution of U.S. and Japanese direct investment in the Asian Pacific Rim is examined.
Handle: RePEc:nbr:nberwo:2208
Template-Type: ReDIF-Paper 1.0
Title: The Permanent Income Hypothesis Revisited
Author-Name: Lawrence J. Christiano
Author-Person: pch45
Author-Name: Martin Eichenbaum
Author-Person: pei4
Author-Name: David Marshall
Author-Person: pma2426
Note: EFG
Number: 2209
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2209
File-URL: http://www.nber.org/papers/w2209.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Volume 59, Number 2, March 1991, pp. 397-424.
Abstract: This paper investigates whether there are simple versions of the permanent income hypothesis which are consistent with the aggregate U.S. consumption and output data. Our analysis is conducted within the confines of a simple dynamic general equilibrium model of aggregate real output, investment, hours of work and consumption. We study the quantitative importance of two perturbations to the version of our model which predicts that observed consumption follows a random walk: (i) changing the production technology specification which rationalizes the random walk result, and (ii) replacing the assumption that agents' decision intervals coincide with the data sampling interval with the assumption that agents make decisions on a continuous time basis. We find substantially less evidence against the continuous time models than against their discrete time counterparts. In fact neither of the two continuous time models can be rejected at conventional significance levels. The continuous time models outperform their discrete time counterparts primarily because they explicitly account for the fact that the data used to test the models are tine averaged measures of the underlying unobserved point-in-time variables. The net result is that they are better able to accommodate the degree of serial correlation present in the first difference of observed per capita U.S. consumption.
Handle: RePEc:nbr:nberwo:2209
Template-Type: ReDIF-Paper 1.0
Title: International Capital Flows and Domestic Economic Policies
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 2210
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2210
File-URL: http://www.nber.org/papers/w2210.pdf
File-Format: application/pdf
Publication-Status: published as Frankel, Jeffrey A. "International Capital Flows and Domestic Economic Problems," The United States in the World Economy, ed. by Martin Feldstein. Chicago: UCP, 1988.
Publication-Status: published as International Capital Flows and Domestic Economic Policies, Jeffrey A. Frankel, Saburo Okita, Peter G. Peterson, James R. Schlesinger. in The United States in the World Economy, Feldstein. 1988
Abstract: This paper, written for the NBER Conference on the Changing Role of the United States in the World Economy, covers the capital account in the U.S. balance of payments. It first traces the history from 1946 to 1980, a period throughout which Americans were steadily building up a positive net foreign investment position. It subsequently describes the historic swing of the capital account in the 1980s toward massive borrowing from abroad. There are various factors, in addition to expected rates of return, that encourage or discourage international capital flows: transactions costs, government controls, taxes, default and other political risk and exchange risk. But the paper argues that the increase in real interest rates and other expected rates of return in the United States, relative to other countries, in the early 1980s was the major factor that began to attract large net capital inflows. It concludes that a large increase in the U.S. federal budget deficit, which was not offset by increased private saving, was the major factor behind the increase in real interest rates, and therefore behind the switch to borrowing from abroad.
Handle: RePEc:nbr:nberwo:2210
Template-Type: ReDIF-Paper 1.0
Title: Negotiator Behavior Under Arbitration
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Christopher L. Cavanagh
Note: LS
Number: 2211
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2211
File-URL: http://www.nber.org/papers/w2211.pdf
File-Format: application/pdf
Publication-Status: published as Bloom, David E. and Christopher L. Cavanagh. "Negotiator Behavior Under Arbitration," American Economic Review Papers and Proceedings, May 1987, pp. 3 53-358.
Abstract: The emerging empirical literature on the economics of arbitration has focused primarily on the behavior of arbitrators under alternative forms of arbitration. This article suggests that it is natural for empirical economists to now expand their focus to include issues related to the behavior of negotiators. In this connection, three key aspects of negotiator behavior are discussed: (1) the decision to settle a dispute voluntarily or to proceed to arbitration; (2) the strategy for selecting an arbitrator; and (3) the final bargaining position to advance before an arbitrator.
Handle: RePEc:nbr:nberwo:2211
Template-Type: ReDIF-Paper 1.0
Title: Measuring Market Power in U.S. Industry
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Note: EFG
Number: 2212
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2212
File-URL: http://www.nber.org/papers/w2212.pdf
File-Format: application/pdf
Abstract: Non-competitive conduct can be assessed by estimating the size of the markup or Lerner index achieved in a market. The markup implies a price elasticity of demand faced by the representative firm. For a given markup, non-competitive conduct is greater the more elastic is the market elasticity of demand. The ratio of the firm's to the market elasticity is a measure of non-competitive conduct that is insensitive to the value of the monopoly. To implement this measure, both the firm's and the market elasticities of demand must be estimated. Hall shows how to estimate the markup, and hence the elasticity faced by the firm, from the cyclical behavior of productivity. To estimate the market elasticity, an instrumental variables procedure exploiting a covariance restriction between productivity shocks and demand shocks is used. Results for broad sectors of private industry and for non-durable manufacturing industries display a wide range of monopoly power.
Handle: RePEc:nbr:nberwo:2212
Template-Type: ReDIF-Paper 1.0
Title: Dynamic Optimization in Two-Party Models
Author-Name: Warwick J. McKibbin
Author-Person: pmc14
Author-Name: Nouriel Roubini
Author-Person: pro145
Author-Name: Jeffrey Sachs
Note: EFG
Number: 2213
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2213
File-URL: http://www.nber.org/papers/w2213.pdf
File-Format: application/pdf
Abstract: The goal of this paper is to study the problem of optimal dynamic policy formulation with competing political parties. We study a general class of problems, in which the two competing political parties have quadratic intertemporal objective functions, and in which the economy has a linear structure and a multidimensional state space. For the general linear quadratic problem we develop a numerical dynamic programming algorithm to solve for optimal policies of each party taking into account the party's objectives; the structure of the economy ; the probability of future election results; and the objectives of the other political party.
Handle: RePEc:nbr:nberwo:2213
Template-Type: ReDIF-Paper 1.0
Title: Anticipated Protectionist Policies, Real Exchange Rates and the Current Account
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Jonathan D. Ostry
Author-Person: pos23
Note: ITI IFM
Number: 2214
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2214
File-URL: http://www.nber.org/papers/w2214.pdf
File-Format: application/pdf
Publication-Status: published as "Anticipated Protectionist Policies, Real Exchange Rates, and the Current Account: The Case of Rigid Wages." From Journal of International Money and Finance, Vol. 9, pp. 206-219, (1990).
Abstract: In this paper a general equilibrium intertemporal model, with optimizing consumers and producers, is developed to analyze how the anticipation of future import tariffs affects real exchange rates and the current account. The model is completely real, and considers a small open economy that produces and consumes three goods each period. It is shown that, without imposing rigidities or adjustment costs, interesting paths for the equilibrium real exchange rate can be generated. In particular "equilibrium overshooting" can be observed. Precise conditions under which an anticipated future import tariff will worsen the current account in period 1 are derived. Several ways in which the model can be extended are also discussed in detail. The results obtained from this model have important implications for the analysis of real exchange rate misalignment and overvaluation.
Handle: RePEc:nbr:nberwo:2214
Template-Type: ReDIF-Paper 1.0
Title: Capital Gains Taxes Under the Tax Reform Act of 1986: Revenue EstimatesUnder Various Assumptions
Author-Name: Lawrence B. Lindsey
Note: PE
Number: 2215
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2215
File-URL: http://www.nber.org/papers/w2215.pdf
File-Format: application/pdf
Publication-Status: published as NTJ, Vol. 40, no. 3 (1987): 489-504.
Abstract: This paper examines the effect of the Tax Reform Act of 1986 on the level of capital gains realizations and tax revenue under a variety of behavioral assumptions. Independent investigations by Feldstein, Slemrod, and Yitzhaki, the Department of Treasury. Lindsey, Auten and Clotfelter, and Minarik, all point to a large, though highly variable, amount of response by taxpayers to changes in capital gains tax rates. The econometric results of each of these papers are reparameterized for use in the National Bureau of Economic Research TAXSIM model. A total of 13 sets of behavioral assumptions are modeled. The results show that the capital gains tax rate increase in the new tax bill is unlikely to produce an increase in capital gains tax revenue. Of the 13 simulations run. 12 produce lower tax revenue over the period of 5 fiscal years being simulated. The final simulation suggests a virtually unchanged level of revenue. Two of the models predict extremely large levels of capital gains realizations in late 1986 in anticipation of the tax rate increases in the coming years. In none of the simulations is any significant increase in the permanent level of capital gains tax revenues predicted.
Handle: RePEc:nbr:nberwo:2215
Template-Type: ReDIF-Paper 1.0
Title: Short-term and Long-Term Expectations of the Yen/Dollar Exchange Rate: Evidence from Survey Data
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Note: ITI IFM
Number: 2216
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2216
File-URL: http://www.nber.org/papers/w2216.pdf
File-Format: application/pdf
Publication-Status: published as Frankel, Jeffrey A. and Kenneth A. Froot. "Short-term and Long-term Expectations of the Yen/Dollar Exchange Rate: Evidence from Survey Data," From Journal of the Japanese and International Economies, Vol. 1, pp. 249-274,(1987).
Abstract: Three surveys of exchange rate expectations allow us to measure directly the expected rates of return on yen versus dollars. Expectations of yen appreciation against the dollar have been (1) consistently large, (2) variable, and (3) greater than the forward premium, implying that investors were willing to accept a lower expected return on dollar assets. At short-term horizons expectations exhibit bandwagon effects, while at longer-term horizons they show the reverse. A 10 percent yen appreciation generates the expectation of a further appreciation of 2.4 percent over the following week, for example, but a depreciation of 3.4 percent over the following year. At any horizon, investors would do better to reduce the absolute magnitude of expected depreciation. The true spot rate process behaves more like a random walk.
Handle: RePEc:nbr:nberwo:2216
Template-Type: ReDIF-Paper 1.0
Title: Have IRAs Increased U.S. Saving?: Evidence from Consumer Expenditure Surveys
Author-Name: Steven F. Venti
Author-Name: David A. Wise
Author-Person: pwi45
Note: PE AG
Number: 2217
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2217
File-URL: http://www.nber.org/papers/w2217.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 105, pp. 661-698, August 1990.
Abstract: The vast majority of Individual Retirement Account contributions represent net new saving, based on evidence from the quarterly Consumer Expenditure Surveys (CES). The results are based on analysis of the relationship between IRA contributions and other financial asset saving. The data show almost no substitution of IRAs for other saving. While the core of the paper is based on cross-section analysis, important use is made of the CES panel of independent cross-sections that span the period during which IRAs were introduced. Estimates for the post 1982 period, when IRAs were available to all employees, are based on a flexible constrained optimization model, with the IRA limit the principle constraint. The implications of this model for saving in the absence of the IRA option match very closely the actual non-IRA financial asset saving behavior prior to 1982. IRA saving does not show up as other financial asset saving in the pre-IRA period.
Handle: RePEc:nbr:nberwo:2217
Template-Type: ReDIF-Paper 1.0
Title: The United States and Foreign Competition in Latin America
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 2218
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2218
File-URL: http://www.nber.org/papers/w2218.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian. "The United States and Foreign Competition in Latin America," The United States in the World Economy, ed. by Martin Feldlstein. Chicago: The University of Chicago Press, 1988.
Publication-Status: published as The United States and Foreign Competition in Latin America, Sebastian Edwards, Thomas O. Enders, Jesus Silva-Herzog. in The United States in the World Economy, Feldstein. 1988
Abstract: This paper analyzes the evolution of the U.S. trade relations with Latin America, investigating the possible path that these relations will take in the future. The data analyzed show that during the last 15 years or so there has been no significant loss in the U.S. aggregate competitive position in Latin America. However, there has been a significant change in the composition of U.S. exports to the Latin American nations. The paper also deals with issues related to direct foreign investment in Latin America, comparing the importance of the U.S. and other nations. Finally, the role of international trade in the solution of the current Latin American debt crisis, and in the reassumption of sustained growth in the region is discussed.
Handle: RePEc:nbr:nberwo:2218
Template-Type: ReDIF-Paper 1.0
Title: Discounting Rules for Risky Assets
Author-Name: Stewart C. Myers
Author-Name: Richard S. Ruback
Note: ME
Number: 2219
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2219
File-URL: http://www.nber.org/papers/w2219.pdf
File-Format: application/pdf
Publication-Status: published as Discounting Rules for Risky Assets, November 1992 (with R. Ruback)
Abstract: This paper develops a rule for calculating a discount rate to value risky projects. The rule assumes that asset risk can be measured by a single index (e.g., beta), but makes no other assumptions about specific forms of the asset pricing model. It treats all projects as combinations of two assets: Treasury bills and the market portfolio. We know how to value each of these assets under any theory of debt and taxes and under any assumption about the slope and intercept of the market line for equity securities. Our discount rate is a weighted average of the after-tax return on riskless debt and the expected return on the portfolio, where the weight on the market portfolio is beta.
Handle: RePEc:nbr:nberwo:2219
Template-Type: ReDIF-Paper 1.0
Title: Smuggler's Blues at the Central Bank: Lessons from Sudan
Author-Name: William H. Branson
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Note: ITI IFM
Number: 2220
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2220
File-URL: http://www.nber.org/papers/w2220.pdf
File-Format: application/pdf
Publication-Status: published as G. Calvo, et al, editors. Debt, Stabilization and Development: Essays in Memory of Carlos Diaz-Alejandro. Oxford: Basil Blackwell, 1989.
Abstract: The ineffectiveness of real devaluation as stabilization policy does not imply that the nominal exchange rate should be held constant in the face of a domestic inflation. In this circumstance, import duties and export subsidies would have to be escalated to counter the potential erosion of the trade balance. This escalation of trade barriers generates a rising black market premium and offers increasing incentives to smuggling, already a pervasive problem in the African countries. As a consequence, the central bank would find it more and more difficult to hold the nominal exchange rate constant. This leads us to consider a passive exchange rate policy of stabilizing the exchange rate by moving the nominal rate in line with domestic inflation. If such passive policy is not accompanied by the elimination of trade barriers, however, the black market premium will not disappear. Unless exchange rate policy and trade policy are consistent with each other, the smuggler's blues will reach the central bank. Indeed, this is not just a theoretical possibility, it is the major lesson from the recent experience of Sudan.
Handle: RePEc:nbr:nberwo:2220
Template-Type: ReDIF-Paper 1.0
Title: Relative Wage Variability in the United States, 1860-1983
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 2221
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2221
File-URL: http://www.nber.org/papers/w2221.pdf
File-Format: application/pdf
Publication-Status: published as "Relative Wage Variability in the United States 1860-1983." From The Review of Economics and Statistics, Vol. LXIX, No. 4, pp. 617-626,(November 1987).
Abstract: This paper examines the magnitude of changes in relative wages across industries between 1860 and 1983 and analyzes the macroeconomic determinants of such changes at different intervals during this period. The variance across industries in wage growth was at least four times larger before 1948 than afterward. Except for smaller year-to-year variability in output growth across industries after 1948, the macroeconomic factors examined cannot account for this increased rigidity of relative wages. Increases in average establishment size and improved communication of wage trends are probably partially responsible for the observed increase in relative wage rigidity. No single macroeconomic model was consistent with the year-to-year fluctuations in relative wage rigidity in every historical period examined.
Handle: RePEc:nbr:nberwo:2221
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Economic Events on Votes for President: 1984 Update
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: EFG
Number: 2222
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2222
File-URL: http://www.nber.org/papers/w2222.pdf
File-Format: application/pdf
Publication-Status: published as Political Behavior, Vol. 10, No. 2, pp. 168-179, (1988).
Abstract: In previous work I have developed an equation explaining votes for president in the United States that seems to have a remarkable predictive ability. In this paper the equation is updated through the 1984 election and then used to predict the 1988 election.
Handle: RePEc:nbr:nberwo:2222
Template-Type: ReDIF-Paper 1.0
Title: Household Saving and Permanent Income in Canada and the United Kingdom
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Richard H. Clarida
Author-Person: pcl69
Note: EFG
Number: 2223
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2223
File-URL: http://www.nber.org/papers/w2223.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, John Y. and Richard H. Clarida. "Household Saving and Permanent Income in Canada and the United Kingdom," The Economic Consequences of Government Budgets, ed. by E. Helpman, A. Razin and E. Sadka. Cambridge, MA: MI TPress, 1988,.
Abstract: Recent theoretical research in open-economy macroeconomics has emphasized the connection between a country's current account and the intertemporal savings and investment choices of its households, firms, and governments. In this paper, we assess the empirical relevance of the permanent income theory of household saving, a key building block of recent theoretical models of the current account. Using the econometric approach of Campbell (1987), we are able to reject the theory on quarterly aggregate data in Canada and the United Kingdom. However, we also assess the economic significance of these statistical rejections by comparing the behavior of saving with that of an unrestricted vector autoregressive (VAR) forecast of future changes in disposable labor income. If the theory is true, saving should be the best available predictor of future changes in disposable labor income. We find the correlation between saving and the unrestricted VAR forecast to be extremely high in both countries. The results suggest that the theory provides a useful description of the dynamic behavior of household saving in Canada and Britain.
Handle: RePEc:nbr:nberwo:2223
Template-Type: ReDIF-Paper 1.0
Title: Tax Deductibility and Municipal Budget Structure
Author-Name: Douglas Holtz-Eakin
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 2224
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2224
File-URL: http://www.nber.org/papers/w2224.pdf
File-Format: application/pdf
Publication-Status: published as Holtz-Eakin, Douglas and Harvey S. Rosen. "Tax Deductibility and Municipal Budget Structure," Fiscal Federaalism: Quantitative Studies, edited by Harvey S. Rosen. Chicago: UCP, 1988.
Publication-Status: published as Tax Deductibility and Municipal Budget Structure, Douglas Holtz-Eakin, Harvey S . Rosen. in Fiscal Federalism: Quantitative Studies, Rosen. 1988
Abstract: This paper investigates the effects of deductibility of local taxes on communities' budgetary decisions. Our focus is on how changes in the tax price of local spending induced by deductibility affect the mix between deductible and nondeductible revenue sources, and on expenditures. The econometric analysis is based on a rich data set that tracks the fiscal behavior of 172 local governments from 1978 to 1980. We find that the elasticity of deductible taxes with respect to the tax price is in the range -1.2 to -1.6; the tax price has no statistically significant effect on the use of nondeductible revenue sources; and the elasticity of local expenditures with respect to the tax price is about -1.8. Hence, if deductibility were eliminated, we would expect to see a substantial decline in local government spending.
Handle: RePEc:nbr:nberwo:2224
Template-Type: ReDIF-Paper 1.0
Title: The Financial Impact of Social Security by Cohort Under Alternative Financing Assumptions
Author-Name: Michael J. Boskin
Author-Name: Douglas J. Puffert
Note: PE
Number: 2225
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2225
File-URL: http://www.nber.org/papers/w2225.pdf
File-Format: application/pdf
Publication-Status: published as Boskin and Puffert, "The Financial Impact of Social Security by Cohort Under Alternative Financing Assumptions," in Issues in Contemporary Retirement, ed. by Rita Ricardo-Campbell and Edward P. Lazear, Stanford, CA: Hoover Press, 1988.
Abstract: This paper analyses the financial impact of Social Security by age cohort under alternative assumptions concerning future financing of Social Security. It examines the Social Security Administration's intermediate IIB and various combinations of optimistic and pessimistic assumptions concerning fertility, mortality, and wage growth. Importantly, it examines the implications of alternative potential resolutions of the long-term financing deficit and scenarios concerning the planned systematic deviation from pay-as-you-go finance in the retirement and disability funds. The results suggest that the Social Security retirement program offers vastly different returns to households in different circumstances, and especially to different cohorts. Most important, if Social Security does not maintain the large retirement trust fund surplus currently projected for the next 30 years, alternative scenarios for return to pay-as-you-go finance differ dramatically in the taxes, benefits, transfers, and real rates of return that can be offered to different birth cohorts. The implications of cutting taxes, raising benefits or diverting the surplus to other purposes have dramatic impact on the overall financial status of the system, the time pattern of taxes, benefits and surpluses or deficits, and therefore, the treatment of different age cohorts. Under the intermediate assumptions, the OASDI surplus is projected to grow almost as large as a fraction of GNP as the current ratio of privately held national debt to GNP. For example, if the OASDI surplus is used to raise benefits, and they remained at higher levels thereafter during the height of the baby-boom generation's retirement, the long-run actuarial deficit will zoom from $500 billion to over $3 trillion. Correspondingly, if benefits increase, financed by the OASDI surplus over the next 30 years, the expected rate of return on lifetime contributions increases for those currently about 40 years old from 1.9% to 2.7%, about a 40% increase. Correspondingly, if the surplus is dissipated and the subsequent long-run deficit is made up with a tax increase on a pay-as-you-go basis at the time of the projected deficit, the rate of return relative to the intermediate assumptions for those persons now being born will fall by about 158, and in this case, the overall system finances would move from a long-run actuarial deficit of slightly under one-half percent of taxable payroll to actuarial balance. Thus, as Social Security is projected to deviate systematically from pay-as-you-go finance, the potential alternative scenarios with respect to accruing the surplus and/or dissipating it in various ways have potentially large intergenerational redistribution effects.
Handle: RePEc:nbr:nberwo:2225
Template-Type: ReDIF-Paper 1.0
Title: Trade and Exchange Rate Policies in Growth-Oriented Adjustment Programs
Author-Name: Jeffrey D. Sachs
Note: ITI IFM
Number: 2226
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2226
File-URL: http://www.nber.org/papers/w2226.pdf
File-Format: application/pdf
Publication-Status: published as Growth Oriented Adjustment Programs, Washington DC IMF and World Bank Vittorio Corbo and M Khan and G. Goldstein eds., Spanish Translation in Revista de Economica Politica, Vol 8, No. 2, (30), April - June 1988
Abstract: The search for "growth-oriented adjustment programs" reflects a widespread malaise concerning IMF stabilization programs in countries suffering from external debt crises. A new orthodoxy is emerging from this search, which links recovery in the debtor countries to a shift to "outward-oriented" development, based on trade liberalization. This paper describes many important limitations of this new orthodoxy. The heavy emphasis on liberalization is a historical, and indeed runs contrary to the experiences of the successful East Asian economies. It also distracts attention from more pressing needs of the debtor economies.
Handle: RePEc:nbr:nberwo:2226
Template-Type: ReDIF-Paper 1.0
Title: The Postwar Evolution of Computer Prices
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: PR
Number: 2227
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2227
File-URL: http://www.nber.org/papers/w2227.pdf
File-Format: application/pdf
Publication-Status: published as Technology and Capital Formation, edited by Dale W. Jorgenson and Ralph Landau, pp. 77-125. Cambridge, MA: MIT Press, 1989.
Abstract: This study constructs new hedonic price indexes for electronic computers covering the period 1951-84. Regressions are estimated for four data sets, two used in previous studies by G. Chow and E. Dulberger, and two new data sets used for the first time in this study. Coverage is limited to mainframes until the late 1970s, but includes both " super-mini" computers and personal computers in the 1980s. The end result is a price index that exhibits a 1951 index number, on a base 1984 = 100, of 147,692, implying an annual rate of price change over the 33 years of -19.8 percent. Price changes for personal computer (PC) processors during the 1982-86 period appear to have been similar to those for mainframe computers during the 1977-84 period, in the range of -20 to -25 percent per year. Evidence for PC peripheral equipment is limited to 1984-86 and indicates a faster rate of price decline than for processors, particularly if the increasing availability of "clones" is taken into account. The paper places considerable emphasis on problems of weighting price indexes for computers together with price indexes for other types of "Office, Computing, and Accounting Machinery" (OCA) and other types of producers' durable equipment (PDE). The methodology used to construct the implicit price deflators in the National Income and Product Accounts, with a fixed 1982 base year, leads to a significant downward bias in the implicit OCA and PDE deflators after 1982, and an upward bias prior to 1982. A particularly disturbing aspect of the present national accounts is a spurious rise in the implicit OCA deflator of 157 percent between 1957 and 1971, despite the fact that its computer component exhibits a price decline and its non-computer component increases by only 8 percent. The paper recommends adoption of a chain-linked Laspeyres index number for any price index aggregate that includes computers. A properly weighted PDE deflator, using our computer price index, declines relative to the official implicit PDE deflator by 0.74 percent per year during 1957-72 and 0.87 percent per year during 1972-84.
Handle: RePEc:nbr:nberwo:2227
Template-Type: ReDIF-Paper 1.0
Title: Interpreting Evidence on Money-Income Causality
Author-Name: James H. Stock
Author-Person: pst148
Author-Name: Mark W. Watson
Author-Person: pwa582
Note: ME
Number: 2228
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2228
File-URL: http://www.nber.org/papers/w2228.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Econometrics, Vol. 40, No. 1, pp. 161-182, January 1989.
Abstract: Previous authors have reached puzzlingly different conclusions about the usefulness of money for forecasting real output based on closely related regression-based tests. An examination of this and additional new evidence reveals that innovations in M1 have statistically significant marginal predictive value for industrial production, both in a bivariate model and in a multivariate setting including a price index and an interest rate. This conclusion follows from focusing on the trend properties of the data, both stochastic and deterministic, and from drawing inferences using asymptotic theory that explicitly addresses the implications of these trends for the distributions of the various test statistics.
Handle: RePEc:nbr:nberwo:2228
Template-Type: ReDIF-Paper 1.0
Title: Stochastic Trends and Economic Fluctuations
Author-Name: Robert G. King
Author-Person: pki21
Author-Name: Charles I. Plosser
Author-Person: ppl11
Author-Name: James H. Stock
Author-Person: pst148
Author-Name: Mark W. Watson
Author-Person: pwa582
Note: EFG
Number: 2229
Creation-Date: 1987-04
Order-URL: http://www.nber.org/papers/w2229
File-URL: http://www.nber.org/papers/w2229.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 81 No. 4, pp. 819-840, (September 1991).
Abstract: Recent developments in macroeconomic theory emphasize that transient economic fluctuations can arise as responses to changes in long run factors -- in particular, technological improvements -- rather than short run factors. This contrasts with the view that short run fluctuations and shifts in long run trends are largely unrelated. We examine empirically the effect of shifts in stochastic trends that are common to several macroeconomic series. Using a linear time series model related to a VAR, we consider first a system with GNP, consumption and investment with a single common stochastic trend; we then examine this system augmented by money and prices and an additional stochastic trend. Our results suggest that movements in the "real" stochastic trend account for one-half to two-thirds of the variation in postwar U.S. GNP.
Handle: RePEc:nbr:nberwo:2229
Template-Type: ReDIF-Paper 1.0
Title: Real-Financial Linkages Among Open Economies
Author-Name: Sven W. Arndt
Author-Name: J. David Richardson
Note: ITI IFM
Number: 2230
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2230
File-URL: http://www.nber.org/papers/w2230.pdf
File-Format: application/pdf
Publication-Status: published as "Real-Financial Linkages Among Open Economies: An Overview" From Real-Financial Linkages Among Open Economies, edited by Sven W. Arndt and J. David Richardson, pp. 5-32. Cambridge, MA: MIT Press, 1987.
Abstract: This paper integrates the contributions to a forthcoming volume of the same title by the authors. The volume analyzes and empirically examines linkages between the real and financial variables that themselves link open economies-- "linkage" thus has a double meaning. Two types of linkages are discussed. Structural linkages describe differences across economies and among sectors in market structure (competitive/oligopolistic), productivity growth, and openness to trade. Inter-temporal linkages describe differences across economies and over time or circumstance in saving preferences and capital formation, government budgets, portfolio shares of "inside" and "outside" assets, and openness to mobile financial flows. Structural linkages are important chiefly for explaining sustained divergences in national competitiveness as measured by purchasing-power-parity norms. Inter-temporal linkages also account for them, as well as for sustained divergences in current and capital-account positions, geographical growth rates, and national incomes of residents.
Handle: RePEc:nbr:nberwo:2230
Template-Type: ReDIF-Paper 1.0
Title: The Marriage Tax is Down But Not Out
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 2231
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2231
File-URL: http://www.nber.org/papers/w2231.pdf
File-Format: application/pdf
Publication-Status: published as "The Marriage Tax Is Down But Not Out." from National Tax Journal, Vol. 40 , No. 4, pp. 567-576, December 1987.
Abstract: The public debate surrounding the Tax Reform Act of 1986 has paid little attention to the tax consequences of being married. Specifically, there has been virtually no discussion of the possible existence of an implicit "marriage tax"--the increase in the joint income tax liability of a man and woman when they marry. This lack of concern appears to be due to the perception that the new law has lowered marginal tax rates to such an extent that the magnitudes of marriage taxes (and subsidies) are inconsequential. In this paper, I show that to the contrary, the new law created large taxes on being married for some couples, and large subsidies for others. On the basis of a tax simulation model, I estimate that in 1988, 40 percent of all couples will pay an annual average marriage tax of about $1100, and 53 percent will receive an average subsidy of about $600. One striking result that emerges from the analysis is the relatively large marriage tax that will be borne by some low income couples with children. For such couples, the marriage tax can amount to 10 percent of joint gross income. Hence, the new tax law appears to quite "anti-family" for some low income workers.
Handle: RePEc:nbr:nberwo:2231
Template-Type: ReDIF-Paper 1.0
Title: Loan Commitments and Monetary Policy
Author-Name: George Sofianos
Author-Name: Arie Melnik
Author-Person: pme356
Author-Name: Paul Wachtel
Author-Person: pwa884
Note: ME
Number: 2232
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2232
File-URL: http://www.nber.org/papers/w2232.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Banking and Finance, Vol. 14, pp. 677-689, (1990).
Abstract: The impact of loan commitment agreements on the way in which changes in monetary policy affects the economy is examined. In particular, the empirical relevance of quantity credit rationing in the transmission of monetary policy is studied with VAR models. We find evidence of a differential impact of monetary policy on loans under commitment and not under commitment. Our conclusion is that credit rationing for bank loans does occur, although loan commitments effectively protect borrowers from credit rationing. Thus, loan commitments which insulate borrowers from the effects of quantity rationing force monetary policy to work exclusively through interest rate channels.
Handle: RePEc:nbr:nberwo:2232
Template-Type: ReDIF-Paper 1.0
Title: Econometric Modeling as Information Aggregation
Author-Name: Ray C. Fair
Author-Person: pfa24
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: EFG
Number: 2233
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2233
File-URL: http://www.nber.org/papers/w2233.pdf
File-Format: application/pdf
Publication-Status: published as "Comparing Information in Forecasts from Econometric Models." From The American Economic Review, Vol. 80, No. 3, pp. 375-389, (June 1990).
Abstract: A forecast produced by an econometric model is a weighted aggregate of predetermined variables in the model. In many models the number of predetermined variables used is very large, often exceeding the number of observations. A method is proposed in this paper for testing an econometric model as an aggregator of the information in these predetermined variables relative to a specified subset of them. The test, called the "information aggregation" (IA) test, tests whether the model makes effective use of the information in the predetermined variables or whether a smaller information set carries as much information. The method can also be used to test one model against another. The method is used to test the Fair model as an information aggregator. The Fair model is also tested against two relatively non theoretical models: a VAR model and an "autoregressive components" (AC) model. The AC model, which is new in this paper, estimates an autoregressive equation for each component of real GNP, with real GNP being identically determined as the sum of the components. The results show that the AC model dominates the VAR model, although both models are dominated by the Fair model. The results also show that the Fair model seems to be a good information aggregator.
Handle: RePEc:nbr:nberwo:2233
Template-Type: ReDIF-Paper 1.0
Title: The Social Security Cost of Smoking
Author-Name: John B. Shoven
Author-Name: Jeffrey O. Sundberg
Author-Name: John P. Bunker
Note: PE AG
Number: 2234
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2234
File-URL: http://www.nber.org/papers/w2234.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of Aging, Ed. by David Wise, University of Chicago PRess, March 1990.
Publication-Status: published as The Social Security Cost of Smoking, John B. Shoven, Jeffrey O. Sundberg, John P. Bunker. in The Economics of Aging, Wise. 1989
Abstract: Our paper is an examination of the Social Security cost of smoking from an individual point of view. It is well known that smokers have a shorter life expectancy than nonsmokers. This means that by smoking they are giving up potential Social Security benefits. We estimate this cost and consider the effects on the system as a whole. We use mortality ratios, which relate the annual death probabilities of smokers and nonsmokers, and the percentage of smokers in each age group to break down the life tables for men and women born in 1920 into the approximate life tables for smokers and nonsmokers. We then calculate expected Social Security taxes and benefits for each group, using median earnings as a base. We find that smoking costs men about $20,000 and women about $10,000 in expected net benefits. The implication of this for the system as a whole is that the prevalence of smoking has a direct effect on the financial viability of the system; every decrease in the number of smokers in society increases the system's liability. Changes in smoking behavior should be recognized as affecting the system.
Handle: RePEc:nbr:nberwo:2234
Template-Type: ReDIF-Paper 1.0
Title: International Competition in Services
Author-Name: Rachel McCulloch
Author-Person: pmc10
Note: ITI IFM
Number: 2235
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2235
File-URL: http://www.nber.org/papers/w2235.pdf
File-Format: application/pdf
Publication-Status: published as McCulloch, Rachel. "International Competition in Services," The United States in the World Economy, ed. by Martin Feldstein. Chicago: UCP, 1988, pp 367-406.
Publication-Status: published as International Competition in Services, Rachel McCulloch, Maurice R. Greenberg, Lionel H. Olmer. in The United States in the World Economy, Feldstein. 1988
Abstract: Production of services now dominates economic activity in the United States and most other nations. It is thus natural to find increasing attention on the part of U.S. policymakers to international competition in service activities. Yielding to strong pressure from the United States, members of the General Agreement on Tariffs and Trade (GATT) agreed in September 1986 to include services in the new "Uruguay Round" of multilateral trade negotiations. But there remains widespread skepticism regarding the prospects for these negotiations. This paper surveys the main issues and evidence relating to U.S. international competition in services. It reviews the forces that have catapulted services to the top of the agenda for the new GATT round; the conceptual issues raised by international competition in services; the growing importance of services in U.S. production and in international transactions; the relationship of services growth to "deindustrialization" of the U.S. economy; the nature and motivation of barriers to international competition in services and their relationship to nontariff distortions of merchandise trade; and the choices awaiting U.S. officials in forthcoming bilateral and multilateral negotiations.
Handle: RePEc:nbr:nberwo:2235
Template-Type: ReDIF-Paper 1.0
Title: Country Risk and Contingencies
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 2236
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2236
File-URL: http://www.nber.org/papers/w2236.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Journal, Vol. 3, No. 1, pp. 81-102, (Spring 1989).
Abstract: The purpose of this paper is to study the role of credit market policies in the presence of country risk from the nationalistic and the global point of view, 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 penalty, in the form of either a trade embargo or effective exclusion of the defaulting nation from future borrowing. Assuming costly enforcement of the penalty we show that the optimal borrowing tax from the global point of view exceed the optimal borrowing tax from the nationalistic point of view. The economic principle guiding the borrowing tax is that in the presence of country risk an activity that changes the probability of default generates thereby an externality, This principle applies also for investment: if a given investment reduces (increases) the probability of default it generates positive (negative) externality. Consequently, the social interest rate associated with this activity is lower (higher) than the private one, calling for a subsidy (tax) on borrowing used to finance that investment. Next, we evaluate the role of endogenous penalties. 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. We turn then to an assessment of the welfare effect of plans that make the interest rate contingent upon realization of shocks. We conclude by deriving the optimal borrowing plan for an example where the source of uncertainty is a stochastic terms of trade. It is shown that allowing for contingent payment has the effect of raising the credit ceiling, raising the expected income, and stabilizing income across states.
Handle: RePEc:nbr:nberwo:2236
Template-Type: ReDIF-Paper 1.0
Title: Intergenerational Transfers and Savings
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 2237
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2237
File-URL: http://www.nber.org/papers/w2237.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 2, No. 2, pp. 41-58, (Spring 1988).
Abstract: In recent years the role of intergenerational transfers in the process of wealth accumulation has been the subject of substantial empirical and theoretical analysis. The key question stimulating this research is what is the main explanation for savings? Is it primarily accumulation for retirement as claimed by Albert Ando, Richard Brumberg, and Franco Modigliani in their celebrated Life Cycle Model of Savings? Is it primarily intentional accumulation for intergenerational transfers? Or is it primarily precautionary savings, much of which may be bequeathed because of imperfections in annuity markets? This paper examines a range of findings on the importance of intergenerational transfers. The strong conclusion that emerges from this evidence is that intergenerational transfers play a very important, if not a key, role in aggregate wealth accumulation. While intergenerational transfers figure very large in savings, the precise motivation for such transfers is unclear. Intergenerational altruism might appear the most likely candidate, but at least sane stylized facts, such as the equal allocation of bequests among children, are strongly at adds with the altruism model. Other explanations involving imperfect insurance arrangements or payments for child services do not appear capable of explaining the substantial amounts of transfers actually observed. Sorting cut the relative contributions of different models to intergenerational transfers and the precise role of intergenerational transfers in the process of wealth accumulation remains an intriguing and exciting enterprise.
Handle: RePEc:nbr:nberwo:2237
Template-Type: ReDIF-Paper 1.0
Title: Constraints on the Choice of Work Hours: Agency vs. Specific-Capital
Author-Name: Shulamit Kahn
Author-Person: pka260
Author-Name: Kevin Lang
Author-Person: pla83
Note: LS
Number: 2238
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2238
File-URL: http://www.nber.org/papers/w2238.pdf
File-Format: application/pdf
Publication-Status: published as Shulamit Kahn & Kevin Lang. "Constraints on the Choice of Work Hours: Agency Versus Specific-Capital," The Journal of Human Resources Vol. 27, No. 4 (Autumn, 1992), pp. 661-678 (18 pages)
Abstract: Most models of implicit lifetime contracts imply that at any particular point in time, workers' wages and value of marginal product (VMP) will diverge. As a result, the contract will have to specify hours as well as wages, since firms will desire to prevent workers from working more when the wage is greater than VMP and from working less when the wage is less than VMP. this divergence, combined with the fact that in efficient contracts, the hours are set so that VMP equals the marginal value of leisure, implies that workers will face binding hours constraints. We show that the two major models of lifetime contracts, the agency model and the firm-specific capital model, make opposite predictions regarding the relation between work hours constraints and job tenure. We test these predictions. Our results indicate that neither model of efficient long-term contracts explains the observed pattern of hours constraints. Therefore, we briefly consider other explanations.
Handle: RePEc:nbr:nberwo:2238
Template-Type: ReDIF-Paper 1.0
Title: A Generic Model of Monetary Policy, Inflation, and Reputation
Author-Name: Herschel I. Grossman
Note: ME EFG
Number: 2239
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2239
File-URL: http://www.nber.org/papers/w2239.pdf
File-Format: application/pdf
Publication-Status: published as "Inflation and Reputation with Generic Policy Preferences." From Journal of Money, Credit and Banking, Vol. 22, No. 2, pp. 165-177, (May 1990).
Abstract: This paper analyzes a reputational equilibrium for inflation under the generic assumption that monetary policy reflects proximate preferences for low expected inflation and positive unexpected inflation. The paper stresses the qualitative implication that in a reputational equilibrium the policymaker behaves as if it is concerned about controlling inflation, even though it does not have a direct preference for a low actual inflation rate. The analysis also shows how the sovereign's prospects for survival and the private agents' memory process play critical roles in determining whether the reputational equilibrium approximates a hypothetical equilibrium with binding commitments.
Handle: RePEc:nbr:nberwo:2239
Template-Type: ReDIF-Paper 1.0
Title: Changing Patterns of International Investment In and By the United States
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 2240
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2240
File-URL: http://www.nber.org/papers/w2240.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) The United States in the World Economy. Chicago: University of Chicago Press, 1988.
Publication-Status: published as Changing Patterns of International Investment in and by the United States, Robert E. Lipsey, Mario Schimberni, Robert V. Lindsay. in The United States in the World Economy, Feldstein. 1988
Abstract: The international investment account of the United States has gone through several cycles. Before World War I, the U.S. was a borrower most of the time and an international debtor. Between the two World Wars, it was first a lender and then a refuge for foreign capital. After World War 11, the U.S. became the world's major lender and creditor and in the last few years it has become the world's largest borrower, and, according to the official accounts, even a net debtor. U.S. direct investment abroad began while the U.S. was still an overall borrower and debtor. The technological leaders among U.S. manufacturing firms pioneered in this technique for exploiting their particular knowledge and skills by producing in other countries. The peak in the importance of foreign assets relative to the domestic assets of U.S. companies was probably reached during the early 1970s. While the flow of direct investment from the U.S. has slowed, there has recently been a large inflow of foreign direct investment into the U.S.. That inflow has roughly tripled the share of foreign-owned companies in the U.S. since 1950. While foreign-owned firms accounted for only about 3% per cent of total U.S. employment after all the recent growth in foreign direct investment in the U.S., the shares in manufacturing and wholesale trade were considerably higher. Foreign firms accounted for almost 40 per cent of chemical industry employment, but for less than 10 per cent in all the other industries. The foreign shares in service industries, aside from wholesale trade, increased, but remained below 3 per cent.
Handle: RePEc:nbr:nberwo:2240
Template-Type: ReDIF-Paper 1.0
Title: Institutional Aspects of High Unemployment in the Federal Republic of Germany
Author-Name: Michael C. Burda
Author-Person: pbu123
Author-Name: Jeffrey D. Sachs
Note: ITI IFM
Number: 2241
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2241
File-URL: http://www.nber.org/papers/w2241.pdf
File-Format: application/pdf
Publication-Status: published as World Economy, 1988 Fall
Abstract: The sustained rise in German unemployment since 1973 poses a problem of critical importance for the world economy. Fewer than two decades ago, Germany boasted an average unemployment rate of under 1% and imported labor to relieve chronic labor shortages. By the mid-1980s, unemployment had risen to over 8 percent of the labor force. This paper investigates some of the reasons for the secular rise in unemployment. We find that while deficient aggregate demand can probably explain some of the current joblessness, the secular rise in unemployment has consisted primarily of an increase in the equilibrium rate of unemployment. We also find little evidence that this increase is due to changes in frictional unemployment. Rather, after reviewing institutional details of the labor market in Germany, we identify various impediments to the kinds of structural adjustments that have operated to maintain a fairly constant equilibrium rate of unemployment in the United States.
Handle: RePEc:nbr:nberwo:2241
Template-Type: ReDIF-Paper 1.0
Title: Accounting for Racial Differences in School Attendance in the American South, 1900: The Role of Separate-But-Equal
Author-Name: Robert A. Margo
Author-Person: pma319
Note: DAE
Number: 2242
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2242
File-URL: http://www.nber.org/papers/w2242.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol.69, no.4, pp661-666, November 1987
Abstract: Everyone knows that public school officials in the American South violated the Supreme Court's separate-but-equal decision. But did the violations matter? Yes, enforcement of separate-but-equal would have narrowed racial differences in school attendance in the early twentieth century South. But separate-but-equal was not enough. Black children still would have attended school less often than white children because black parents were poorer and less literate than white parents.
Handle: RePEc:nbr:nberwo:2242
Template-Type: ReDIF-Paper 1.0
Title: Share Repurchases and Acquisitions: An Analysis of Which Firms Participate
Author-Name: John B. Shoven
Author-Name: Laurie Blair Simon
Note: PE
Number: 2243
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2243
File-URL: http://www.nber.org/papers/w2243.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan J. (ed.) Corporate Takeovers: Causes and Consequences. Chicago: University of Chicago Press, 1988.
Abstract: Firms can transmit cash to shareholders either by paying dividends or by purchasing shares. The share purchases can be either the firm's own securities or those of another firm. Recent evidence suggests that there has been a dramatic increase in the use of these nondividend payments to shareholders. This paper reviews the theories which have been offered regarding the motivation of nondividend payments. These include taxation advantages, adjustment towards optimal debt-equity ratios, anti-takeover strategies, free cash flow (agency) considerations, signaling, and habit formation or learning. From these theories, we derive and investigate econometrically potential characteristics which predict participation in the above actions for roughly 2.000 firms in 1976 and 1984. We find the variables suggested by the various hypotheses collectively have substantial power in predicting participation in share repurchase and acquisitions. The free cash flow and habit forming arguments prove most consistent with our findings. Tests for structural change across time confirm an intercept shift consistent with dramatic increases in these activities, and fail to reject that the characteristic determinants of these actions are unchanged.
Handle: RePEc:nbr:nberwo:2243
Template-Type: ReDIF-Paper 1.0
Title: International Macroeconomic Policy Coordination
Author-Name: Stanley Fischer
Note: ITI IFM
Number: 2244
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2244
File-URL: http://www.nber.org/papers/w2244.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley, "International Macroeconomic Policy Coordination," in International Economic Cooperation," ed. by Martin Feldstein, Chicago: University of Chicago Press, 1988.
Abstract: Increasing integration of the world economy, in both trade and capital markets, holds out the promise of mutual gains to countries from the coordination of their macroeconomic policy decisions. In this paper I describe the theoretical case for coordination, evaluate empirical estimates of the potential gains, review the history of macroeconomic policy coordination, and discuss the prospects for increased coordination. The theoretical argument is seen most clearly in the consideration of fiscal expansion. Any one country that expands will create a current account deficit; all countries expanding together avoid that problem. In principle coordination is always better, but empirical estimates suggest the likely gains are small because the effects of policy in one country on the economies of other countries are small. Further, uncertainties about the effects of policy, reflected in differences among econometric models, mean that countries may have very different views on the likely outcomes of agreements--and therefore that some of them are bound to be disappointed. Information exchanges and some coordination on trade policy take place in a large number of international organizations and frameworks. But the breakdown of the Bretton Woods system suggests that international differences in policy goals are too large for systematic macroeconomic policy coordination among the major economies to take place anytime soon. Occasional agreements on particular policy packages are possible, and coordination does take place in the framework of the European Monetary System.
Handle: RePEc:nbr:nberwo:2244
Template-Type: ReDIF-Paper 1.0
Title: Home Ownership and Real House Prices: Sources of Change, 1965-85
Author-Name: Patric H. Hendershott
Note: PE
Number: 2245
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2245
File-URL: http://www.nber.org/papers/w2245.pdf
File-Format: application/pdf
Publication-Status: published as Hendershott, Patric H. "Home Ownership and Real House Prices: Sources of Change, 1965-85." Housing Finance Review, January 1988, pp. 1-18.
Abstract: Two phenomena characterized the housing market in the 1970s: a somewhat-disguised surge toward home ownership and a well-publicized sharp increase in the real price of housing. These movements were partially reversed in the first half of the 1980s. In the "standard view", the 1970s changes are attributed to an interaction of the tax system and rising inflation. Given the disinflation of the 1980s, this explanation also seems consistent with the reversals in ownership and real prices. Recent work challenges the standard view. Inflation is said to disfavor home ownership, and real house prices are said to be determined largely by supply (cost), not demand, factors. This paper considers the data on home ownership and real house prices and evaluates the standard view vis-a-vis its challengers. Data from the 1980s suggest that other factors (probably rising income for ownership and negative construction productivity growth for real prices) were responsible for at least half of the 1970s increase in ownership and real price.
Handle: RePEc:nbr:nberwo:2245
Template-Type: ReDIF-Paper 1.0
Title: Implicit Taxation in Lottery Finance
Author-Name: Charles T. Clotfelter
Author-Person: pcl34
Author-Name: Philip J. Cook
Author-Person: pco30
Note: PE
Number: 2246
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2246
File-URL: http://www.nber.org/papers/w2246.pdf
File-Format: application/pdf
Publication-Status: published as "Implicit Taxation in Lottery Finance." From National Tax Journal, Vol. 40 , No. 4, pp. 533-546, December 1987.
Abstract: State lotteries as they are operated in the United State today involve four distinct aspects: legalization of lottery games, monopolistic provision by the state, marketing of lottery products, and extraction of a portion of the surplus they derive from sales for state revenue. In this paper we use conventional tools of applied public finance to examine the implicit tax levied by lottery agencies through this fourth function . We examine the incidence of the implicit lottery tax, focusing on the dominant lottery games used in the 1980s. We find that the implicit tax is regressive in virtually all cases. We then consider whether the implicit tax rate on lotteries is too high, comparing that rate to excise tax rates on alcohol and tobacco.
Handle: RePEc:nbr:nberwo:2246
Template-Type: ReDIF-Paper 1.0
Title: Intertemporal Constraints, Shadow Prices, and Financial Asset Values
Author-Name: Robert S. Chirinko
Author-Person: pch94
Note: EFG
Number: 2247
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2247
File-URL: http://www.nber.org/papers/w2247.pdf
File-Format: application/pdf
Abstract: The conditions under which the unobserved shadow price of capital can be equated to the financial value of the firm have been developed in an important paper by Hayashi (1982). Employing a more powerful analytic method, this paper reexamines the shadow price- asset value relation in a model with a general set of intertemporal constraints. For a model with one capital good, a general relation between shadow prices and asset values is derived, and restrictive assumptions implicit in previous work are highlighted. Of particular importance is the relation between the marginal and average survival rates of capital, and the critical role of geometric depreciation. The impact of a discrete-time framework in specifying and interpreting econometric models is also explored.
Handle: RePEc:nbr:nberwo:2247
Template-Type: ReDIF-Paper 1.0
Title: Self-Selection and the Earnings of Immigrants
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 2248
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2248
File-URL: http://www.nber.org/papers/w2248.pdf
File-Format: application/pdf
Publication-Status: published as Borjas, George J. "Self-Selection and the Earnings of Immigrants," American Economic Review, Vol. 77, No. 4, pp. 531-553, September 1987.
Abstract: This paper analyzes the way in which the earnings of the immigrant population may be expected to differ from the earnings of the native population because of the endogeneity of the migration decision. The conditions that determine the nature of the self -selection are derived and depend on economic and political characteristics of the sending and receiving countries. The empirical analysis shows that differences in the U.S. earnings of immigrants with the same measured skills, but from different home countries, are attributable to variations in conditions in the country of origin at the time of migration.
Handle: RePEc:nbr:nberwo:2248
Template-Type: ReDIF-Paper 1.0
Title: Are Exchange Rates Excessively Variable?
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Richard Meese
Note: LS
Number: 2249
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2249
File-URL: http://www.nber.org/papers/w2249.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley (ed.) NBER Macroeconomics Annual 1987, Vol. 2. The MIT Press, 1987
Publication-Status: published as Are Exchange Rates Excessively Variable?, Jeffrey A. Frankel, Richard Meese. in NBER Macroeconomics Annual 1987, Volume 2, Fischer. 1987
Abstract: "Unnecessary variation" is defined as variation not attributable to variation in fundamentals. In the absence of a good model of macroeconomic fundamentals, the question "are exchange rates excessively variable?" cannot be answered by comparing the variance of the actual exchange rate to the variance of a set of fundamentals. This paper notes the failure of regression equations to explain exchange rate movements even using contemporaneous macroeconomic variables. It notes as well the statistical rejections of the unbiasedness of the forward exchange rate as a predictor of the spot rate. It then argues that, given these results, there is not much to be learned from the variance-bounds tests and bubbles tests. The paper also discusses recent results on variation in the exchange risk premiums arising from variation in conditional variances, both as a source of the bias in the forward rate tests and as a source of variation in the spot rate. It finishes with a discussion of whether speculators' expectations are stabilizing or destabilizing, as measured by survey data. The paper concludes that it is possible that exchange rates have been excessively variable -- as, for example, when there are speculative bubbles -- but that if policy-makers try systematically to exploit their credibility in order to stabilize exchange rates, they may see their current credibility vanish.
Handle: RePEc:nbr:nberwo:2249
Template-Type: ReDIF-Paper 1.0
Title: Capital Controls and the Timing of Exchange Regime Collapse
Author-Name: Daekuen Park
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 2250
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2250
File-URL: http://www.nber.org/papers/w2250.pdf
File-Format: application/pdf
Publication-Status: published as Daekeun Park & Jeffrey D. Sachs, 1996. "The Timing Of Exchange Regime Collapse Under Capital Controls," International Economic Journal, Korean International Economic Association, vol. 10(4), pages 123-141, December.
Abstract: This paper investigates the nature of balance of payments crises in regimes with capital controls. It extends earlier work on capital controls by assuming that households manage their consumption and asset portfolios to maximize intertemporal utility. Our main result is that capital controls are effective in delaying, but not preventing, a breakdown of a fixed exchange rate regime in the presence of money-financed fiscal deficits.
Handle: RePEc:nbr:nberwo:2250
Template-Type: ReDIF-Paper 1.0
Title: Efficient "Myopic" Asset Pricing in General Equilibrium: A Potential Pitfall in Excess Volatility Tests
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ME
Number: 2251
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2251
File-URL: http://www.nber.org/papers/w2251.pdf
File-Format: application/pdf
Publication-Status: published as Economics Letters, Vol. 25, No. 2, 1987, pp. 143-148.
Abstract: Excess volatility tests for financial market efficiency maintain the hypothesis of risk-neutrality. This permits the specification of the benchmark efficient market price as the present discounted value of expected future dividends. By departing from the risk-neutrality assumption in a stripped-down version of Lucas's general equilibrium asset pricing model, I show that asset prices determined in a competitive asset market and efficient by construction can nevertheless violate the variance bounds established under the assumption of risk neutrality. This can occur even without the problems of non-stationarity (including bubbles) and finite samples. Standard excess volatility tests are joint tests of market efficiency and risk neutrality. Failure of an asset price to pass the test may be due to the absence of risk neutrality rather than to market inefficiency.
Handle: RePEc:nbr:nberwo:2251
Template-Type: ReDIF-Paper 1.0
Title: The Insensitivity of Consumption to News About Income
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: EFG
Number: 2252
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2252
File-URL: http://www.nber.org/papers/w2252.pdf
File-Format: application/pdf
Publication-Status: published as West, Kenneth D. "The Insensitivity of Consumption to News About Income." Journal of Monetary Economics, Vol. 21, (1988), pp. 17-33.
Abstract: This paper uses a variance bounds test to see whether consumption is too sensitive to news about income to be consistent with a standard permanent income model, under the maintained hypothesis that income has a unit root. It is found that, if anything, consumption is less sensitive than the model would predict. This implication is robust to the representative consumer having private information about his future income that the econometrician does not have, to wealth shocks, and to transitory consumption. This suggests the importance in future research on the model of allowing for factors that tend to make consumption smooth.
Handle: RePEc:nbr:nberwo:2252
Template-Type: ReDIF-Paper 1.0
Title: Implicit Estimates of Natural, Trend, and Cyclical Components of Real GNP
Author-Name: Charles R. Nelson
Author-Person: pne247
Note: ME
Number: 2253
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2253
File-URL: http://www.nber.org/papers/w2253.pdf
File-Format: application/pdf
Abstract: Estimates of the natural or full employment level of real GNP have usually been obtained by statistical detrending procedures which assume independence between trend and cycle. This paper presents an alternative approach which says that the natural level should be measured in the context of a macro model. If the quantity equation holds with money exogenous and if the price level is sticky, then observed real GNB will reflect both nominal shocks, which are observed, and real shocks, which are unobserved shifts in the natural level. The path of the natural level is then implicit in the data given the model. Calculated paths of the natural level of U.S. real GNP and the resulting business cycle are presented.
Handle: RePEc:nbr:nberwo:2253
Template-Type: ReDIF-Paper 1.0
Title: Unions and Efficiency in Private Sector Construction: Further Evidence
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 2254
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2254
File-URL: http://www.nber.org/papers/w2254.pdf
File-Format: application/pdf
Publication-Status: published as Allen, Steven G. "Unions and Efficiency in Private Sector Construction: Further Evidence," Industrial Relations, published as "Further Evidence on Union Efficiency in Construction" Industrial Relations, vol.27, no. 2, Spring 1988, pp232-240.
Abstract: Previous studies using micro data to estimate the impact of unions on productivity in construction in the early 1970's have found productivity to be higher for union than nonunion contractors in the private sector. The validity of these studies has been questioned in light of the declining market share of union contractors. This study re-examines union-nonunion productivity differences over a sample of retail stores and shopping centers built in the late 1970's. It finds that square footage put in place per hour is 51 percent greater for union than nonunion contractors. Lacking data on wage rates by occupation, the impact of unions on efficiency can be gauged only by looking at how unions affect costs, profit rates, and prices. This study finds no mean cost per square foot difference between union and nonunion contractors and offers mixed econometric evidence on translog cost functions. There is no difference in profit rates or prices between union and nonunion contractors in this sample.
Handle: RePEc:nbr:nberwo:2254
Template-Type: ReDIF-Paper 1.0
Title: The Stochastic Properties of Velocity: A New Interpretation
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Lars Jonung
Note: ME
Number: 2255
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2255
File-URL: http://www.nber.org/papers/w2255.pdf
File-Format: application/pdf
Publication-Status: published as Bordo, Michael D. and Lars Jonung. "The Stochastic Properties of Velocity: Evidence for Five Countries." The Long-run Behavior of the Velocity of Circulation, ed. by Michael Bordo and Lars Jonung, pp. 135-148. New York: Cambridge University Press, 1987.
Abstract: A number of recent studies have concluded that velocity for the United States for the past century displays the characteristics of a random walk without drift. In this study, we confirm this result for four other countries for which we have over a century of data -- Canada, the United Kingdom, Sweden and Norway. One implication of a random walk is that past changes in velocity cannot be used to predict future changes. However, this does not mean that past changes in variables that economic theory deems important determinants of velocity cannot be used to predict future changes. In this study we find that past changes in the traditional determinants of velocity - permanent income and interest rates, as well as a number of institutional variables, can be used to predict future changes in velocity.
Handle: RePEc:nbr:nberwo:2255
Template-Type: ReDIF-Paper 1.0
Title: Future Social Security Financing Alternatives and National Saving
Author-Name: Michael J. Boskin
Note: PE
Number: 2256
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2256
File-URL: http://www.nber.org/papers/w2256.pdf
File-Format: application/pdf
Publication-Status: published as Boskin, M. "Future Social Security Financing Alternatives and National Saving," in Social Security and Private Pensions: Providing for Retirement inthe Twenty-first Century, ed. by Susan M. Wachter, Lexington Books, 1988, pp. 111-143.
Abstract: While the short-run financial status of Social Security is secure, its long-run financial status is very uncertain. The retirement and disability part of the system (OASDI) is projected to be in long-run actuarial deficit under the Social Security Administration's intermediate economic and demographic f9recasts. Hospital Insurance (HI) is projected to run a large deficit, beginning in the 1990s. OASDI is projected to accrue a very large surplus over the next thirty years, peaking at almost 30% of GNP. Social Security has never accrued a surplus this large; it may well be dissipated for other purposes, such as to bail out HI, fund other programs, raise benefits, or cut taxes. These alternatives may affect net national saving, directly because Social Security surpluses or deficits are part of government sector saving and indirectly through effects on private saving or the non-Social Security part of the federal government budget. This paper documents how various systematic deviations from, or return to, pay-as-you-go finance of the Social Security system may affect net national saving. For example, under base case assumptions with respect to the non-Social Security deficit, a constant net private saving rate of 6%, and long-run budget balance in the state and local government sector, the Social Security deficit offsets 40% of other net national saving over the Social Security Administration's 75-year projection period. In the first 25-year sub-period, the Social Security surplus adds one-sixth to other net national saving; in the second, it offsets almost one-half; and in the third, it offsets five-sixths of other net national saving. Of course, private saving may respond to changes in Social Security's funding as may the non-Social Security balance in the federal budget. The paper presents several alternative scenarios such as benefits increasing or taxes falling during the OASDI surplus period, various stylized rules concerning the non-Social Security budget deficit, and separate balancing of HI via outlay reductions or tax increases. The results indicate that OASDI may effect net national saving substantially. For example, if benefits ratchet up during what would have been the period of the OASDI surplus, the OASDI system may subsequently offset virtually all of remaining net national saving. On the other hand, if HI is brought into balance and the OASDI surplus is allowed to accrue, Social Security will offset only about 4% of other net national saving. Changes in private saving may accentuate or ameliorate the swings in the net national saving rate generated by the future financing of OASDHI, but the alternative financing options will be important determinant of net national saving, and therefore of private domestic investment and international capital flows.
Handle: RePEc:nbr:nberwo:2256
Template-Type: ReDIF-Paper 1.0
Title: Social Security Benefits: An Empirical Study of Expectations and Realizations
Author-Name: B. Douglas Bernheim
Author-Person: pbe81
Note: PE AG
Number: 2257
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2257
File-URL: http://www.nber.org/papers/w2257.pdf
File-Format: application/pdf
Publication-Status: published as Issues in Contemporary Retirement, (eds) R. Ricardo, Campbell, E. Lazaer, Hoover Institution Press: Palo Alto, 1988.
Publication-Status: published as Bernheim, B. Douglas and Lawrence Levin. "Social Security And Personal Saving: An Analysis Of Expectations," American Economic Review, 1989, v79(2), 97-102.
Abstract: I employ data drawn from the Retirement History Survey to study the accuracy of pre-retirement expectations concerning social security benefits. The major findings of this study are as follows. First, survey responses to questions about expected benefits are reasonably noisy. However, when one properly filters out the noise, reported forecasts appear to explain roughly 60% of the variance in realizations. Second, consumers do not form expectations on the basis of all available information. Proper adjustment of forecasts for information contained in concurrent social security entitlements could reduce the residual forecast error variance by roughly 15%. The potential gains from incorporating other information are minimal. Third, individuals do not ignore or forget information which they have used in the past, and they tend to form all expectations on the basis of the same information. Fourth, expectations are highly accurate, given the information that people do use. Extreme optimism is uncommon. Surprisingly, expectations were not abnormally inaccurate during periods of rapid legislative change. Fifth, of various population subgroups, widows and single women tend to make both the most conservative and most accurate forecasts. Married men are least conservative and least accurate. Accuracy and conservativism are not systematically related to wealth or education. Finally, individual behavior appears to conform more closely to the predictions of theory as retirement approaches.
Handle: RePEc:nbr:nberwo:2257
Template-Type: ReDIF-Paper 1.0
Title: Testing Ricardian Neutrality with an Intertemporal Stochastic Model
Author-Name: Leonardo Leiderman
Author-Name: Assaf Razin
Author-Person: pra388
Note: ITI IFM
Number: 2258
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2258
File-URL: http://www.nber.org/papers/w2258.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, Vol. 20, No. 1, (February 2000).
Publication-Status: published as Financial Crises in Emerging Markets, Glick, Reuven, Ramon Moreno and Mark Speigel, eds., Cambridge: Cambridge University Press, 2000, chapter 8.
Abstract: The purpose of this paper is to develop and estimate a stochastic-intertemporal model of consumption behavior and to use it for testing a version of the Ricardian-equivalence proposition with time series data. Two channels that may give rise to deviations from this proposition are specified: Finite horizons and liquidity constraints. In addition, the model incorporates explicitly the roles of taxes, substitution between public , and private consumption, and different degrees of consumer goods' durability. The evidence, based on data for Israel in the first half of the 1980s, supports the Ricardian neutrality specification, yielding plausible estimates for the behavioral parameters of the aggregate consumption function.
Handle: RePEc:nbr:nberwo:2258
Template-Type: ReDIF-Paper 1.0
Title: Nominally Sovereign Debt, Risk Shifting, and Reputation
Author-Name: Herschel I. Grossman
Author-Name: John B. Van Huyck
Note: ME EFG
Number: 2259
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2259
File-URL: http://www.nber.org/papers/w2259.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economics and Business, Vol. 45, Nos. 3 & 4, pp. 341-352 (August , October 1993)
Abstract: This paper analyzes a reputational equilibrium in a model in which nominally denominated sovereign debt serves to shift risk associated with the unpredictability of tax revenues from the sovereign to its lenders. The analysis answers the following set of related questions: Why would a sovereign refrain from inflating when faced with servicing a large quantity of nominal debt? If a sovereign does not plan to use inflation to repudiate its nominal debts, why would it want to issue nominal debt in the first place? What are the distinguishing features of those sovereigns who are willing and able to issue nominal debts?
Handle: RePEc:nbr:nberwo:2259
Template-Type: ReDIF-Paper 1.0
Title: Who Should Learn What From the Failure and Delayed Bailout of the ODGF?
Author-Name: Edward J. Kane
Author-Person: pka853
Note: ME
Number: 2260
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2260
File-URL: http://www.nber.org/papers/w2260.pdf
File-Format: application/pdf
Publication-Status: published as Edward J. Kane, 1987. "Who should learn what from the failure and delayed bailout of the ODGF?," Proceedings, Federal Reserve Bank of Chicago, pages 306-326.
Abstract: In March 1985, the failure of the Ohio Deposit Guarantee Fund (the ODGF) sent shock waves reverberating through the financial world. This episode is popularly interpreted as evidence of the dangers of both private deposit insurance and continuing financial deregulation. This paper argues that policies of financial deregulation played little role in the ODGF insolvency. The failure of the ODGF was instead a failure of government regulation, rooted in inadequacies in the OGDF information and enforcement systems. The ODGF may be conceived as the Federal Savings and Loan Insurance Corporation writ small. Both agencies share many of the same structural imbalances: large unresolved losses, explicitly mispriced and underreserved services, inadequate information and monitoring systems, insufficient disciplinary powers, and a susceptibility to political pressures to forbear. Doctors perform autopsies on dead patients to improve their ability to protect living ones. This paper's autopsy of the institutional corpse of the ODGF focuses on identifying the kinds of disturbances that transform structural imbalances into a full-fledged crisis. Our research underscores the way that deceptive accounting and underfinanced insurance funds contain crisis pressures in the short run by setting the stage for more severe problems down the line. As financial markets approach more and more closely the perfect and complete markets beloved by finance theorists, the amount of time that can be bought by policies that merely defer crisis pressures is shrinking and becoming hard to use productively.
Handle: RePEc:nbr:nberwo:2260
Template-Type: ReDIF-Paper 1.0
Title: Tariffs, Employment and the Current Account: Real Wage Resistance and the Macroeconomics of Protectionism
Author-Name: Sweder van Wijnbergen
Author-Person: pva412
Note: ITI IFM
Number: 2261
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2261
File-URL: http://www.nber.org/papers/w2261.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Vol. 28, no. 3 (1987): 691-706.
Abstract: Using a standard complete specialization model of a small open economy within a rigorous intertemporal optimization framework with contract- based wage rigidity, we show that permanent tariffs may lead to a current account deterioration and a fall in employment, contradicting most of the literature of macro-economic effects of import tariffs. I show that this will always be the case if the economy is small enough. The crucial factor in this complete reversal of standard results is the impact of tariffs on domestic real product wages via wage indexation. Temporary tariffs will have less of a negative impact on the CA or potentially even a positive impact, because they increase the consumption rate of interest (the terms at which future consumption can be traded for current consumption) and so increase private savings. Extensions towards incorporating a more general production structure, investment and the use of tariff revenues to provide wage subsidies are presented.
Handle: RePEc:nbr:nberwo:2261
Template-Type: ReDIF-Paper 1.0
Title: Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Author-Name: Sweder van Wijnbergen
Author-Person: pva412
Note: ITI IFM
Number: 2262
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2262
File-URL: http://www.nber.org/papers/w2262.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Journal, Vol. 99, No. 397, pp. 785-805, (September 1989).
Abstract: A stochastic two-country neoclassical rational expectations model with sticky prices -- optimally set by monopolistically competitive firms -- and possible excess capacity is developed to examine international spillover effects on output of monetary disturbances. The Mundell-Fleming model predicts that monetary expansion at home leads to recession abroad. In contrast, our main result is that spillover effects of monetary policy may be either positive or negative, depending upon whether the intertemporal elasticity of substitution in consumption exceeds the intratemporal elasticity of substitution. The model in addition is used to determine nominal and real interest rates, exchange rates, and other asset prices.
Handle: RePEc:nbr:nberwo:2262
Template-Type: ReDIF-Paper 1.0
Title: Longitudinal Analysis of Strike Activity
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 2263
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2263
File-URL: http://www.nber.org/papers/w2263.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 6, No. 2, pp. 147-176, (April 1988).
Abstract: This paper presents evidence on two aspects of strike activity associated with the renegotiation of union contracts: the effects of contract characteristics on dispute probabilities; and the effects of lagged strike outcomes on the incidence and duration of subsequent disputes. The empirical results show that strike probabilities are higher following a longer contract, and lower in limited reopening situations. Strike probabilities are also higher in summer and fall than in winter and spring. Finally, strike probabilities are significantly affected by lagged strike outcomes. Relative to a peaceful settlement, strike probabilities are 10 percentage points higher following a strike of two weeks or less, and 5 to 7 percentage points lower following a longer dispute.
Handle: RePEc:nbr:nberwo:2263
Template-Type: ReDIF-Paper 1.0
Title: Investment Under Uncertainty: Theory and Tests with Industry Data
Author-Name: Robert E. Hall
Note: EFG
Number: 2264
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2264
File-URL: http://www.nber.org/papers/w2264.pdf
File-Format: application/pdf
Abstract: Under the assumption of constant returns to scale, there is a very simple, easily testable condition for optimal investment under uncertainty. Application of the test requires no parametric assumptions about technology and no assumptions about the competitiveness of the output market. The condition is that the expected marginal revenue product of labor equal the expected rental price of capital. The condition implies a certain invariance property for a modified version of Solow's productivity residual. Tests of the invariance property for U.S. industry data give very strong rejection in quite a few industries. The interpretation of rejection is either that the technology has increasing returns (possibly because of fixed costs) or that fins systematically over-invest.
Handle: RePEc:nbr:nberwo:2264
Template-Type: ReDIF-Paper 1.0
Title: Consumption
Author-Name: Robert E. Hall
Note: EFG
Number: 2265
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2265
File-URL: http://www.nber.org/papers/w2265.pdf
File-Format: application/pdf
Publication-Status: published as Modern Business Cycle Theory, Robert J. Barro, ed., Harvard University Press, Cambridge, MA 1989
Publication-Status: published as Hall, Robert E. "Potential Disruption From The Move To A Consumption Tax," American Economic Review, 1997, v87(2,May), 147-150.
Abstract: Macroeconomic research on consumption has been influenced profoundly by rational expectations. First, rational expectations together with the hypothesis of constant expected real interest rates implies that consumption should evolve as a random walk. Much of the research of the past decade has been devoted to testing the random walk hypothesis and to explaining its failure. Three branches of the literature have developed. The first relies on the durability of consumption to explain deviations from the random walk property. The second invokes liquidity constraints which block consumers from the credit market transactions needed to make consumption follow a random walk when income fluctuates up and down. The third branch dispenses with the assumption that expected real interest rates are constant. It attempts to explain deviations from the random walk in terms of intertemporal substitution.
Handle: RePEc:nbr:nberwo:2265
Template-Type: ReDIF-Paper 1.0
Title: Pensions and Firm Performance
Author-Name: Steven G. Allen
Author-Person: pal6
Author-Name: Robert L. Clark
Note: LS
Number: 2266
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2266
File-URL: http://www.nber.org/papers/w2266.pdf
File-Format: application/pdf
Publication-Status: published as Allen, Steven G. and Robert L. Clark. "Pensions and Firm Performance," Human Resources and Firm Performance, ed. by Morris Kleiner, et. al. Madison, WI: Industrial relations Research Association, 1987.
Abstract: This paper examines how pension plans affect employee behavior and firm performance. Theoretically, the impact of pensions on firm performance cannot be predicted. Firms with pensions should have lower turnover rates and more efficient retirement decisions; their employees will be less likely to shirk. On the other hand, pension compensation is not very closely linked to worker performance and there is some risk that turnover may fall too much. The evidence indicates that although wages do not seem to fall with pension compensation, profit rates are not affected by pension coverage. This suggests that pension coverage is associated with higher productivity, a proposition that is supported by indirect evidence on pensions, turnover, and productivity but not by direct tests of how pension coverage and productivity are correlated.
Handle: RePEc:nbr:nberwo:2266
Template-Type: ReDIF-Paper 1.0
Title: The Decline of Unionization in the United States: What can Be Learned from Recent Experience?
Author-Name: Henry S. Farber
Note: LS
Number: 2267
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2267
File-URL: http://www.nber.org/papers/w2267.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 8, No. 1, Pt. 2, pp. S75-S105, (January 1990).
Abstract: The dramatic decline in unionization over the last decade is investigated in the context of a supply/demand model of union status determination. Data from surveys conducted in 1977 and 1984 are used to decompose the decline into components due to a drop in the demand for union representation and a drop in the supply of union jobs relative to demand. It is found that there has been a substantial drop in demand that can be accounted for by an increase in the job satisfaction of nonunion workers and a decrease in nonunion workers' beliefs that unions improve wages and working conditions. It is also found that there has been a substantial drop in the supply of union jobs relative to demand that is attributed to an increase in employer resistance to unionization. Increased foreign and increased nonunion domestic competition (particularly in deregulated industries) are cited as the likely key underlying causes of these changes.
Handle: RePEc:nbr:nberwo:2267
Template-Type: ReDIF-Paper 1.0
Title: Stabilization with Exchange Rate Management under Uncertainty
Author-Name: Allan Drazen
Author-Person: pdr25
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI IFM
Number: 2268
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2268
File-URL: http://www.nber.org/papers/w2268.pdf
File-Format: application/pdf
Publication-Status: published as Economic Effects of the Government Budget, edited by Elhanan Helpman, Assaf Razin, and Efraim Sadka, pp. 310-327. Cambridge, MA: MIT Press, 1988.
Abstract: Stabilization programs in open economies typically consist of two stages. In the first stage the rate of currency devaluation is reduced, but the fiscal adjustment does not eliminate the fiscal deficit which causes growth of debt and loss of reserves, making a future policy change necessary. Only later, at a second stage, is this followed by either an abandonment of exchange rate management or by a sufficiently large cut in the fiscal deficit. We study how different second-stage policy changes affect economic dynamics during the first stage. These changes include tax increases, budget cuts on traded and nontraded goods, and increases in the growth rate of money. Under certainty about the timing and nature of a switch, current account developments provide information about which policy instrument is expected to be used for stabilization. Uncertainty about the timing of a stabilization is shown to be important in explaining phenomena such as continuous reserve losses and the possibility that a policy change is accompanied by a surprise discrete devaluation rather than a run on reserves.
Handle: RePEc:nbr:nberwo:2268
Template-Type: ReDIF-Paper 1.0
Title: Regulation and the Provision of Quality to Heterogenous Consumers: The Case of Prospective Pricing of Medical Services
Author-Name: Robin Allen
Author-Name: Paul J. Gertler
Author-Person: pge194
Note: EH
Number: 2269
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2269
File-URL: http://www.nber.org/papers/w2269.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Regulatory Economics, vol. 3, pp. 361-375 December, 1991.
Abstract: This gaper analyzes the welfare implications of fixed price regulation in a model in which consumers are heterogeneous and a firm can endogenously quality discriminate. The motivation for this analysis is the current move of third party payors (governmental and private insurors) toward prospective pricing of medical services. Our major result is that prospective pricing causes a distributional welfare loss. Specifically, in our model, prospective pricing induces a profit maximizing medical care provider to simultaneously provide a smaller than socially optimal level of quality to more severely ill patients and, surprisingly, a greater than socially optimal amount of quality to less severely ill patients. Further, the distributional welfare loss does not disappear when ethically motivated deviation from profit maximization is allowed. The inefficient distribution of quality occurs because prospective payment regulation fixes the price across patients with different severities of illness but allows providers to quality discriminate. More complicated DRG pricing rules do not appear to be able to completely avoid this problem. Alternatively, vertical integration of third party payors into the direct provision of medical care is shown to be able to bypass the problem completely. This implies that the recent proliferation of vertically integrated health care organizations such health maintenance organizations, preferred provider organizations, and managed care plans by self-insuring employers are welfare improving.
Handle: RePEc:nbr:nberwo:2269
Template-Type: ReDIF-Paper 1.0
Title: The Optimal Collection of Seigniorage: Theory and Evidence
Author-Name: N. Gregory Mankiw
Note: ME EFG PE
Number: 2270
Creation-Date: 1987-05
Order-URL: http://www.nber.org/papers/w2270
File-URL: http://www.nber.org/papers/w2270.pdf
File-Format: application/pdf
Publication-Status: published as Mankiw, N. Gregory. "The Optimal Collection of Seigniorage: Theory and Evidence," Journal of Monetary Economics, Vol.20, No.2, (September 1987), pp. 327-341.
Abstract: This paper presents and tests a positive theory of monetary and fiscal policy. The government chooses the rates of taxation and inflation to minimize the present value of the social cost of raising revenue given exogenous expenditure and an intertemporal budget constraint. The theory implies that nominal interest rates and inflation are random walks. It also implies that nominal interest rates and inflation move together with tax rates. United States data from 1952 to 1985 provide some support for the theory.
Handle: RePEc:nbr:nberwo:2270
Template-Type: ReDIF-Paper 1.0
Title: Inter-Industry Wage Differences and Theories of Wage Determination
Author-Name: William T. Dickens
Author-Name: Lawrence F. Katz
Author-Person: pka266
Note: LS
Number: 2271
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2271
File-URL: http://www.nber.org/papers/w2271.pdf
File-Format: application/pdf
Abstract: Numerous studies have shown large differences in wages for apparently similar workers across industries. These findings pose a challenge to standard model s of labor market behavior. A problem with past studies of industry wage differences is that they have failed to distinguish between union and nonunion workers. Many economists may expect union workers wages to be set in a noncompetitive fashion but would be surprised if nonunion wages were. We examine the differences in wages across industries for both union and nonunion workers. We find that even after controlling for a wide range of personal characteristics and geographic location large wage differences persist for both union and nonunion workers. Furthermore the premiums of union and nonunion workers are highly correlated. We review past studies which demonstrate that industry wage premiums are also highly correlated across countries and have been very similar over many decades. We present new evidence that the wages of different occupations are highly correlated across industries -- that is if any occupation in an industry is highly paid all occupations are. We also review the evidence which suggests that people who move from low to high paying industries receive a large fraction of the industry wage premium and that those who move from high to low paying industries lose the premium. Finally, we review the evidence on the correlates of industry wage differences. Quit rates, human capital variables, capital labor ratios and market power measures are all positively correlated with industry wage differences individually though the data are not adequate to determine their independent contributions in multiple regression. On the basis of all the evidence we conclude that standard labor market clearing models can not easily explain all the facts. Several alternative models are discussed including efficiency wage and collective action threat mode1 s. These are found to be more consistent with the facts though some troubling problems remain.
Handle: RePEc:nbr:nberwo:2271
Template-Type: ReDIF-Paper 1.0
Title: Housing Finance Imperfections and Private Saving: A Comparative Simulation Analysis of the U.S. and Japan
Author-Name: Fumio Hayashi
Author-Person: pha83
Author-Name: Takatoshi Ito
Author-Name: Joel Slemrod
Author-Person: psl10
Note: ME PE
Number: 2272
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2272
File-URL: http://www.nber.org/papers/w2272.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the Japanese and International Economies, Vol. 2, (1988), pp. 21 5-238.
Abstract: This paper presents a life-cycle simulation analysis of the interaction among savings decisions, housing purchase decisions, and the tax system in the United States and Japan. To investigate this issue, we first document the stylized fact that the typical Japanese household purchases a house later in the life-cycle with a higher downpayment ratio than its U.S. counterpart. Second, a life-cycle simulation model that includes the housing purchase decision is constructed and used to compare the behavior of typical U.S. and Japanese households. The Japanese household is induced to save more early in the life cycle in order to meet the higher downpayment requirement. The saving-consumption pattern resulting from a higher growth rate is shown to contribute to a higher aggregate saving rate in Japan compared to the U.S. However, the contribution of the induced early saving due to the downpayment requirement seems to be too small to explain a large differential in the saving rates of the two countries. Only if we introduce a bequest motive can the model generate the observed saving rate in Japan. Finally, tax reform concerning the tax deductibility of mortgage interest payments or the tax exempt status of interest income is shown to have a small impact on the aggregate saving rate in either country. For example, the introduction of tax-exempt saving in the U.S. would increase the saving rate by only 1.5%.
Handle: RePEc:nbr:nberwo:2272
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Firm Acquisitions on Labor
Author-Name: Charles Brown
Author-Person: pbr341
Author-Name: James L. Medoff
Note: LS
Number: 2273
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2273
File-URL: http://www.nber.org/papers/w2273.pdf
File-Format: application/pdf
Publication-Status: published as The Impact of Firm Acquisitions on Labor, Charles Brown, James L. Medoff. in Corporate Takeovers: Causes and Consequences, Auerbach. 1988
Abstract: In this paper, we investigate the changes in wages and employment following a firm's involvement in an acquisition, compared with firms not involved in acquisitions. Contrary to the tenor of popular press coverage of acquisitions, which focuses on hostile takeovers of large firms, we find small (and sometimes positive) changes in wages and employment following an acquisition.
Handle: RePEc:nbr:nberwo:2273
Template-Type: ReDIF-Paper 1.0
Title: Is the U.S. a Spendthrift Nation?
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Irving B. Kravis
Note: ITI IFM
Number: 2274
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2274
File-URL: http://www.nber.org/papers/w2274.pdf
File-Format: application/pdf
Publication-Status: published as Chapter 2, "Saving and Capital Formation in the United States and Other Industrial Countries" from Saving and Economic Growth: Is the United States Really Falling Behind?, re. by Kravis and Lipsey. NY: American Council of Life Insurance and The Conference Board, report No. 90.
Abstract: The belief that the U.S. is a nation of spendthrifts, unwilling to pro- vide for the future, rests on observations of particular narrow definitions of capital formation, on the use of nominal values that ignore inter- national differences in the relative prices of capital goods, and on concentration on the ratio of capital formation to total output rather than on the amount of capita1 formation per capita. By a broad definition of capital formation, the U.S. has been investing a proportion of its gross output in the last decade and a half that is not far below that of other developed countries, even in nominal terms. In world prices, or real terms, U.S. capital formation was a higher proportion of output than in nominal terms. Real gross capital formation per capita in the U.S., even by a narrow definition of capital formation, was above the average for developed countries. By a broad measure of capital formation, few countries surpassed the U.S. in per capita real capital formation.
Handle: RePEc:nbr:nberwo:2274
Template-Type: ReDIF-Paper 1.0
Title: On the Definition and Magnitude of Recent Capital Flight
Author-Name: Robert E. Cumby
Author-Person: pcu115
Author-Name: Richard M. Levich
Note: ITI IFM
Number: 2275
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2275
File-URL: http://www.nber.org/papers/w2275.pdf
File-Format: application/pdf
Publication-Status: published as Cumby, Robert and Richard Levich. "On the Definition and Magnitude of Recent Capital Flight," Capital Flight and Third World Debt, eds. D. Lessard and J. Williamson. Washington, DC: Institute for International Economics, 1987.
Abstract: This paper presents a survey of alternative definitions of capital flight and empirical estimates of capital flight utilizing a common database. At the conceptual level, we argue that the definition of capital flight requires a somewhat arbitrary distinction between normal capital flows and those representing capital flight. At the empirical level, our results illustrate the range of estimates of capital flight that are possible and how alternative definitions or databases contribute to the dispersion of estimates. Our results show that for some countries, differences in definitions or databases may have substantial effects, causing some estimates of capital flight to be positive and others negative. We argue that an appropriate definition of capital flight is one that is consistent with the kinds of economic questions under consideration. In theory, capital flight should be viewed within the context of a general equilibrium model. When this is done, capital flight will appear to be a symptom of underlying economic forces rather than a cause of national welfare losses.
Handle: RePEc:nbr:nberwo:2275
Template-Type: ReDIF-Paper 1.0
Title: Developing the ECU Markets: Perspectives on Financial Innovation
Author-Name: Richard M. Levich
Note: ME ITI IFM
Number: 2276
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2276
File-URL: http://www.nber.org/papers/w2276.pdf
File-Format: application/pdf
Publication-Status: published as Levich, Richard M. "Development of the ECU Markets: Perspectives on Financial Innovation," From The ECU Market: Current Developments and Future Prospects of the European Currency Unit, edited by Richard M. Levich and Andrea Sommariva, pp. 103-116. Lexington, MA: D.C. Heath and Co, 1987.
Publication-Status: published as Levich, Richard M. "Recent International Financial Innovations: Implications For Financial Management," Journal of International Financial Management and Accounting, 1989, v1(1,Spring), 1-14.
Abstract: The European Currency Unit (ECU) was officially introduced in March 1979 and has joined the ranks of innovative financial products that are rapidly appearing. The purpose of the paper is to explore the properties of the ECU and analyze those characteristics of the ECU, and products denominated in ECU, that offer value-added. Changes in communications and information technology, changes in the regulatory climate, and changes in the macroeconomic environment have generally encouraged recent financial innovations. We argue that the ECU has gained an edge on its component currencies because of its portfolio properties, its role in reducing transaction costs, the role of the European Monetary System, and trading factors peculiar to the ECU. Private participants should continue to gravitate toward the ECU as a useful vehicle to fulfill the services of money.
Handle: RePEc:nbr:nberwo:2276
Template-Type: ReDIF-Paper 1.0
Title: Financial Innovations in International Financial Markets
Author-Name: Richard M. Levich
Note: ITI EFG IFM
Number: 2277
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2277
File-URL: http://www.nber.org/papers/w2277.pdf
File-Format: application/pdf
Publication-Status: published as Levich, Richard M. "Financial Innovations in International Financial Markets," The Changing Role of the United States and the World Economy, ed. by M. Feldstein. Chicago: UCP, 1987.
Publication-Status: published as Levich, Richard M. "Recent International Financial Innovations: Implications For Financial Management," Journal of International Financial Management and Accounting, 1989, v1(1,Spring), 1-14.
Publication-Status: published as Financial Innovations in International Financial Markets, Richard M. Levich, E. Gerald Corrigan, Charles S. Sanford, Jr., George J. Votja. in The United States in the World Economy, Feldstein. 1988
Abstract: The central theme of this paper is that financial innovation has become a major force effecting the United States and other developed economies. The common features of the process include product innovation, securitization, liberalization of domestic financial market practices, globalization of markets, and increased competition among financial institutions. The paper offers a review of the product and process changes that have occurred in international financial markets, an analysis of the factors leading to these changes, and an examination of the implications for both financial market participants and macroeconomic policy makers.
Handle: RePEc:nbr:nberwo:2277
Template-Type: ReDIF-Paper 1.0
Title: Delay in Reporting Acquired Immune Deficiency Syndrome (AIDS)
Author-Name: Jeffrey E. Harris
Note: EH
Number: 2278
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2278
File-URL: http://www.nber.org/papers/w2278.pdf
File-Format: application/pdf
Publication-Status: published as "Reporting Delays and the Incidence of AIDS," Journal of the American Statistical Association, December 1990.
Abstract: As of March 31, 1987, the U.S. Centers for Disease Control had reported 33,350 cases of acquired immune deficiency syndrome. Yet by that date, physicians had actually diagnosed 42,670 cases. The difference arises from significant delays in the reporting of AIDS cases to public health authorities. An estimated 70% of cases are reported two or more months after diagnosis; about 23% are reported seven or more months later; and about 5% take more than three years to come in. Moreover, the probability distribution of delays has been shifting to the right, with the median delay increasing by 0.6 months since mid-1986. From the data on reported cases and the estimated probability distribution of reporting delays, I reconstruct the actual incidence of AIDS from January 1982 through March 1987. The doubling time of the epidemic fell from about 6 months in 1982 to 15-16 months in 1986.
Handle: RePEc:nbr:nberwo:2278
Template-Type: ReDIF-Paper 1.0
Title: The Significance of Tax Law Asymmetries: An Empirical Investigation
Author-Name: Rosanne Altshuler
Author-Person: pal34
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 2279
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2279
File-URL: http://www.nber.org/papers/w2279.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. 105, pp. 63-86, (1990).
Abstract: This study uses tax return data for U.S. nonfinancial corporations for the period 1971-82 to estimate the importance of restrictions on the ability of firms to use tax credits and to obtain refunds for tax losses. Our results suggest that the incidence of such unused tax benefits increased substantially during the early 1980s, though we do not find these increases attributable to increased investment incentives during that period. Using estimates of a three-state (taxable, not taxable, partially taxable) transition probability model, we calculate the effective tax rates on various types of investments undertaken by firms differing with respect to tax status. We confirm previous findings about the marginal tax rate on interest payments, and that it is important to distinguish current tax payments from marginal tax rates in estimating the incentive to invest.
Handle: RePEc:nbr:nberwo:2279
Template-Type: ReDIF-Paper 1.0
Title: Effects of the Changing U.S. Age Distribution on Macroeconomic Equations
Author-Name: Ray C. Fair
Author-Person: pfa24
Author-Name: Kathryn M. Dominguez
Author-Person: pdo227
Note: EFG
Number: 2280
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2280
File-URL: http://www.nber.org/papers/w2280.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 81, No. 5, pp. 1276-1294, (December 1991).
Abstract: The effects of the changing U.S. age distribution on various macroeconomic equations are examined in this paper. The equations include consumption, money demand, housing investment, and labor force participation equations. Seven age groups are analyzed: 16-19, 20-24, 25-29, 30-39, 40- 54, 55-64, and 65+. There seems to be enough variance in the age distribution data to allow reasonably precise estimates of the effects of a number of age categories on the macro variables. The results show that, other things being equal, age groups 30-39 and 40-54 consume less than average, invest less in housing than average, and demand more money than average. Age group 55-64 consumes more and demands more money. If these estimates are right, they imply, other things being equal, that consumption and housing investment will be negatively affected in the future as more and more baby boomers enter the 30-54 age group. The demand for money will be positively affected. If, as Easterlin argues, the average wage that an age group faces is negatively affected by the percent of the population in that group, then the labor force participation rate of a group should depend on the relative size of the group. If the substitution effect dominates, people in a large group should work less than average, and if the income effect dominates, they should work more than average. The results indicate that the substitution effect dominates for women 25-54 and that the income effect dominates for men 25-54.
Handle: RePEc:nbr:nberwo:2280
Template-Type: ReDIF-Paper 1.0
Title: Household Migration, Urban Growth, and Industrialization: The United States, 1850-1860
Author-Name: Richard H. Steckel
Author-Person: pst352
Note: DAE
Number: 2281
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2281
File-URL: http://www.nber.org/papers/w2281.pdf
File-Format: application/pdf
Publication-Status: Published as "Household Migration and Rural Settlement in the United States, 1850-1860", Explorations in Economic History, Vol. 26, no. 2: 190-218. (1989)
Abstract: This paper utilizes a national sample of nearly 1,600 households linked in the census manuscript schedules to investigate causes and consequences of migration to urban areas during the midst of America's industrial revolution. Although record linkage was limited to the subset of households that had at least one child in 1850, the data are relatively rich in socioeconomic information. A regional analysis of migration and occupational change shows that while established households were generally mobile, they were extraordinarily reluctant to commit labor to urban- industrial pursuits. The evidence suggests that the presence of children, retraining costs, lack of control over fertility, risk aversion, and an unfavorable view of urban areas by rural residents contributed to their avoidance of cities and towns. The findings also contribute to debates over the compression of the wage structure and the extent of socioeconomic mobility.
Handle: RePEc:nbr:nberwo:2281
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Family Background on Economic Status: A Longitudinal Analysis of Sibling Correlations
Author-Name: Gary Solon
Author-Person: pso215
Author-Name: Mary Corcoran
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Deborah Laren
Note: LS
Number: 2282
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2282
File-URL: http://www.nber.org/papers/w2282.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, "A Longitudinal Analysis of Sibling Correlations in Economic Status", Volume XXVI, No. 3, pp. 509-534 Summer 1991
Abstract: Numerous previous studies have used sibling correlations to measure the importance of family background as a determinant of economic status. These studies. however. have been biased by several flaws: failure to separate permanent from transitory status variation (including that from measurement error). failure to account for life-cycle stage. and overly homogeneous samples. This paper presents a methodology to address these problems and applies it to longitudinal data from the Panel Study of Income Dynamics. Our main conclusion is that family background appears to exert greater influence on economic status than has been indicated by earlier research.
Handle: RePEc:nbr:nberwo:2282
Template-Type: ReDIF-Paper 1.0
Title: Federal Assistance and Local Services in the United States: The Evolution of a New Federalist Fiscal Order
Author-Name: Robert P. Inman
Note: PE
Number: 2283
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2283
File-URL: http://www.nber.org/papers/w2283.pdf
File-Format: application/pdf
Publication-Status: published as Inman, Robert P. "Federal Assistance and Local Services in the United States: The Evolution of a New Federalist Order," Fiscal Federalism: Quantitative Studies, edited by Harvey S. Rosen. Chicago: UCP, 1988.
Abstract: The federalist fiscal structure of the United States has been evolving steadily towards the centralization of the financing of government services and transfers. Revenues are raised centrally and then transferred, via grants-in-aid, to state and local governments. This paper seeks to explain this movement towards centralized financing. Two alternative hypotheses are examined. The first--that aid is allocated to correct market or political failures in the local public economy or to equalize the provision of meritorious local public goods--generally fails to account for the distribution of federal aid over the past thirty years. The second hypothesis--that aid is allocated to ease the fiscal pressure in the state- local sector when, and only when, it is in the political interests of Congressional representatives to do so--is supported by the recent data. Our current system of federal grants to state and local governments is a logical outcome of a Congressional budget process that rewards the centralized financing and the localized provision of public good and services.
Handle: RePEc:nbr:nberwo:2283
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Public Sector Labor laws on Collective Bargaining, Wages, and Employment
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Robert G. Valletta
Author-Person: pva147
Note: LS
Number: 2284
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2284
File-URL: http://www.nber.org/papers/w2284.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, R. and Valletta, R. "The Effect of Public Sector Labor Laws on Collective Bargaining, Wages, and Employment," in When Public Sector Workers Unionize, ed. by Richard Freeman and Casey Ichniowski, Chicago: UCP, 1988.
Abstract: This paper examines the effect of the different legal environments for bargaining faced by public employees across the states on wage and employment outcomes for union and nonunion employees, and also on the extent of bargaining, using cross-section, within-city, and longitudinal analyses based on a newly-derived data set on public sector labor laws. We find that: (1) the legal environment is a significant determinant of the probability of collective bargaining coverage; (2) collective bargaining coverage raises wages and employment for covered employees; (3) a more favorable legal environment increases wages for all employees, but substantially reduces employment for employees not covered by a contract, while slightly reducing employment for employees who are covered by a contract. We also find evidence of significant spillovers of union wage effects to non-covered departments. We conclude by focusing on the effects of two specific legal provisions - arbitration and strike permitted clauses - on wages and employment.
Handle: RePEc:nbr:nberwo:2284
Template-Type: ReDIF-Paper 1.0
Title: Why Does Money Affect Output? A Survey
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Note: ME EFG
Number: 2285
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2285
File-URL: http://www.nber.org/papers/w2285.pdf
File-Format: application/pdf
Publication-Status: published as Friedman, Benjamin M. and F.H. Hahn (eds.) Handbook of Monetary Economics, Vol. II. Amsterdam: Elsevier Science Publishers B.V., 1990.
Abstract: Why movements in nominal money appear to have strong and lasting effects on real activity is one of the most difficult questions in macroeconomics. The paper surveys the state of knowledge on the issue. with a focus on recent developments. The paper starts by reviewing the evolution of thought from Keynes' emphasis on wages to the "wage price mechanism" of the early 1970's. as well as the facts on the relation between money. prices and output. Prom this review. it concludes that the intellectual crisis of the 1970's came not from the inability of the prevailing theory to explain the facts -which it had mostly right-. but from the weakness of its theoretical foundations. The paper then examines the reconstruction effort. Two alternative strategies have been followed. The first has been to break with previous research and explore how far models based on perfect competition and imperfect information could go in explaining the effects of money on activity. This strategy has largely fizzled and its proponents moved away from the money-output issue. The second has been instead to explore whether the many insights of previous research could be made more rigorous and has focused on the potential role of imperfect competition in labor and goods markets ; substantial progress has been made. but no grand synthesis has emerged. nor is likely to in the foreseeable future.
Handle: RePEc:nbr:nberwo:2285
Template-Type: ReDIF-Paper 1.0
Title: The Cost of Capital in the U.S. and Japan: A Comparison
Author-Name: Albert Ando
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 2286
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2286
File-URL: http://www.nber.org/papers/w2286.pdf
File-Format: application/pdf
Publication-Status: published as "The Cost of Capital in the United States and Japan: A Comparison." From Journal of the Japanese and International Economies, Vol. 2, pp. 134-158,(1988).
Abstract: This paper uses financial statement data for large samples of U.S. and Japanese nonfinancial corporations to estimate the return to capital in each country for the period 1967-83. Interpreting these as measures of the cost of capital, we find that the before-tax cost of corporate capital was higher for U.S. firms than for their Japanese counterparts, with the average gap potentially as high as 5.8 percentage points. The use of alternative measurement techniques alters the gap slightly but does not alter the basic finding. However, market returns in the two countries were much closer during the same period. Certain potential explanations for the gap in returns are rejected by empirical evidence, including differences in corporate taxation, differences in borrowing and differences in asset mix. This leaves three potential explanations: differences in risk, differences in the tax treatment of individual capital income and imperfections in the international flow of capital
Handle: RePEc:nbr:nberwo:2286
Template-Type: ReDIF-Paper 1.0
Title: International Policy Coordination: The Case of the Developing Country Debt Crisis
Author-Name: Jeffrey D. Sachs
Note: ITI IFM
Number: 2287
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2287
File-URL: http://www.nber.org/papers/w2287.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Cooperation, Martin Feldstein, NBER and UCP, 1988
Abstract: This paper reviews the management of the debt crisis to date, and considers several possible alternative approaches for international cooperation in the future. The first part of the paper briefly reviews the scope of the crisis, and some of the reasons for its onset. Then, the paper describe the internationally coordinated policy responses to the crisis, as well as the conceptual underpinnings of this coordinated response. In the latter part of the paper, some of the reasons for the incomplete success of the policy response are described, and several alternative measures for the future are discussed. The discussion emphasizes the possible merits of debt forgiveness in addition to debt reschedulings as an instrument for the future management of the debt crisis.
Handle: RePEc:nbr:nberwo:2287
Template-Type: ReDIF-Paper 1.0
Title: Intergenerational Altruism and Social Welfare: A Critique of the Dynastic Model
Author-Name: B. Douglas Bernheim
Author-Person: pbe81
Note: PE
Number: 2288
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2288
File-URL: http://www.nber.org/papers/w2288.pdf
File-Format: application/pdf
Publication-Status: published as "Intergenerational Altruism, Dynastic Equilibria, and Social Welfare." Review of Economic Studies, Vol. 56, pp. 118-128, January 1989.
Abstract: In this paper, I show that, under relatively weak conditions, dynastic equilibria are never welfare optima. If a social planner sets policy to maximize a social welfare function, then, except in extreme cases where the planner cares only about a single generation, successive generations will never be linked through altruistically motivated transfers. This suggests that the dynastic model is unsuitable for normative analysis, and, to the extent governments actually behave in this manner, the model is also inappropriate for positive analysis. In addition, I show that, except in a few special cases, the planner's preferences are dynamically inconsistent. If the planner can successfully resolve this inconsistency, then the central result is somewhat modified.
Handle: RePEc:nbr:nberwo:2288
Template-Type: ReDIF-Paper 1.0
Title: Understanding the Real Estate Provisions of Tax Reform: Motivation and Impact
Author-Name: James R. Follain
Author-Name: Patric H. Hendershott
Author-Name: David C. Ling
Author-Person: pli857
Note: PE
Number: 2289
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2289
File-URL: http://www.nber.org/papers/w2289.pdf
File-Format: application/pdf
Publication-Status: published as Follain, James R., Patric H. Hendershott and David C. Ling. "Understandingthe Real Estate Provisions of the Tax Act: Their Motivation and impact," National Tax Journal, Sept. 1987 pp. 363-372, Vol 40, No. 3.
Abstract: Capital investment tax provisions have been changed numerous times in the last decade, with depreciation tax lives shortened in 1981 and lengthened ever since and capital gains taxation reduced in 1978 and 1981 and now increased. The first part of this paper analyzes these changes and attributes a large part of them, including the 1986 Tax Act, to changes in inflation: tax depreciation schedules and capital gains taxation that look reasonable when the tax depreciation base is being eroded at ten percent a year and an overwhelming share of capital gains is pure inflation take on a different appearance when inflation is only four percent. The remainder of the paper critiques the typical project model used to compute impacts of tax changes on real estate and report simulation results using a modified model.
Handle: RePEc:nbr:nberwo:2289
Template-Type: ReDIF-Paper 1.0
Title: Pricing Mortgages: An Interpretation of the Models and Results
Author-Name: Patric H. Hendershott
Author-Name: Robert Van Order
Author-Person: pva397
Note: ME
Number: 2290
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2290
File-URL: http://www.nber.org/papers/w2290.pdf
File-Format: application/pdf
Publication-Status: published as From Journal of Financial Services Research, Vol. 1, No. 1, pp. 19-55,(October 1987).
Abstract: Mortgages, like all debt securities, can be viewed as risk-free assets plus or minus contingent claims that can be usefully viewed as options. The most important options are: prepayment, which is a call option giving the borrower the right to buy back the mortgage at par, and default, which is a put option giving the borrower the right to sell the house in exchange for the mortgage. This paper reviews and interprets the large and growing body of literature that applies recent results of option pricing models to mortgages. We also provide a critique of the models and suggest directions for future research.
Handle: RePEc:nbr:nberwo:2290
Template-Type: ReDIF-Paper 1.0
Title: The Timing of Retirement: A Comparison of Expectations and Realizations
Author-Name: B. Douglas Bernheim
Author-Person: pbe81
Note: PE AG
Number: 2291
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2291
File-URL: http://www.nber.org/papers/w2291.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of Aging, (ed) David Wise, pp. 335-355, University of Chicago Press, March 1990.
Publication-Status: published as The Timing of Retirement: A Comparison of Expectations and Realizations, B. Douglas Bernheim. in The Economics of Aging, Wise. 1989
Abstract: In this paper, I employ data drawn from the Social Security Administration's Retirement History Survey (RHS) to study the accuracy of expectations concerning the timing of retirement. The RHS is ideally suited for this purpose, in that it collects information on retirement plans, and follows respondents through time so that one can identify actual dates of retirement. The data are consistent with the view that, when asked to report an expected date of retirement, individuals name the most likely date (i.e. a mode, rather than a mean). Furthermore, these forecasts are highly accurate. There is very little evidence that individuals' expectations were systematically biased during periods in which Congress legislated large real increases in social security benefits. This suggests either that the benefit increaser were anticipated, or that unanticipated changes in benefits have little effect on retirement. The paper also describes differences in the accuracy of expectations by population subgroup.
Handle: RePEc:nbr:nberwo:2291
Template-Type: ReDIF-Paper 1.0
Title: Federal Deductibility of State and Local Taxes: A Test of Public Choiceby Representative Government
Author-Name: Lawrence B. Lindsey
Note: PE
Number: 2292
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2292
File-URL: http://www.nber.org/papers/w2292.pdf
File-Format: application/pdf
Publication-Status: published as Federal Deductibility of State and Local Taxes: A Test of Public Choice by Representative Government, Lawrence Lindsey. in Fiscal Federalism: Quantitative Studies, Rosen. 1988
Abstract: This paper considers the impact of federal deductibility on the level and composition of state and local taxes. It also considers the importance of deductibility in determining the vote of state Congressional delegations on the Tax Reform Act of 1986. Particular emphasis should be placed on the mechanism by which voter preferences are translated into public choices. Alternative measures of tax price are considered; each represents a different model of voter behavior. The paper concludes that tax levels are determined by an equal weighting of voters, not by a planning mechanism which minimizes the cost of revenue statewide. It also concludes that the issue of state and local deductibility played a negligible role in determining Congressional votes on the recent tax reform bill.
Handle: RePEc:nbr:nberwo:2292
Template-Type: ReDIF-Paper 1.0
Title: International Coordination of Trade Policy
Author-Name: J. David Richardson
Note: ITI IFM
Number: 2293
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2293
File-URL: http://www.nber.org/papers/w2293.pdf
File-Format: application/pdf
Publication-Status: published as International Coordination of Trade Policy. Martin Feldstein, ed., International Economic Cooperation, Chicago: University of Chicago Press, 1988.
Abstract: The General Agreement on Tariffs and Trade (GATT) is a coordination compact. Tariff bindings illustrate a mechanism for making commitments credible. Reciprocity illustrates a means for redistributing cooperative gains. The Most-Favored-Nation (MFN) principle illustrates an attempt to keep coordination "virtuous" (cooperative) rather than "vicious" (collusive). Yet international trade policy coordination has clearly become more difficult. The postwar hegemonic environment has evolved into a more general strategic environment with several influential governments and blocs. Such coalitions are a natural evolutionary development, yet one that inexorably undermines MFN. Economic developments make a country's comparative advantage increasingly sensitive to sectoral predation by others, especially through subsidies and performance requirements aimed at mobile multinational firms, which are themselves internationally coordinated. Immobile workers and others correspondingly bear the burdens of sharper adjustments, and look to government to turn its trade policy narrowly inward in order to ease their load. Such "domestication" of trade policy is the antithesis of international coordination, and runs the risk of creating a strategic paralysis of recurring unproductivity. What changes might restore the liberalizing impetus of trade policy coordination? Several are considered in the paper. One is extension of the "Codes" approach to multilateral negotiations under the GATT, especially to Subsidies and Safeguards . Many reflections in the paper are framed in categories from recent economic thinking about policy coordination in "strategic" environments -- those with small numbers of self-consciously interdependent agents. The paper argues that these are the appropriate environments in which to analyze international coordination of trade policy.
Handle: RePEc:nbr:nberwo:2293
Template-Type: ReDIF-Paper 1.0
Title: Private Saving in the United States: 1950-85
Author-Name: Patric H. Hendershott
Author-Name: Joe Peek
Author-Person: ppe90
Note: PE
Number: 2294
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2294
File-URL: http://www.nber.org/papers/w2294.pdf
File-Format: application/pdf
Publication-Status: published as In The Measurement of Saving, Investment and Wealth, Robert Lipsey and Helen Tice, eds. Studies in Income and Wealth, vol 52, University of Chicago press, 1989.
Abstract: The official personal and private saving statistics contain a number of conceptual measurement errors. In this paper we develop and analyze personal and private saving measures adjusted for the difference between income tax payments and actual liabilities, saving via net purchases of government pension assets (including social security) and consumer durables, and that part of after-tax interest income attributable to inflation. We find that the adjusted personal and private saving rates in recent years are only slightly below their post-1950 averages, not at all time lows as reported in the official NIPA statistics. Furthermore, over the past 35 years, personal saving has been more volatile and corporate saving less volatile than the official measures. Also, the inflation premium corrections remove the negative correlation between personal and corporate saving. That is, the often observed negative correlation between the official measures of personal and corporate saving is due solely to measurement errors in the two series. Finally, the decrease in federal government saving in the 1980s is the continuation of a 30-year trend, not a one-time aberration.
Handle: RePEc:nbr:nberwo:2294
Template-Type: ReDIF-Paper 1.0
Title: Characteristics of Hostile and Friendly Takeover Targets
Author-Name: Randall Morck
Author-Person: pmo146
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert W. Vishny
Author-Person: pvi218
Note: ME
Number: 2295
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2295
File-URL: http://www.nber.org/papers/w2295.pdf
File-Format: application/pdf
Publication-Status: published as "Characteristics of Targets of Hostile and Friendly Takeovers" In Corporate Takeovers: Causes and Consequences, edited by Alan J. Auerbach, pp. 101- 129. Chicago: The University of Chicago Press, 1988.
Publication-Status: published as Characteristics of Targets of Hostile and Friendly Takeovers, Randall Morck, Andrei Shleifer, Robert W. Vishny. in Corporate Takeovers: Causes and Consequences, Auerbach. 1988
Abstract: Compared to an average Fortune 500 firm, a target of a hostile takeover is smaller, older, has a lower Tobin's Q, invests less of its income, and is growing more slowly. The low Q seems to be an industry-specific rather than a firm-specific effect. In addition, a hostile target is less likely to be run by a member of the founding family, and has lower officer ownership, than the average firm. In contrast, a target of a friendly acquisitions is smaller and younger than an average Fortune 500 firm, and has comparable Tobin's Qs and most other financial characteristics. Friendly targets are more likely to be run by a member of the founding family, and have higher officer ownership, than the average firm. The decision of a CEO with a large stake and/or with a relationship to a founder to retire often precipitates a friendly acquisition. These results suggest that the motive for a takeover often determines its mood. Thus disciplinary takeovers are more often hostile, and synergistic ones are more often friendly.
Handle: RePEc:nbr:nberwo:2295
Template-Type: ReDIF-Paper 1.0
Title: Uncertainty and Liquidity
Author-Name: Alberto Giovannini
Note: ME
Number: 2296
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2296
File-URL: http://www.nber.org/papers/w2296.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 23, pp. 239-258, (1989).
Abstract: This paper studies a model where money is valued for the liquidity services it provides in the future. These liquidity services cannot be provided by any other asset. Changes in expectations of the value of future liquidity services affect the desired proportions of money and other assets in agents' portfolios, and, as a result, they change nominal interest rates and real stock prices. The paper concentrates on the effects of stochastic fluctuations in the distribution of exogenous shocks. I find that changes in dividend risk have effects opposite to those in standard dynamic portfolio models without money. Furthermore, shifts between money and other assets that are driven by precautionary liquidity demand make nominal interest rates capture information about the uncertainty in the economy more accurately than any other prices in the asset markets.
Handle: RePEc:nbr:nberwo:2296
Template-Type: ReDIF-Paper 1.0
Title: The Efficiency of Investment in the Presence of Aggregate Demand Spillovers
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert W. Vishny
Author-Person: pvi218
Note: ME
Number: 2297
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2297
File-URL: http://www.nber.org/papers/w2297.pdf
File-Format: application/pdf
Publication-Status: published as Andrei Shleifer and Robert W. Vishney. "The Efficiency of Investment in the Presence of Aggregate Demand Spillovers" Journal of Political Economy December 1988
Publication-Status: published as Journal of Political Economy, December 1988.
Abstract: In the presence of aggregate demand spillovers, an imperfectly competitive firm's profit is positively related to aggregate income, which in turn rises with profits of all firms in the economy. This pecuniary externality makes a dollar of a firm's profit raise aggregate income by more than a dollar, since other firms' profits also rise, and in this way gives rise to a "multiplier." Since such "multipliers" are ignored by firms making investment decisions, privately optimal investment choices under uncertainty will not in general be socially optimal. Under reasonable conditions, private investment is too low.
Handle: RePEc:nbr:nberwo:2297
Template-Type: ReDIF-Paper 1.0
Title: An Analysis of Fiscal Policy Under Operative and Inoperative Bequest Motives
Author-Name: Andrew B. Abel
Author-Person: pab10
Note: EFG
Number: 2298
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2298
File-URL: http://www.nber.org/papers/w2298.pdf
File-Format: application/pdf
Publication-Status: published as Abel, Andrew B. "Operative Gift And Bequest Motives," American Economic Review, 1987, v77(5), 1037-1047.
Publication-Status: published as Helpman, Elhanan, Assaf Razin, and Efraim Sadka (eds.) Economic Effects of the Government Budget. Cambridge, MA: MIT Press, 1988.
Abstract: This paper presents a general equilibrium model with logarithmic preferences and technology. If the non-negativity constraint on bequests is strictly binding, then the bequest motive is characterized as inoperative. After determining the conditions for operative and inoperative bequest motives, the paper examines the effect of pay- as- you-go social security on the stochastic evolution of the capital stock. If the non-negativity constraint on bequests is strictly binding, then an increase in social security reduces the unconditional long- run expected capital stock. If the social security taxes and benefits are large enough, then the non-negativity constraint ceases to bind, and further increases in social security have no effect. This paper extends previous analyses by examining bequest behavior outside of the steady state and by allowing a non-degenerate cross-sectional distribution in the holding of capital.
Handle: RePEc:nbr:nberwo:2298
Template-Type: ReDIF-Paper 1.0
Title: Are User Fees Regressive? The Welfare Implications of Health Care Financing Proposals in Peru
Author-Name: Paul J. Gertler
Author-Person: pge194
Author-Name: Luis Locay
Author-Name: Warren C. Sanderson
Note: EH
Number: 2299
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2299
File-URL: http://www.nber.org/papers/w2299.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Econometrics, Special Issue on Topics in Development Economics, .36, pp.67-88, 1987.
Abstract: In this paper, we derive a discrete choice model of the demand for medical care from a theoretical model that implies a natural interrelation between price and income. We show that, in the context of a discrete choice model, if health is a normal good, then the price elasticity of the demand for health care must decline as income rises. This implies that the models in previous discrete choice studies which restrict the price effect to be independent of income are misspecified. The model is estimated using data from a 1984 Peruvian survey, and a parsimonious flexible functional form. Unlike previous studies, we find that price plays a significant role in the demand for health care, and that demand becomes more elastic as income falls, implying that user fees would reduce the access to care for the poor proportionally more than for the rich. Our simulations show that user fees can generate substantial revenues, but are accompanied by substantial reductions in aggregate consumer welfare, with the burden of the loss on the poor. These results demonstrate that undiscriminating user fees would be regressive both in terms of access and welfare.
Handle: RePEc:nbr:nberwo:2299
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy Lessons of recent Inflation and Disinflation
Author-Name: William Poole
Author-Person: ppo114
Note: EFG ME
Number: 2300
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2300
File-URL: http://www.nber.org/papers/w2300.pdf
File-Format: application/pdf
Publication-Status: published as Poole, William. "Monetary Policy Lessons of Recent Inflation and Disinflation," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 73-100, Summer 1988
Abstract: The decline of velocity in the 1980s is a surprise that should not have been. Economists unwisely relied on a velocity trend of 3 percent per year when they should have insisted on an economic explanation for rising velocity. An analysis of velocity and interest rates from 1915 to 1986 suggests that the interest elasticity of money demand is substantially higher than previously thought. The postwar increase of rates followed by a major decline of rates in the 1980s explains velocity behavior. The large decline in velocity almost certainly would have caused severe economic problems had the Federal Reserve not accommodated the decline through more rapid money growth. Federal Reserve policy between October 1979 and October 1982 emphasized control of money growth. Money market behavior during this period, compared to periods before and after, provides strong evidence that the market sets interest rates on the basis of a sophisticated understanding of monetary policy. The evidence makes clear that the monetary authorities cannot use interest rates to provide information on the state of the economy unless they know the extent to which interest rates reflect expectations of future monetary policy.
Handle: RePEc:nbr:nberwo:2300
Template-Type: ReDIF-Paper 1.0
Title: Breath Testing and the Demand for Drunk Driving
Author-Name: Henry Saffer
Author-Person: psa935
Author-Name: Frank Chaloupka
Author-Person: pch236
Note: EH
Number: 2301
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2301
File-URL: http://www.nber.org/papers/w2301.pdf
File-Format: application/pdf
Publication-Status: published as "Breath Testing and Highway Fatality Rates." From Applied Economics, Vol. 21, pp. 901-912, (1989).
Abstract: This paper presents an empirical investigation of the effect of a preliminary breath test law on drunk driving behavior. A preliminary breath test law reduces the procedural problems associated with obtaining evidence of drunk driving and thus increases the probability that a drunk driver will be arrested. In 1985, only 23 states had a preliminary breath test law. According to the theory of deterrence, increasing the probability of arrest for drunk driving will reduce the future occurrence of this behavior. The data set employed to test the theory is a time series from 1980 to 1985 of cross sections of the 48 contiguous states. Four highway mortality rates are used as measures of drunk driving. The effect of the breath test law was estimated using four independent variable models and 12 dummy variable models. The four independent variable models were also estimated using Leamer's specification test. The purpose of using these alternative specifications and Leamer's specification test was to examine the breath test coefficients for specification bias. The econometric results show that the passage of a breath test law has a significant deterrent effect on drunk driving. Simulations with these results suggest that if all states had a preliminary breath test law, highway mortality could be reduced by about 2000 deaths per year.
Handle: RePEc:nbr:nberwo:2301
Template-Type: ReDIF-Paper 1.0
Title: Monopolistic Competition, Credibility and the Output Costs of Disinflation Programs: An Analysis of Price Controls
Author-Name: Sweder van Wijnbergen
Author-Person: pva412
Note: ITI IFM
Number: 2302
Creation-Date: 1987-06
Order-URL: http://www.nber.org/papers/w2302
File-URL: http://www.nber.org/papers/w2302.pdf
File-Format: application/pdf
Publication-Status: published as van Wijnbergen, Sweder. "Monopolistic Competition, Credibility and the Output Costs of Disinflation Programs: An Analysis of Price Controls." Journal of Development Economics, Vol. 29, no. 3, (November 1988): pp. 375-398.
Abstract: Brazil, Argentina and Israel all used price controls as part of disinflation programs in 1985-1986. In each case they were intended to break an "inertial" component of inflation. This paper focuses on a specific mechanism through which inflation inertia can emerge: the interaction between lack of credibility of government monetary policy announcements and the price setting behavior of forward looking firms. We show that this interaction can lead to inertia extending well beyond the price setting period; that is important since the price setting period is likely to be short in high inflation economies. We develop an open economy macromodel in which firms set prices before uncertainty about government monetary policy is resolved. Lack of credibility is then shown to lead to output losses during a disinflation program. We demonstrate the effects of price controls and show that their temporary use can be defended on welfare grounds. The paper analyzes asset price behavior during disinflation programs with and without price controls and the influence of credibility problems. We discuss nominal and real interest rates, the stock market and exchange rates. Finally we show that if past government policy has any information content about future government policy, cheating on current announcements of tight policy buys current employment gains during the price control period at the cost of higher inflation afterwards. Sustaining low inflation after the price control period thus requires restrictive monetary policy during the price control period.
Handle: RePEc:nbr:nberwo:2302
Template-Type: ReDIF-Paper 1.0
Title: Tests of International CAPM with Time-Varying Covariances
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: Anthony P. Rodrigues
Note: ITI IFM
Number: 2303
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2303
File-URL: http://www.nber.org/papers/w2303.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Applied Econometrics, Volume 4, April-June 1989, 119-138
Abstract: We perform maximum likelihood estimation of a model of international asset pricing based on CAPM. We test the restrictions imposed by CAPM against a more general asset pricing model. The "betas" in our CAPM vary over time from two sources -- the supplies of the assets (government obligations of France, Germany, Italy, Japan, the U.K. and the U.S.) change over time, and so do the conditional covariances of returns on these assets. We let the covariances change over time as a function of macroeconomic data. We also estimate the model when the covariances follow a multivariate ARCH process. When the covariance of forecast errors are time-varying, we can identify a modified CAFM model with measurement error -- which we also estimate. We find that the model in which the CAPM restrictions are imposed (which involve cross-equation constraints between coefficients and the variances of the residuals) perform much better when variances are not constant over time. Nonetheless, the CAPM model is rejected in favor of the less restricted model of asset pricing.
Handle: RePEc:nbr:nberwo:2303
Template-Type: ReDIF-Paper 1.0
Title: Productivity Levels and Productivity Change Under Unionism
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 2304
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2304
File-URL: http://www.nber.org/papers/w2304.pdf
File-Format: application/pdf
Publication-Status: published as STEVEN G. ALLEN, 1988. "Productivity Levels & Productivity Change Under Unionism," Industrial Relations: A Journal of Economy and Society, vol 27(1), pages 94-113.
Abstract: This paper examines how unions affect the rate of productivity change over time. The direction of union impact cannot be predicted from economic theory. Firms may tend to select more productive technologies to offset the cost of higher union wages or they may tend to select less productive technologies to keep union wage demands in line. Evidence from manufacturing indicates that unions have not affected productivity growth, but in the construction industry productivity growth has been much slower in areas where there is a high initial level of unionization or where unionization is growing.
Handle: RePEc:nbr:nberwo:2304
Template-Type: ReDIF-Paper 1.0
Title: Homeownership Rates of Married Couples: An Econometric Investigation
Author-Name: Donald R. Haurin
Author-Person: pha178
Author-Name: Patric H. Hendershott
Author-Name: David C. Ling
Author-Person: pli857
Note: PE
Number: 2305
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2305
File-URL: http://www.nber.org/papers/w2305.pdf
File-Format: application/pdf
Publication-Status: published as Housing Economic Review, Vol. 7, No. 2, pp. 85-108, (Summer 1988).
Abstract: Ownership patterns for young (under 45) married couples are striking in two respects. First, ownership rates rise dramatically with age: couples 35- 44 consistently have ownership rates nearly 50 percentage points higher than couples under 25. Second, half of the sharp ownership gains of young married couples in the 1970s were reversed in the first half of the 1980s. These patterns do not hold either for single or other households or for married couples over 44. To increase understanding of this variability by age and over time, we analyze the tenure behavior of young married couples using aggregate income/age-class data from the 1973-83 Annual (American) Housing Surveys (AHS). The income of a household affects its tenure choice both directly (the taste for ownership rises with income) and indirectly (the cost of owning declines as income rises owing to the greater value of investment in a nontaxed asset for investors in higher tax brackets). Age affects tenure choice because older households have higher incomes, are less mobile (annual-equivalent transactions costs are lower), have more wealth (portfolio diversification for owner- occupiers is easier), and have more certain income (and are thus more willing to commit to ownership). Price and income elasticities for tenure choice are computed, the rise in ownership rates between 1973 and 1979 and the subsequent decline are interpreted, and an impact of the Tax Reform Act of 1986 is predicted.
Handle: RePEc:nbr:nberwo:2305
Template-Type: ReDIF-Paper 1.0
Title: Wage Structures and Labor Turnover in the U.S. and in Japan
Author-Name: Jacob Mincer
Author-Name: Yoshio Higuchi
Note: LS
Number: 2306
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2306
File-URL: http://www.nber.org/papers/w2306.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the Japanese and International Economies, Vol. 2, pp. 97-133,(1988)
Abstract: The starting point of this study is the proposition that intensive formation of human capital on the job is the basic proximate reason for the strong degree of worker attachment to the firm in Japan. The greater emphasis on training and retraining, much of it specific to the firm, results also in steeper wage trajectories, due to growth of skills in the firm. We explore this insight more thoroughly by a detailed use of micro-data for the two countries: We measure wage profiles and turnover in age groups, and we test the inverse relation between the two on industry sectors within each of the countries. Using productivity growth indexes for industries in the U.S. and in Japan we test the hypothesis that rapid technical change which induces greater and continuous training, is responsible for steeper profiles, hence indirectly for lesser turnover. The hypothesis is confirmed on the sectoral level in both countries. Finally, we try to standardize for the cultural background of workers, by observing a sample of Japanese plants in the U.S. which employ American workers, and use Japanese labor policies in recruitment and training. We find that the steeper tenure-wage slopes and lower turnover place this sample closer to Japan than to the U.S.
Handle: RePEc:nbr:nberwo:2306
Template-Type: ReDIF-Paper 1.0
Title: U.S. Firms in Latin American Service Industries
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 2307
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2307
File-URL: http://www.nber.org/papers/w2307.pdf
File-Format: application/pdf
Publication-Status: published as "US Multinationals in Latin American Service Industries." From World Development, Vol. 17, No. 11, pp. 1769-1776, (November 1989).
Abstract: The participation of U.S. service industry firms in Latin American markets for services consists mainly of the activities of U.S.-owned affiliates operating in Latin America and very little of direct exports of ser- vices from the U.S. The important policy issues thus involve barriers to the establishment and operation of affiliates in host countries rather than trade barriers. Since direct investment rather than trade is at issue, the comparative advantages that are important are those of U.S. multinational firms rather than those of the U.S. as a country. The characteristics we observe in U.S. multinationals in these industries, particularly their low R & D intensity, are not those usually associated with the comparative advantages of U.S. multinationals. However, their skill intensity is relatively high. A more detailed breakdown of the sector does show at least some industries, particularly in finance, in which skill levels are very high, and these are the most likely candidates for major gains for U.S. multinationals. Nevertheless, U.S. shares in the Latin American service sector are very small overall and not likely to reach the levels in manufacturing or petroleum in the foreseeable future.
Handle: RePEc:nbr:nberwo:2307
Template-Type: ReDIF-Paper 1.0
Title: A Positive Theory of Fiscal Deficits and Government Debt in a Democracy
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Guido Tabellini
Author-Person: pta37
Note: ME
Number: 2308
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2308
File-URL: http://www.nber.org/papers/w2308.pdf
File-Format: application/pdf
Publication-Status: published as "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, 57(3), July 1990: 403-414.
Abstract: This paper considers an economy in which policymakers with different preferences concerning fiscal policy alternate in office as a result of democratic elections. It is shown that in this situation government debt becomes a strategic variable used by each policymaker to influence the choices of his successors. In particular, if different policymakers disagree about the desired composition of government spending between two public goods, the economy exhibits a deficits bias. Namely, in this economy debt accumulation is higher than it would be with a social planner. According to the results of our model, the equilibrium level of government debt is larger: the larger is the degree of polarization between alternating governments; and the more likely it is that the current government will not be reelected. The paper has empirical implications which may contribute to explain the current fiscal policies in the United States and in several other countries.
Handle: RePEc:nbr:nberwo:2308
Template-Type: ReDIF-Paper 1.0
Title: Political vs. Currency Premia in International Real Interest Differentials: A Study of Forward Rates for 24 Countries
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Alan T. MacArthur
Note: ITI IFM
Number: 2309
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2309
File-URL: http://www.nber.org/papers/w2309.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 32, No. 5, pp. 1083-1118, (June 1988).
Abstract: Different approaches to quantifying the degree of capital mobility for a cross-section of currencies -- particularly saving-investment correlations and tests of real interest parity - have appeared to show a surprisingly low degree of financial market integration. We use a new data set, forward rate data for 24 countries, including many small industrialized countries and seven LDCs, to decompose the real interest differential into two parts: the covered interest differential, or political premium, and the real forward discount, or currency premium. The latter in turn can be decomposed into the exchange risk premium and expected real depreciation. We find a high degree of capital mobility across political boundaries for most of the 011 countries, plus Hong Kong and Singapore, for our sample period of 1982 to 1987. Even for most of the other LDCs and smaller industrialized countries, for which covered interest parity clearly fails, the political premium is not as big a component of the real interest differential as the currency premium. France would appear to have higher capital mobility than most by the criterion of real interest differentials, but is seen in fact to have low capital mobility by the criterion of covered interest differentials, a clear example of the superiority of the latter criterion.
Handle: RePEc:nbr:nberwo:2309
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Policy Reconsidered
Author-Name: Richard C. Marston
Note: ITI IFM
Number: 2310
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2310
File-URL: http://www.nber.org/papers/w2310.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Cooperation, edited by Martin Feldstein, Chicago: The University of Chicago Press, 1988.
Abstract: The Bretton Woods Conference of 1944 which fixed exchange rates for over twenty-five years is often cited as a model of economic cooperation among countries. Yet over fifteen years have elapsed since the breakdown of the Bretton Woods System without any serious efforts to restore fixed exchange rates among the currencies of the major industrial countries. This paper considers why governments may have refrained from "reforming" the exchange rate system. The first section of the paper examines the principal problem which exchange rate policy is designed to address, exchange rate variability. The paper distinguishes between the short run volatility of exchange rates, which firms can hedge against in the financial markets, and longer term swings in real exchange rates, which can lead to costly resource reallocation. The paper reviews evidence concerning the effectiveness of exchange market intervention, evidence which suggests that intervention may not be effective unless it is monetized. The paper goes on to analyze arguments concerning fixed exchange rates, and to assess the experience of two fixed rate systems, Bretton Woods and the European Monetary System. Finally, the paper examines the target zone system which has been proposed as an alternative to freely floating and fixed exchange rates.
Handle: RePEc:nbr:nberwo:2310
Template-Type: ReDIF-Paper 1.0
Title: Menu Costs and the Neutrality of Money
Author-Name: Andrew C. Caplin
Author-Person: pca77
Author-Name: Daniel F. Spulber
Author-Person: psp13
Note: EFG
Number: 2311
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2311
File-URL: http://www.nber.org/papers/w2311.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 102, no. 4 (1987): 703-726.
Abstract: A model of endogenous price adjustment under money growth is presented. Firms follow (s, S) pricing policies and price revisions are imperfectly synchronized. In the aggregate, price stickiness disappears and money is neutral. The connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated. The results contrast with those obtained in models with exogenous fixed timing of price adjustment.
Handle: RePEc:nbr:nberwo:2311
Template-Type: ReDIF-Paper 1.0
Title: Inflation: Theory and Evidence
Author-Name: Bennett T. McCallum
Note: ME
Number: 2312
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2312
File-URL: http://www.nber.org/papers/w2312.pdf
File-Format: application/pdf
Publication-Status: published as Handbook of Monetary Economics, Vol. II, edited by Benjamin M. Friedman and Frank H. Hahn, pp. 963-1012. Amsterdam: Elsevier Science Publishers B.V. , 1990.
Abstract: This survey attempts to cover an extremely broad topic by organizing . around three sets of issues: ongoing (steady state) inflation; cyclical interaction of inflation with real variables; and positive analysis of monetary policy behavior. With regard to ongoing inflation, the paper demonstrates that the principal conclusions of theoretical analysis are not highly sensitive to details of model specification, provided that the latter posits rational agents free of money illusion. Whether one assumes finite-lived or infinite-lived agents, such models suggest that steady-state inflation rates will conform fairly closely to money stock growth rates, that superneutrality is not strictly implied but departures should be minor, and that socially optimal inflation rates correspond to the Chicago Rule. The first two of these conclusions are consistent with available evidence. With regard to the cyclical interaction of inflation with aggregate output and employment, there is much less professional agreement: four classes of aggregate-supply (or Phillips curve) theories -are currently in .use by researchers and at least two have been able thus far to withstand attempts at refutation. With regard to policy, a leading question is why the authorities have behaved, over the postwar era, in a manner that has resulted in a many-fold increase in the price level in most industrialized nations. A full answer will require a better theory of the political process than is now available, but an important insight regarding inflationary bias is suggested by models that focus on the effects of "discretionary" period-by-period decision making by a monetary authority that seeks to avoid unemployment as well as inflation.
Handle: RePEc:nbr:nberwo:2312
Template-Type: ReDIF-Paper 1.0
Title: Sectoral and National Aggregate Disturbances to Industrial Output in Seven European Countries
Author-Name: Alan C. Stockman
Author-Person: pst94
Note: EFG
Number: 2313
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2313
File-URL: http://www.nber.org/papers/w2313.pdf
File-Format: application/pdf
Publication-Status: published as Stockman, Alan C., 1988. "Sectoral and national aggregate disturbances to industrial output in seven European countries," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 387-409.
Publication-Status: published as The American Economic Review, Vol. 78, No. 5, pp. 1046-1066, (Dec. 1988).
Abstract: A class of real business cycle models suggests that shocks to technology can explain aggregate fluctuations in output and employment. This paper begins from the premise that shocks to productivity may vary across industries but are unlikely to vary systematically across national boundaries for a set of developed countries. Alternative sources of macroeconomic fluctuations, however, such as those due to nation-specific government policies, may produce variations in output growth across nations that are common to industries. This paper discusses these implications within the context of a simple theoretical model, then the paper decomposes the quarterly and annual growth rate of industrial production in two-digit manufacturing industries in seven European countries and the United States into components that are specific to industries but common to nations, and idiosyncratic components. The paper shows that shocks that are nation-specific and common to industries are important, and cast doubt on the hypothesis that most macroeconomic fluctuations can be ascribed to shocks to technology.
Handle: RePEc:nbr:nberwo:2313
Template-Type: ReDIF-Paper 1.0
Title: Income Originating in the State and Local Sector
Author-Name: Charles R. Hulten
Author-Name: Robert M. Schwab
Note: PE PR
Number: 2314
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2314
File-URL: http://www.nber.org/papers/w2314.pdf
File-Format: application/pdf
Publication-Status: published as Hulten, Charles R. and Robert M. Schwab. "Income Originating in the State and Local Sector," Fiscal Federalism: Quantitative Studies, edited by Harvey S. Rosen. Chicago: UCP, 1988.
Publication-Status: published as Income Originating in the State and Local Sector, Charles R. Hulten, Robert M. Schwab. in Fiscal Federalism: Quantitative Studies, Rosen. 1988
Abstract: In this paper we develop an accounting framework for the state and local sector which is consistent with the accounting framework for the private sector of the economy. We show that the public sector capital stock generates an imputed return which takes the form of a reduction in local taxes and that failure to recognize this income distorts the measurement of the output of this sector, confuses the debate over federal tax reform, and hides the distinction between general subsidies for capital formation. Our implementation of those accounts for the 1959- 1985 period indicates that current national income accounting procedures misstate the amount of income originating in the state and local sector; in recent years this misstatement has been on the order of $100 billion. We also show that the state and local sector is one of the more capital intensive sectors of the economy.
Handle: RePEc:nbr:nberwo:2314
Template-Type: ReDIF-Paper 1.0
Title: Costly Adjustment and Limited Borrowing: A Welfare Analysis of Policiesto Achieve External Balance
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Marcelo Selowsky
Note: ITI IFM
Number: 2315
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2315
File-URL: http://www.nber.org/papers/w2315.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Journal, Summer 1991, pp. 17-38
Abstract: This paper develops an analytical framework for the analysis of adjustment to adverse shocks in the presence of limited access to the international credit market. We consider an economy producing traded and non-traded goods and experiencing a permanent, unanticipated drop in the availability of external resources. A direct effect of the shock is that previous consumption and production patterns are not feasible any more, and the economy consequently must undergo an adjustment that will allow it to regain its external balance. We introduce several frictions in the form of time-dependent reallocation costs and nominal labor contracts. We assess the welfare consequences of restricted access to the capital market by comparing the welfare loss induced by the drop in income between the cases of credit rationing and perfect access to international credit. Our analysis demonstrates that restricted borrowing has three effects -- the intertemporal cost; the contemporaneous reallocation cost and the dead-weight loss in the labor market. Restricted access to international capital markets requires a greater real depreciation, implying greater reallocation of resources and consequently greater loss of output in the short run. Access to the capital market will require smaller contemporaneous reallocation, allowing partial postponement of the adjustment to the future, when it will be associated with lower costs. In general, these costs can have first order effect. With nominal wage contracts we will observe potential losses in the labor market due to nominal rigidities. These effects can be (at least partially) overcome by optimal devaluation. Our analysis demonstrates that the effect of limited access to international credit is to increase the welfare loss due to nominal contracts, consequently necessitating a larger devaluation. We conclude that capital flows and credit assistance can have substantial benefits in reducing the welfare cost of adjustment to adverse real shocks.
Handle: RePEc:nbr:nberwo:2315
Template-Type: ReDIF-Paper 1.0
Title: Implicit Contracts, Labor Mobility and Unemployment
Author-Name: Richard J. Arnott
Author-Person: par13
Author-Name: Arthur Hosios
Author-Person: pho15
Author-Name: Joseph Stiglitz
Note: LS
Number: 2316
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2316
File-URL: http://www.nber.org/papers/w2316.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 78, No. 5, pp. 1046-1066, (December 1988).
Abstract: Firms' inability to monitor their employees' search effort forces a tradeoff between risk-bearing and incentive considerations when designing employment-related insurance. Since the provision of insurance against firm-specific shocks adversely affects workers' incentives to find better jobs, the optimal contract provides only partial insurance: it prescribes low (high) wages and under (over) employment to encourage workers to leave (stay) at low (high) productivity firms; and it employs quits and layoffs as alternative means of inducing separations at low productivity firms, with the mix depending upon the relative efficiency of the on- and off-the-job search technologies. Our analysis of implicit contracts with asymmetric search information establishes that any consistent explanation for worksharing, layoffs, severance pay, quits and unemployment must focus on questions of labor mobility.
Handle: RePEc:nbr:nberwo:2316
Template-Type: ReDIF-Paper 1.0
Title: No Room for Weak Links in the Chain of Deposit Insurance Reform
Author-Name: Edward J. Kane
Author-Person: pka853
Note: ME
Number: 2317
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2317
File-URL: http://www.nber.org/papers/w2317.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Services Research, Vol. 1, No. 1, September 1987, pp. 77-111.
Abstract: Unrecognized and deferred losses at insured deposit institutions currently impair the capacity of the nation's principal deposit insurers (the FDIC and FSLIC) both to discipline failing institutions and to discipline or take over insolvent ones. These agencies' accrued but unreported losses far exceed their explicit financial resources. Moreover, their backlog of unresolved problem cases far exceeds the workload that their existing staffs can handle. What holds the deposit-institution system together is financial-market participants' so-far-unshakable faith that politicians and bureaucrats cannot afford to let the FDIC and FSLIC renege on the obligations that they and their predecessors have permitted these agencies to assume. Underlying this belief is a conjectural economic assessment of the strength and constancy of incentives that direct elected politicians to bail out politically sensitive enterprises. This paper addresses three tasks: (1) to clarify the defects in the information, monitoring, regulatory-response, and incentive sub-systems of federal deposit insurance that, by subsidizing institutional risk-taking, led so many deposit institutions and their insurers into economic insolvency; (2) to identify a generic mix of reforms that could in principle put the system right again; and (3) to explain how far proposals for reform that hold a place on the active legislative and regulatory agenda fall short of this ideal.
Handle: RePEc:nbr:nberwo:2317
Template-Type: ReDIF-Paper 1.0
Title: Financial Fragility and Economic Performance
Author-Name: Ben Bernanke
Author-Person: pbe55
Author-Name: Mark Gertler
Author-Person: pge11
Note: ME EFG
Number: 2318
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2318
File-URL: http://www.nber.org/papers/w2318.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 105, No. 1, pp. 87-114, February 1990.
Abstract: Applied macroeconomists (e.g., Eckstein and Sinai (1986)) have stressed the role of financial variables, such as firm balance sheet positions, in the determination of investment spending and output. Our paper presents a formal analysis of this link. We develop a model of the process of investment finance in which there is asymmetric information between borrowers and lenders about the quality of investment projects and about the borrower's effort. In this model, the cost of external investment finance under the optimal contract is higher, the worse the borrower's balance sheet position (i.e., the lower his net worth). In general equilibrium, the lower is borrower net worth, the further the number of projects initiated and the average quality of undertaken projects will be from the unconstrained first-best. We characterize a "financially fragile" situation as one in which balance sheets are so weak that the economy experiences substantial underinvestment, misallocation of investment resources, and possibly even a complete investment collapse. Our policy analysis suggests that, under some circumstances, government "bailouts" of insolvent debtors may be a reasonable alternative in periods of extreme financial fragility.
Handle: RePEc:nbr:nberwo:2318
Template-Type: ReDIF-Paper 1.0
Title: Why Have Private Saving Rates in the United States and Canada Diverged?
Author-Name: Chris Carroll
Author-Person: pca45
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG
Number: 2319
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2319
File-URL: http://www.nber.org/papers/w2319.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 20, No. 2, pp. 249-279, (September 1987).
Abstract: One of the central questions in macroeconomics for many years has been whether government policy can affect private saving rates, and if so to what extent and through what channels. The question has remained controversial because, as with other macroeconomic questions, experiments to check divergent hypotheses cannot be deliberately performed, so economists must rely upon the often dubious evidence from the limited experiments with which nature and history have endowed us. This paper discusses the results of an exceptionally good natural experiment that has been provided by Canada and the U.S. over the past thirty-five years. After moving in tandem for almost 25 years, American and Canadian private saving rates have diverged dramatically over the last decade. The primary conclusion emerging from our analysis of this phenomenon is that tax policies can have a potent impact on private savings behavior. Differences in tax structures and in the interactions of taxation and inflation appear to be important factors explaining the divergent behavior of the American and Canadian private savings rates. Recognizing the importance of asset revaluations, caused partially but not entirely by tax effects, also helps to explain the different behavior of U.S. and Canadian savings. There may also be a relationship between government deficits and the private savings differential.
Handle: RePEc:nbr:nberwo:2319
Template-Type: ReDIF-Paper 1.0
Title: Declining Unionization in Construction: The Facts and the Reasons
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 2320
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2320
File-URL: http://www.nber.org/papers/w2320.pdf
File-Format: application/pdf
Publication-Status: published as Allen, Steven G. "Declining Unionization in Construction: The Facts and the Reasons," Industrial and Labor Relations Review, Vol. 41, No. 3,pp. 343-359, (April 1988).
Abstract: This paper documents and examines the forces behind the decline of unionization in the construction industry. The proportion of construction workers belonging to unions has dropped from slightly less than one-half in 1966 to less than one-third in 1984. The employment share of union contractors has declined even further because of the fraction of union members working in the open shop rose from 29 to 46 percent between 1973 and 1981. Initially, an important factor in the initial decline in percentage unionized was the growth in the union-nonunion wage gap between 1967 and 1973. However, the gap did not widen any further after 1973 and actually has narrowed substantially since 1978. A key subsequent factor has been the erosion of the productivity advantage of union contractors, which dropped substantially between 1972 and 1977 and vanished by 1982. The decline of unionization is unrelated to changes in worker characteristics or changes in the mix and location of construction activity.
Handle: RePEc:nbr:nberwo:2320
Template-Type: ReDIF-Paper 1.0
Title: The Mundell-Flemming Model: A Quarter Century Later
Author-Name: Jacob A. Frenkel
Author-Name: Assaf Razin
Author-Person: pra388
Note: EFG ITI IFM
Number: 2321
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2321
File-URL: http://www.nber.org/papers/w2321.pdf
File-Format: application/pdf
Publication-Status: published as "The Mundell-Fleming Model A Quarter Century Later: A Unified Exposition" From International Monetary Fund Staff Papers, Vol. 34, No. 4, pp. 567-620,(December 1987).
Abstract: The Mundell-Fleming model of international macroeconomics originated in the writings of Robert A. Mundell and J. Marcus Fleming in the early 1960s. The key contribution of the model has been a systematic analysis of the role played by international capital mobility in determining the effectiveness of macroeconomic policies under alternative exchange rate regimes. During the ensuing quarter century, the model was extended in various directions and is still the main "work horse" of traditional open-economy macroeconomics. This paper develops an exposition that integrates the various facets of the model and incorporates its extensions into a unified analytical framework. Attention is given to the distinction between short-run and long-run effects of policies, the implication of debt and tax financing of government expenditures, the role of the exchange rate regime in this regard, and debt revaluation and trade-balance revaluation effects associated with exchange rate changes. The resulting integration clarifies the key economic mechanisms operating in the Mundell-Fleming model and helps to identify its limitations. Among these is the neglect of intertemporal budget constraints and of the consequences of forward- looking behavior consistent with this constraint. The formulation in the paper casts the model in a manner that facilitates comparisons with more modern approaches. In so doing, the exposition provides a bridge between the traditional and the more modern approaches to international macroeconomics.
Handle: RePEc:nbr:nberwo:2321
Template-Type: ReDIF-Paper 1.0
Title: Treasury Bill Futures as Hedges Against Inflation Risk
Author-Name: Jayendu Patel
Author-Name: Richard J. Zeckhauser
Author-Person: pze7
Note: ME
Number: 2322
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2322
File-URL: http://www.nber.org/papers/w2322.pdf
File-Format: application/pdf
Publication-Status: published as "Treasury Bill Futures as Unbiased Predictors: New Evidence and Relation to Unexpected Inflation," Review of Futures Markets, vol 8, no 3, 1989, pp 35 2-368
Abstract: An important risk facing agents in a monetary economy arises from inflation uncertainty: in the U.S. for the 1953-84 period, unexpected quarterly inflation had a standard deviation of 2.1%. The costs of such uncertainty are likely to be even higher for multi-year contracts, since we estimate that a 1% unexpected inflation this year implies an upward revision of 0.43% for expected inflation for the forthcoming year and 1% for the years beyond that. The prospect of hedging inflation risk exposure using conventional financial instruments is bleak, as has been widely documented. We develop a theoretical case for Treasury bill futures as a inflation risk hedge by jointly assuming that (1) the Fisher Hypothesis applies to Treasury bill yields, (2) the Unbiased Expectations Hypothesis (UEH) applies to futures prices, and (3) inflation is an autoregressive process. Our empirical analysis shows that Treasury bill futures can reduce single-period inflation risk by about 30-40%. The expected cost of using such futures is close to zero, since we find that the Unbiased Expectations Hypothesis for Treasury bill futures cannot be rejected. Our results provide new indirect support for the Fisher Hypothesis.
Handle: RePEc:nbr:nberwo:2322
Template-Type: ReDIF-Paper 1.0
Title: Employee Retirement and a Firm's Pension Plan
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG
Number: 2323
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2323
File-URL: http://www.nber.org/papers/w2323.pdf
File-Format: application/pdf
Publication-Status: published as Employee Retirement and a Firm's Pension Plan, Laurence J. Kotlikoff, David A. Wise. in The Economics of Aging, Wise. 1989
Abstract: The provisions of the pension plan in a large corporation are described in detail. The implications of the provisions are indicated by pension accrual profiles. These profiles are set forth, together with standard age-earnings and Social Security accrual profiles, in the form of life-time budget constraints. The plan provided very strong incentives to retire beginning at age 55. After age 65, negative pension and negative Social Security accruals effectively impose almost a 100 percent tax rate on wage earnings for many employees of the firm. Departure rates from the firm are compared with economic incentives inherent in the plan provisions. The inducements in the plan provisions to retire early have had a very substantial effect on departure rates from the firm. Over 50 percent of those employed by the firm at age 50 leave before 60 and 90 percent before age 65. The jumps in departure rates at specific ages coincide precisely with the discontinuities and kink points in the worker compensation profiles that result from the pension plan provisions together with wage earnings profiles and Social Security accrual.
Handle: RePEc:nbr:nberwo:2323
Template-Type: ReDIF-Paper 1.0
Title: Aging, Moving, and Housing Wealth
Author-Name: Steven F. Venti
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG
Number: 2324
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2324
File-URL: http://www.nber.org/papers/w2324.pdf
File-Format: application/pdf
Publication-Status: published as Venti, Steven F. and David A. Wise. "Aging, Moving and Housing Wealth," Economics of Aging, ed. by David A. Wise, pp. 9-48. Chicago: The Universityof Chicago Press, 1989.
Publication-Status: published as Venti, Steven F. and David A. Wise. "Aging And The Income Value Housing Wealth," Journal of Public Economics, 1991, v44(3), 371-398.
Publication-Status: published as Aging, Moving, and Housing Wealth, Steven F. Venti, David A. Wise. in The Economics of Aging, Wise. 1989
Abstract: We have described the relationship between family attributes and moving, and between moving and change in housing wealth. Moving is often associated with retirement and with precipitating shocks like the death of a spouse or by other changes in marital status. Median housing wealth increases as the elderly age. Even when the elderly move, housing equity is as likely to increase as to decrease. Thus, the typical mover is not liquidity constrained, although some are. High transaction cost associated with moving is apparently not the cause for the lack of the reduction in housing wealth as the elderly age. The absence of a well-developed market for reverse mortgages may be explained by a lack of demand for these financial instruments. The evidence suggests that the typical elderly family does not wish to reduce housing wealth to increase current consumption. For whatever reason, there is apparently a considerable attachment among homeowners to past housing.
Handle: RePEc:nbr:nberwo:2324
Template-Type: ReDIF-Paper 1.0
Title: The Wealth and Poverty of Widows: Assets Before and After the Husband's Death
Author-Name: Michael D. Hurd
Author-Person: phu137
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG
Number: 2325
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2325
File-URL: http://www.nber.org/papers/w2325.pdf
File-Format: application/pdf
Publication-Status: published as Hurd, Michael D. and David A. Wise. "The Wealth and Poverty of Widows: Assets Before and After the Husband's Death," Economics of Aging, ed. by David A. Wise. Chicago: University of Chicago Press, 1989.
Publication-Status: published as The Wealth and Poverty of Widows: Assets Before and After the Husband's Death, Michael D. Hurd, David A. Wise. in The Economics of Aging, Wise. 1989
Abstract: We verify that widows are much more likely than couples to be poor and that they make up a large proportion of the poor elderly; 80 percent are widows or other single individuals. Then we seek to explain why the single elderly are poor, with emphasis on widows. We do this by tracing back over time their financial status, using the Longitudinal Retirement History Survey. The death of the husband very often induces the poverty of the surviving spouse, even though the married couple was not poor. While only about 9 percent of prior couples are poor, approximately 35 percent of the subsequent widows are. A large proportion of the wealth of the couple is lost when the husband dies. In addition we find that: (1) the prior households of poor widows earned and saved less than the prior households of non-poor widows, (2) more of the smaller accumulated wealth was lost at the death of the husband, (3) the absence of survivorship benefits or life insurance insured that the loss in wealth would leave the widow poor thereafter.
Handle: RePEc:nbr:nberwo:2325
Template-Type: ReDIF-Paper 1.0
Title: The Poverty of Widows: Future Prospects
Author-Name: Michael D. Hurd
Author-Person: phu137
Note: AG
Number: 2326
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2326
File-URL: http://www.nber.org/papers/w2326.pdf
File-Format: application/pdf
Publication-Status: published as The Poverty of Widows: Future Prospects, Michael D. Hurd. in The Economics of Aging, Wise. 1989
Publication-Status: published as The Wealth and Poverty of Widows: Assets Before and After the Husband's Death, Michael D. Hurd, David A. Wise. in The Economics of Aging, Wise. 1989
Abstract: I estimate the fraction of widows that will be in poverty by projecting the economic status, as measured in 1979, of a cohort of the elderly. The projections are based on an economic model of consumption behavior. I define and estimate a consumption-based measure of poverty status that, I believe, is more appropriate for the elderly than the usual income-based measure. According to the projections, the fraction of widows in poverty should not increase substantially as the 1979 cohort ages. However, the fraction in poverty depends critically on the definition: the differences between the consumption- and income- based measures are large. But even more important is the valuation put on Medicare/Medicaid: for two reasonable valuations, the fractions in poverty are very different.
Handle: RePEc:nbr:nberwo:2326
Template-Type: ReDIF-Paper 1.0
Title: Sticky Prices as Coordination Failure
Author-Name: Laurence Ball
Author-Person: pba605
Author-Name: David Romer
Author-Person: pro406
Note: EFG
Number: 2327
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2327
File-URL: http://www.nber.org/papers/w2327.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 81, No. 3, pp. 539-552, June 1991.
Abstract: This paper shows that nominal price rigidity can arise from a failure to coordinate price changes. If a firm's desired price is increasing in others' prices, then the gains to the firm from adjusting its price after a nominal shock are greater if others adjust. This "strategic complementarity" in price adjustment can lead to multiple equilibria in the degree of nominal rigidity. Welfare may be much higher in the equilibria with less rigidity. In addition, with multiple equilibrium degrees of rigidity, the economy may have several short-run equilibria but a unique long-run equilibrium.
Handle: RePEc:nbr:nberwo:2327
Template-Type: ReDIF-Paper 1.0
Title: Long-Term Care, Wealth, and Health of the Disabled Elderly Living in the Community
Author-Name: Alan M. Garber
Note: EH AG
Number: 2328
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2328
File-URL: http://www.nber.org/papers/w2328.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of Aging, ed. by David Wise, University of Chicago Press, March 1989, pp. 255-277
Publication-Status: published as Long-Term Care, Wealth, and Health of the Disabled Elderly Living in the Community, Alan M. Garber. in The Economics of Aging, Wise. 1989
Abstract: Providing and financing long-term care of the elderly are among the most challenging policy issues facing the aging American population. This study examines characteristics and selected measures of utilization in the population most likely to use long-term care. It investigates characteristics of a cohort of noninstitutionalized elderly Medicare recipients who were impaired in the performance of at least one basic activity. It describes their wealth, living arrangements, and health characteristics. Tobit regressions are presented that relate utilization of hospital services, paid home-health care, and unreimbursed home care to these factors. I find that the number of activity limitations increases with age, but that in this population, household income and value of home equity do not decrease with either the level of disability or with age. The determinants of home-health care utilization in this population are distinct from the factors that have been significant predictors of medical care utilization in other studies.
Handle: RePEc:nbr:nberwo:2328
Template-Type: ReDIF-Paper 1.0
Title: The Role of Education: Mobility Increasing or Mobility Impeding?
Author-Name: Axel Borsch-Supan
Note: LS
Number: 2329
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2329
File-URL: http://www.nber.org/papers/w2329.pdf
File-Format: application/pdf
Publication-Status: published as "The Double-edged Impact of Education on Mobility" in Economics of Education Review, vol. 9, no. 1, 1990.
Abstract: This paper studies the influence of education on labor and geographic mobility. Mobility is an important equilibrating factor in a changing economy. Therefore, any factor that induces mobility also alleviates the symptoms of disequilibrium, and any factor that inhibits mobility also impedes economic adjustments. Does the high level of education in modern industrial societies help or hurt economic transitions? Economic theory provides conflicting arguments. On the one side, the theory of firm-specific capital predicts that education increases job duration and therefore inhibits job mobility (Jovanovic, 1979). On the other side, education should increase mobility in markets with imperfect information because better educated persons should be better able to collect and process information, reducing search and transactions costs. In a PSID subsample consisting of 736 individuals, we observed labor and geographic mobility from 1968 to 1982 and related it to the level of education at 1968. It appears that labor and geographic mobility are governed by quite different behavioral mechanism. Education strongly affects future labor and geographic mobility, but in opposite ways. A high level of education inhibits labor mobility, but increases geographic mobility.
Handle: RePEc:nbr:nberwo:2329
Template-Type: ReDIF-Paper 1.0
Title: Ricardian Equivalence: An Evaluation of Theory and Evidence
Author-Name: B. Douglas Bernheim
Author-Person: pbe81
Note: PE
Number: 2330
Creation-Date: 1987-07
Order-URL: http://www.nber.org/papers/w2330
File-URL: http://www.nber.org/papers/w2330.pdf
File-Format: application/pdf
Publication-Status: published as Reprinted in Lakis C. Kaounides and Geoffrey E. Wood (eds.) Debt and Deficits, Edward Elgar Publishing Ltd: London, 1992
Publication-Status: published as Ricardian Equivalence: An Evaluation of Theory and Evidence, B. Douglas Bernheim. in NBER Macroeconomics Annual 1987, Volume 2, Fischer. 1987
Abstract: In evaluating the existing theory and evidence on Ricardian equivalence, it is essential to distinguish between the short run effects of government borrowing (primarily the potential for stimulating aggregate demand) and the long run effects (primarily the potential for depressing capital accumulation). I argue that the theoretical case for long run neutrality is extremely weak, in that it depends upon improbable assumptions that are either directly or indirectly falsified through empirical observation. In contrast, the approximate validity of short run neutrality depends primarily upon assumptions that have at least an aura of plausibility. Nevertheless, even in this case behavioral evidence weighs heavily against the Ricardian view. Efforts to measure the economic effects of deficits directly through aggregate data confront a number of problems which, taken together, may well be insuperable. It is therefore not at all surprising that this evidence has, by itself, proven inconclusive. Overall, the existing body of theory and evidence establishes a significant likelihood that deficits have large effects on current consumption, and there is good reason to believe that this would drive up interest rates. In addition, I find a complete lack of either evidence or coherent theoretical argument to dispute the view that sustained deficits significantly depress capital accumulation in the long run.
Handle: RePEc:nbr:nberwo:2330
Template-Type: ReDIF-Paper 1.0
Title: Operative Gift and Bequest Motives
Author-Name: Andrew B. Abel
Author-Person: pab10
Note: EFG
Number: 2331
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2331
File-URL: http://www.nber.org/papers/w2331.pdf
File-Format: application/pdf
Publication-Status: published as Abel, Andrew B. "Operative Gift and Bequest Motives." American Economic Review, Vol.77, No.5, (December 1987) pp. 1037-1047.
Abstract: The Ricardian Equivalence Theorem, which is the proposition that changes in the timing of lump-sum taxes have no effect on assumption or capital accumulation, depends on the exist- of operative altruistic motives for intergenerational transfers. These transfers can be bequests from parents to children or gifts from children to parents. In order for the Ricardian Equivalence Theorem to hold, one of these transfer motives must be operative in the sense that the level of the transfer is not determined by a corner solution resulting from a binding non-negativity constraint This paper derives conditions that determine whether the bequest motive will be operative, the gift motive will be operative, or neither motive will be operative in a model in which consumers are altruistic toward their parents and their children.
Handle: RePEc:nbr:nberwo:2331
Template-Type: ReDIF-Paper 1.0
Title: Concepts and Measures of Federal Deficits and Debt and Their Impact on Economic Activity
Author-Name: Michael J. Boskin
Note: PE
Number: 2332
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2332
File-URL: http://www.nber.org/papers/w2332.pdf
File-Format: application/pdf
Publication-Status: published as Economics of Public Debt, Arrow, K. and M. Boskin, eds.: MacMillan for the International Economic Association, 1988.
Abstract: This paper introduces extensions of the National Income Accounts to include a consistent treatment of consumer durables and government capital in the measurement of consumption and income, and explicitly tests alternative propositions concerning the effects of government financial policy on real economic activity. The paper discusses adjustments to various measures of the budget deficit, national debt, or government "net worth". These include separating government tangible investment from consumption, accounting for government financial assets, inflation adjustments, etc. The most important results estimate consumption functions in which government consumption is subtracted from income. I take this to be more in the spirit of the Ricardian equivalence hypothesis, asking: Given the level of government consumption, would a shift from tax to debt finance alter consumption? The various measures of the deficit produce virtually identical results in their impact on consumption: a tax cut holding government consumption constant, unambiguously increases consumption substantially, about 40 cents on the dollar. Estimating separate coefficients on private wealth, net of government bonds and on private holdings of government bonds, yields a coefficient on government bonds virtually identical to that of regular private wealth, rather than zero as would be the case under Ricardian equivalence. The estimates of the net impact of Social Security wealth are consistent with recent research suggesting that the propensity to consume out of Social Security wealth is about half that of regular private wealth. The estimated impact of changes in net government explicit assets -- the value of government tangible capital over and above regular debt -- again is quite similar to the propensity to consume out of private wealth. This would suggest that government tangible assets substitute for private saving. Reduced form estimates are presented on the impact of federal deficits on the composition of GNP. Various specifications lead to the conclusion that a $1 increase in the deficit, controlling for the level of economic activity, appear to be associated with about a 30 cent increase in private saving, about a 35 cent decrease in domestic investment and about a 25 cent decrease in net foreign investment. Thus, the results reported in the paper, using alternative concepts and measures of deficits and debt tend to confirm the proposition that government deficits affect real economic activity.
Handle: RePEc:nbr:nberwo:2332
Template-Type: ReDIF-Paper 1.0
Title: The Right Combination of Demand and Supply Policies: The Case for a Two-Handed Approach
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ME
Number: 2333
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2333
File-URL: http://www.nber.org/papers/w2333.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, "The Right Combination of Demand and Supply Policies: The Case for a Two-Handed Approach," in Macro and Micro Policies for More Growth and Employment," ed. by H. Muller-Groeling, Kiel, West Germany: Kiel Institute of World Economics, 1988.
Abstract: The paper considers the analytical underpinnings of the scope for and limits of demand and supply management. After restating a general policy effectiveness result for New-Classical macroeconomic models, several non-Walrasan equilibrium models are considered. These use the efficiency wage hypothesis to generate equilibrium unemployment in the labor market and imperfect competition in the goods market to generate scope for demand management. Hysteresis models of the natural rate are also reviewed briefly. Tentative implications are drawn for the contributions of demand and supply management to the resolution of the European unemployment problem.
Handle: RePEc:nbr:nberwo:2333
Template-Type: ReDIF-Paper 1.0
Title: Sibling and Intergenerational Correlations in Welfare Program Participation
Author-Name: Gary Solon
Author-Person: pso215
Author-Name: Mary Corcoran
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Deborah Laren
Note: LS
Number: 2334
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2334
File-URL: http://www.nber.org/papers/w2334.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Vol. 23, No. 3, Summer 1988, pp. 388-396.
Abstract: Many previous studies have used sibling correlations to measure the effect of family background on earnings, income? and occupational status. This paper uses data on a sample of sisters to explore the importance of family background as a determinant of welfare program participation. The results show a strikingly high degree of sibling resemblance in welfare receipt. For example, a woman's estimated probability of having participated in welfare programs is .20 if her sister has not participated, but is -.66 if her sister has participated.
Handle: RePEc:nbr:nberwo:2334
Template-Type: ReDIF-Paper 1.0
Title: Taxation and Output Growth: Evidence from African Countries
Author-Name: Jonathan S. Skinner
Author-Person: psk23
Note: PE
Number: 2335
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2335
File-URL: http://www.nber.org/papers/w2335.pdf
File-Format: application/pdf
Abstract: There is considerable debate over the appropriate role for tax policy in developing economies. In one view, tax hikes reduce deficits and ease budgetary pressures, thereby encouraging long-term growth. An alternative view emphasizes the distortionary effects associated with increased taxation and the positive benefits of a carefully designed tax system. This paper tests these propositions by measuring the impact of government taxation and expenditure on aggregate output growth. A theoretical model is derived which shows that the impact of tax distortions on output growth is usually negative. The theoretical model is tested using a pooled cross-section time-series data set for 31 sub-Saharan African countries during 1965-73 and 1974-82. The regressions imply that the positive benefits of government investment during 1965-73 outweighed the distortionary effects of taxes necessary to finance them. By 1974-82, however, the marginal productivity of government investment had fallen; tax-financed public investment was predicted to have reduced output growth. The empirical results also imply that a revenue neutral shift from the import, corporate, and personal tax to a sales/excise (or consumption) tax will encourage output growth.
Handle: RePEc:nbr:nberwo:2335
Template-Type: ReDIF-Paper 1.0
Title: Risky Income, Life Cycle Consumption, and Precautionary Savings
Author-Name: Jonathan S. Skinner
Author-Person: psk23
Note: PE
Number: 2336
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2336
File-URL: http://www.nber.org/papers/w2336.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, September 1988, vol 22, pp. 237-255.
Abstract: This paper argues that precautionary savings against uncertain income comprise a large fraction of aggregate savings. A closed-form approximation for life cycle consumption subject to uncertain interest rates and earnings is derived by taking a second-order Taylor-Series approximation of the Euler equations. Using empirical measures of income uncertainty, I find that precautionary savings comprises up to 56 percent of aggregate life cycle savings. The derived expression for n-period optimal consumption is easily implemented for econometric estimation, and accords well with the exact numerical solution. Empirical comparisons of savings patterns among occupational groups using the Consumer Expenditure Survey contradict the predictions of the life cycle model. Riskier occupations, such as the self-employed and salespersons, save less than other occupations, although this finding may in part reflect unobservable differences in risk aversion among occupations.
Handle: RePEc:nbr:nberwo:2336
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Technological Change on Earnings and Income Inequality inthe United States
Author-Name: McKinley L. Blackburn
Author-Person: pbl77
Author-Name: David E. Bloom
Author-Person: pbl79
Note: LS
Number: 2337
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2337
File-URL: http://www.nber.org/papers/w2337.pdf
File-Format: application/pdf
Publication-Status: published as "Earnings and Income Inequality in the United States" From Population and Development Review, Vol. 13, No. 4, pp. 575-609, (December 1987).
Abstract: This paper explores the relationship between technological change and inequality in the U.S. since the late 1960's. The analysis focuses primarily on studying patterns and trends in the dispersion of various distributions of earnings and income during this recent period of rapid technological progress. We review relevant literature and perform several empirical analyses using microdata from the March Current Population Surveys from 1968 to 1986. Our main findings are that there is little empirical evidence that earnings inequality, measured across individual workers, has increased since the late 1960's, and even less evidence to support the hypothesis that any changes that have occurred have resulted from the effect of technological change on the demand for labor. However, we do find evidence of an increase since the late 1960's in the inequality of total family income, measured across families. Moreover, much of the increase appears to be due to changes in family composition and labor supply behavior, suggesting that the main effects of recent technological change on inequality have been supply-side in nature.
Handle: RePEc:nbr:nberwo:2337
Template-Type: ReDIF-Paper 1.0
Title: Household Dissolution and the Choice of Alternative Living Arrangements Among Elderly Americans
Author-Name: Axel Borsch-Supan
Note: AG
Number: 2338
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2338
File-URL: http://www.nber.org/papers/w2338.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of Aging. (ed) David Wise, University of Chicago Press, 1990l
Publication-Status: published as Household Dissolution and the Choice of Alternative Living Arrangements among Elderly Americans, Axel Börsch-Supan. in The Economics of Aging, Wise. 1989
Abstract: For the elderly, housing choices are more complex than merely the choice of housing expenditure, dwelling size, and tenure. They also include the choice among alternative living arrangements such as living in one household with their adult children or sharing accommodations with other related or unrelated elderly. We first contrast living arrangements of elderly Americans with the population under age 65 and describe the changes from 1974 to 1983. We detect a growing discrepancy in household formation/dissolution patterns between the elderly and the younger population: after a steady decline in the 1970s, we observe a rapid increase in the rate of "doubled-up" young families in the beginning of the 1980s. No such development can be found among elderly Americans. Instead, the proportion of elderly living in- dependently steadily increases from 1974 to 1983. To explain this discrepancy, we estimate a multinomial choice model among living independently and six categories of alternative living arrangements. The main finding is the predominance of demographic determinants as opposed to economic variables. The difference in income growth between the young and the elderly -- real income declined for the young but increased for the elderly -- can explain only part of the discrepancy in household dissolution decisions. The remaining discrepancy must be attributed to inertia and low mobility rates.
Handle: RePEc:nbr:nberwo:2338
Template-Type: ReDIF-Paper 1.0
Title: Sources of Macroeconomic Imbalances in the World Economy: A Simulation Approach
Author-Name: Jeffrey D. Sachs
Author-Name: Nouriel Roubini
Author-Person: pro145
Note: ITI IFM
Number: 2339
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2339
File-URL: http://www.nber.org/papers/w2339.pdf
File-Format: application/pdf
Publication-Status: published as Toward a World of Economic Stability, (ed) Yoshio Suzuki and Mitsuaki Okabe University of Tokyo Press: Tokyo, Japan, 1988.
Abstract: This paper uses a global macroeconomic simulation model to identify the factors that have contributed to global trade and financial imbalances in the 1980s. After investigating the properties of monetary and fiscal policies in the model, we examine whether the budgetary shifts in the OECD economies in the 1980s can account for the bulk of trade and exchange rate movements. Our conclusions are mixed. The combination of sharply higher fiscal deficits in the United States and sharply reduced deficits in Japan goes far to explain the movements of the trade balances and exchange rates of the two economies. However, the drop in the dollar vis-a-vis the Yen since late 1985 is not well explained by the model. We also investigate the prospects for a reduction of the U.S. trade deficits if U.S. budget deficits are in fact reduced, as well as the possible role for Japanese monetary and fiscal policies in reducing the trade imbalances of the two countries.
Handle: RePEc:nbr:nberwo:2339
Template-Type: ReDIF-Paper 1.0
Title: Interest-Only/Principal-Only Mortgage-Backed Strips: A Valuation and Risk Analysis
Author-Name: Alan J. Marcus
Author-Person: pma1156
Author-Name: Arnold Kling
Note: ME
Number: 2340
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2340
File-URL: http://www.nber.org/papers/w2340.pdf
File-Format: application/pdf
Abstract: We examine the risk characteristics of each portion of IO/PO mortgage strips, present results of a valuation model of these securities, and examine market prices of both the interest-only and principal-only portions of mortgage pools. We show that IO/PO securities are highly sensitive to the prepayment behavior of the underlying mortgage pool. Because that behavior varies systematically with the interest rate, and because prepayments affect the values of I0 and PO components in opposite ways, the interest-rate risk of strip securities can differ substantially from that of the underlying mortgage pool. The PO component has much longer duration than the underlying mortgage pool. In contrast, the IO component typically will have a negative duration, at least in ranges for which interest-rate movements induce meaningful changes in mortgage prepayment behavior. We also show how market prices of partially-stripped MBSs that are actively traded on secondary markets can be used to infer market values of pure IO/PO strips. Recent market data is fully consistent with the theoretical insights offered by our valuation model. When interest rates spiked last April, PO values fell far more dramatically than those of the underlying mortgage pool while IO values actually rose.
Handle: RePEc:nbr:nberwo:2340
Template-Type: ReDIF-Paper 1.0
Title: The Term Structure of Interest Rates
Author-Name: Robert J. Shiller
Author-Person: psh69
Author-Name: J. Huston McCulloch
Note: ME
Number: 2341
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2341
File-URL: http://www.nber.org/papers/w2341.pdf
File-Format: application/pdf
Publication-Status: published as Benjamin Friedman and Frank Hahn, eds., Handbook of Monetary Economics, North Holland 1980
Publication-Status: published as Shiller, Robert J. & Huston McCulloch, J., 1990. "The term structure of interest rates," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 13, pages 627-722 Elsevier.
Publication-Status: published as The Term Structure of Interest Rates, Joseph W. Conard. in The Behavior of Interest Rates: A Progress Report, Conard. 1966
Abstract: This paper consolidates and interprets the literature on the term structure, as it stands today. Definitions of rates of return, forward rates and holding returns for all time intervals are treated here in a uniform manner and their interrelations, exact or approximate, delineated. The concept of duration is used throughout to simplify mathematical expressions. Continuous compounding is used where possible, to avoid arbitrary distinctions based on compounding assumptions. Both the theoretical and the empirical literature are treated. The attached tables by J. Huston McCulloch give term structure data for U. S. government securities 1946-1987. The tables give discount bond yields, forward rates and par bond yields as defined in the paper. The data relate to the concepts in the paper more precisely than does any previously published data series.
Handle: RePEc:nbr:nberwo:2341
Template-Type: ReDIF-Paper 1.0
Title: Breach of Trust in Hostile Takeovers
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Lawrence H. Summers
Author-Person: psu137
Number: 2342
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2342
File-URL: http://www.nber.org/papers/w2342.pdf
File-Format: application/pdf
Publication-Status: published as Shleifer, Andrei and Lawrence H. Summers. "Breach of Trust in Hostile Takeovers," From Corporate Takeovers: Causes and Consequences, edited by Alan J. Auerbach, pp. 33-56. Chicago: The University of Chicago Press, 1988.
Publication-Status: published as Breach of Trust in Hostile Takeovers, Andrei Shleifer, Lawrence H. Summers. in Corporate Takeovers: Causes and Consequences, Auerbach. 1988
Abstract: The paper questions the common view that share price increases of firms involved in hostile takeovers measure efficiency gains from acquisitions. Even if such gains exist, most of the increase in the combined value of the target and the acquirer is likely to come from stakeholder wealth losses, such as declines in value of subcontractors' firm-specific capital or employees' human capital. The use of event studies to gauge wealth creation in takeovers is unjustified. The paper also suggests a theory of managerial behavior, in which hiring and entrenching trustworthy managers enables shareholders to commit to upholding implicit contracts with stakeholders. Hostile takeovers are an innovation allowing shareholders to renege on such contracts ex post, against managers' will. On this view, shareholder gains are redistributions from stakeholders, and can in the long run result in deterioration of trust necessary for the functioning of the corporation.
Handle: RePEc:nbr:nberwo:2342
Template-Type: ReDIF-Paper 1.0
Title: Mean Reversion in Stock Prices: Evidence and Implications
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: ME PE
Number: 2343
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2343
File-URL: http://www.nber.org/papers/w2343.pdf
File-Format: application/pdf
Publication-Status: published as "Mean Reversion in Stock Prices." From Journal of Financial Economics, Vol. 22, pp. 27-59, (1988).
Abstract: This paper analyzes the statistical evidence bearing on whether transitory components account for a large fraction of the variance in common stock returns. The first part treats methodological issues involved in testing for transitory return components. It demonstrates that variance ratios are among the most powerful tests for detecting mean reversion in stock prices, but that they have little power against the principal interesting alternatives to the random walk hypothesis. The second part applies variance ratio tests to market returns for the United States over the 1871-1986 period and for seventeen other countries over the 1957-1985 period, as well as to returns on individual firms over the 1926- 1985 period. We find consistent evidence that stock returns are positively serially correlated over short horizons, and negatively autocorrelated over long horizons. The point estimates suggest that the transitory components in stock prices have a standard deviation of between 15 and 25 percent and account for more than half of the variance in monthly returns. The last part of the paper discusses two possible explanations for mean reversion: time varying required returns, and slowly-decaying "price fads" that cause stock prices to deviate from fundamental values for periods of several years. We conclude that explaining observed transitory components in stock prices on the basis of movements in required returns due to risk factors is likely to be difficult.
Handle: RePEc:nbr:nberwo:2343
Template-Type: ReDIF-Paper 1.0
Title: The Worldwide Change in the Behavior of Interest Rates and Prices in 1914
Author-Name: Robert B. Barsky
Author-Person: pba670
Author-Name: N. Gregory Mankiw
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Author-Name: David N. Weil
Author-Person: pwe24
Note: ME EFG
Number: 2344
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2344
File-URL: http://www.nber.org/papers/w2344.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 32, (1988): 1123-1147.
Abstract: This paper evaluates the role of the destruction of the gold standard and the founding of the Federal Reserve, both of which occurred in 1914, in contributing to observed changes in the behavior of interest rates and prices after 1914. The paper presents a model of policy coordination in which the introduction of the Fed stabilizes interest rates, even if the gold standard remains intact, and it offers empirical evidence that the dismantling of the gold standard did not play a crucial role in precipitating the changes in interest rate behavior.
Handle: RePEc:nbr:nberwo:2344
Template-Type: ReDIF-Paper 1.0
Title: The ECU - An Imaginary or Embryonic Form of Money: What Can We Learn from History?
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Anna J. Schwartz
Note: ME ITI IFM
Number: 2345
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2345
File-URL: http://www.nber.org/papers/w2345.pdf
File-Format: application/pdf
Publication-Status: published as From The ECU and European Monetary Integration, edited by Paul DeGrauwe and Theo Peeters, pp. 1-21. London: Macmillan Press Ltd., 1989.
Abstract: We present historical examples of new forms of money that can be com- pared with the ECU. We first define the ECU in its official role before turning to developments in the private market for ECUs. We then examine historical antecedents of three attributes of ECUs: a unit of account; a basket of currencies; a basis for monetary integration. We discuss which features if any of ECUs are unique, and the contribution of the historical analysis to assessing the future of ECUs. We then ask whether governments or markets have been dominant in the emergence of new forms of money. Whatever emerges as money in an economy becomes the general means of payment. Prices of commodities, services, and bonds are expressed in units of the money. Buyers use the money to purchase goods or bonds and sellers receive the money is exchange for goods or bonds. We conclude that, at this stage in its history, the ECU at best is an embryonic form of money, closer to historical imaginary monies than to existing currencies that the world has known.
Handle: RePEc:nbr:nberwo:2345
Template-Type: ReDIF-Paper 1.0
Title: A Cost-Effectiveness Analysis of Strategies to Reduce Infant Mortality
Author-Name: Hope Corman
Author-Name: Theodore Joyce
Author-Person: pjo112
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 2346
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2346
File-URL: http://www.nber.org/papers/w2346.pdf
File-Format: application/pdf
Publication-Status: published as From Medical Care, Vol. 26, No. 4, pp. 348-360, (April 1988).
Abstract: This study compares the cost-effectiveness of various health inputs and government programs in reducing race-specific neonatal mortality or death in the first twenty-seven days of life. Approximately two-thirds of all infant deaths occur within this time period. The programs and inputs at issue are teenage family planning use, the supplemental food program for women, infants and children (WIC), use of community health centers and maternal and infant care projects, abortion, prenatal care, and neonatal intensive care. Using an economic model of the family as the analytical framework, effectiveness is determined by using ordinary least squares and two-stage least squares to estimate infant health production functions across large counties in the U.S. in 1977. We find the early initiation of prenatal care to be the most cost-effective means of reducing neonatal mortality rate for blacks and whites. Moreover, blacks benefit more per dollar of input use than whites. Neonatal intensive care, although the most effective means of reducing neonatal mortality rates, is one of the least cost-effective strategies.
Handle: RePEc:nbr:nberwo:2346
Template-Type: ReDIF-Paper 1.0
Title: One Share/One Vote and the Market for Corporate Control
Author-Name: Sanford J. Grossman
Author-Person: pgr108
Author-Name: Oliver D. Hart
Author-Person: pha222
Note: ME
Number: 2347
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2347
File-URL: http://www.nber.org/papers/w2347.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, vol. 20, no. 1/2, 1988, pp. 175-202.
Abstract: A corporation's securities provide the holder with particular claims on the firm's income stream and particular voting rights. These securities can be designed in various ways: one share of a particular class may have a claim to votes which is disproportionately larger or smaller than its claim to income. In this paper we analyze some of the forces which make it desirable to set up the corporation so that all securities have the same proportion of votes as their claim to income ("one share/one vote"). We show that security structure influences both the conditions under which a control change takes place and the terms on which it occurs. First, the allocation of voting rights to securities determines which securities a party must acquire in order to win control. Secondly, the assignment of income claims to the same securities determines the cost of acquiring these voting rights. We will show that it is in shareholders' interest to set the cost of acquiring control to be as large as possible, consistent with a control change occurring whenever this increases shareholder wealth. Under certain assumptions, one share/one vote best achieves this goal. We distinguish between two classes of benefits from control: private benefits and security benefits. The private benefits of control refer to benefits the current management or the acquirer obtain for themselves, but which the target security holders do not obtain. The security benefits refer to the total market value of the corporation's securities. The assignment of income claims to voting rights determines the extent 'to which an acquirer must face competition from parties who value the firm for its security benefits rather than its private benefits.
Handle: RePEc:nbr:nberwo:2347
Template-Type: ReDIF-Paper 1.0
Title: Exchange Controls, Devaluations and Real Exchange Rates: The Latin American Experience
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 2348
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2348
File-URL: http://www.nber.org/papers/w2348.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian. "Exchange Controls, Devaluations and Real Exchange Rates: The Latin American Experience." Economic Development and Cultural Change, vol. 37, no. 3, pp. 457-494, (April 1989).
Publication-Status: published as Edwards, Sebastian. "Tariffs, Capital Controls, And Equilibrium Real Exchange Rates," Canadian Journal of Economics, vol. 22, no. 1, (February 1989), pp. 79-92.
Abstract: This paper deals with the anatomy of devaluation in Latin America. In an effort to understand the economics surrounding the causes and consequences of exchange rate crises, eighteen devaluation episodes that took place between 1962 and 1982 are investigated in detail. The paper focuses on: (1) the relation between (inconsistent) macroeconomics policies and exchange rate crises; (2) the role of real exchange rate overvaluation in the precipitation of balance of payment crises under pre-determined nominal exchange rates; (3) the role of exchange controls, multiple exchange rates and black markets in the period preceding devaluations; and (4) the effectiveness of nominal devaluations as a way to restore real exchange rate equilibrium. A distinction is made between stepwise devaluations and crawling peg regime. It was found that historically most stepwise devaluations have had difficulty in sustaining a real devaluation over the medium term. Countries that adopted a crawling peg have generally been able to maintain a higher real exchange rate. In many cases, however, this has been achieved at the cost of substantial inflation.
Handle: RePEc:nbr:nberwo:2348
Template-Type: ReDIF-Paper 1.0
Title: Imputing Corporate Tax Liabilities to Individual Taxpayers
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 2349
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2349
File-URL: http://www.nber.org/papers/w2349.pdf
File-Format: application/pdf
Publication-Status: published as From National Tax Journal, Vol. XLI, No. 1, pp. 37-59, (March 1988).
Abstract: This paper presents a method of studying the distributional consequences of corporate tax changes by imputing to individual tax returns the net effect of changes in effective corporate tax rates. Particular attention is given to the difference between nominal and real capital income, to the problem of corporate pension funds, and to the automatic effect of corporate tax changes on dividends and retained earnings. Application of this imputation method to the tax changes enacted in 1986 shows that the actual distribution of the total tax change was very different from the traditional distribution of only the personal income tax change. The net imputed corporate tax increase was equivalent to a rise of 6 percentage points in the personal income tax among taxpayers with 1988 incomes over $200,000 and 4 percentage points among taxpayers with incomes between $100,000 and $200,000. The corporate income tax increase also added the equivalent of an 8 percent rise in the income tax for taxpayers with incomes between $10,000 and $20,000. By contrast, for middle income taxpayers (with incomes between $30,000 and $75,000) the corporate tax increase was equivalent to an income tax rise of only 1 or 2 percent. The analysis shows that the higher corporate tax represents a particularly large increase for taxpayers over the age of 65; on average, tax returns with at least one taxpayer over age 65 will pay 12 percent more tax under the 1986 tax legislation than they would otherwise have paid. Distributional considerations will continue to play a large role in the public and Congressional discussions of future tax reforms. The present study shows that it is very important to include the distributional consequences of corporate as well as personal tax changes in the analysis of any proposed tax reforms.
Handle: RePEc:nbr:nberwo:2349
Template-Type: ReDIF-Paper 1.0
Title: A Goodness of Fit Test of Dual Labor Market Theory
Author-Name: William T. Dickens
Author-Name: Kevin Lang
Author-Person: pla83
Note: LS
Number: 2350
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2350
File-URL: http://www.nber.org/papers/w2350.pdf
File-Format: application/pdf
Publication-Status: Published as "A Test of Dual Labor Market Theory", American Economic Review , Vol. 75, no.4 (1985): 792-805.
Abstract: We subject our dual labor market model to a goodness of test fit and compare the results with those obtained using a single equation model with a complex error structure. The dual labor market does an excellent job of predicting the wage distribution except for failing to explain bunching at $7.50 and $10.00 per hour. The null hypothesis that the model is correct cannot be rejected at the .05 level. In contrast, the wage distribution predicted by the single labor market model differs significantly from the observed distribution.
Handle: RePEc:nbr:nberwo:2350
Template-Type: ReDIF-Paper 1.0
Title: Arbitrator Behavior in Public Sector Wage Disputes
Author-Name: David E. Bloom
Author-Person: pbl79
Note: LS
Number: 2351
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2351
File-URL: http://www.nber.org/papers/w2351.pdf
File-Format: application/pdf
Publication-Status: published as Arbitrator Behavior in Public Sector Wage Disputes, David E. Bloom. in When Public Sector Workers Unionize, Freeman and Ichniowski. 1988
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 additional 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:2351
Template-Type: ReDIF-Paper 1.0
Title: Government Saving, Capital Formation and Wealth in the United States, 1947-1985
Author-Name: Michael J. Boskin
Author-Name: Marc S. Robinson
Author-Name: Alan M. Huber
Note: PE
Number: 2352
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2352
File-URL: http://www.nber.org/papers/w2352.pdf
File-Format: application/pdf
Publication-Status: published as Boskin, Michael J & Marc S. Robinson. "The Value of Federal Mineral Rights, Correction and Update: Erratum [Government Saving, Capital Formation and Wealth in the United States, 1947-1985]." American Economic Review 77, 5 (1987): 1073-74.
Publication-Status: published as The Measurement of Saving, Investment, and Wealth, edited by Robert E. Lipsey and Helen Stone Tice. Chicago: University of Chicago Press, 1989.
Publication-Status: published as Government Saving, Capital Formation, and Wealth in the United States, 1947-85, Michael J. Boskin, Marc Robinson, Alan Huber. in The Measurement of Saving, Investment, and Wealth, Lipsey and Tice. 1989
Abstract: This paper presents new updated and improved estimates of various components of governments' contribution to national wealth and its growth in the post-war period. The primary conclusions drawn are: (1). The federal government's assets, tangible and financial, are substantial; they grew more rapidly than the national debt in the 1970s. By 1980, federal tangible assets amounted to $1.7 trillion and financial assets $940 billion, compared to liabilities of $1.5 trillion (in 1985 dollars) ; (2). Since 1980, conventional liabilities have grown much faster than assets, causing about a $727 billion decline in federal "net worth"; (3). The state-local government sector contributes importantly to government and national wealth. State-local fixed reproducible capital is twice the federal amount, about $1.9 trillion in 1985. The difference between assets and liabilities is both larger and more stable for state-local governments than for the federal government. The estimated "net worth" of state-local governments is $2.5 trillion in both 1980 and 1985; 4. Total government reproducible capital was about 55% of the corresponding private non-residential capital stock in 1985; 5. Government net investment has often been sufficient to turn the government sector into a net saver despite large budget deficits; 6. Extending the traditional National Income Accounts to include imputed returns to government capital and consumer durables while treating government net investment and durables purchases as saving indicate that the share of national output devoted to consumption has risen substantially, while that devoted to net saving has fallen sharply in the period 1951-85. The private consumption rate has risen from 63% to 69% over this period while the government consumption rate has fallen slightly; 7. The inclusion of consumer durables and government tangible investment raises the national saving rate substantially. In 1985, the gross and net saving rates rise from a traditionally measured 13.8% and 3.2% to 24.5% and 8.8%, respectively (about one and a half percentage points of this increase is due to our different depreciation methodology). Thus, the data presented in this paper reveal much about the post-war fiscal history of the United States. In addition to their importance in understanding trends in national wealth, they may also prove important inputs into future studies of the long-term growth of the economy and to the short-run effects of fiscal policy.
Handle: RePEc:nbr:nberwo:2352
Template-Type: ReDIF-Paper 1.0
Title: The Marginal Excess Burden of Different Capital Tax Instruments
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Yolanda K. Henderson
Note: PE
Number: 2353
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2353
File-URL: http://www.nber.org/papers/w2353.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Economics and Statistics, Vol. LXXI, No. 3, pp. 435-442,(August 1989).
Abstract: Marginal excess burden, defined as the change in deadweight loss for an additional dollar of tax revenue, has been measured for labor taxes, output taxes, and capital taxes generally. This paper points out that there is no we1 1-defined way to raise capital taxes in general, because the taxation of income from capital depends on many different policy instruments including the statutory corporate income tax rate, the investment tax credit rate, depreciation lifetimes, declining balance rates for depreciation allowances, and personal tax rates on noncorporate income, interest receipts, dividends, and capital gains. Marginal excess burden is measured for each of these different capital tax instruments, using a general equilibrium model that encompasses distortions in the allocation of real resources over time, among industries, between the corporate and noncorporate sectors, and among diverse types of equipment, structures, inventories, and land. Although numerical results are sensitive to specifications for key substitution elasticity parameters, important qualitative results are not. We find that an increase in the corporate rate has the highest marginal excess burden, because it distorts intersectoral and interasset decisions as well as intertemporal decisions. At the other extreme, an investment tax credit reduction has negative marginal excess burden because it raises revenue while reducing interasset distortions more than it increases intertemporal distortions. In general, we find that marginal excess burdens of different capital tax instruments vary significantly. They can be more or less than the marginal excess burden of the payroll tax or the progressive personal income tax.
Handle: RePEc:nbr:nberwo:2353
Template-Type: ReDIF-Paper 1.0
Title: An Overlapping Generations Model of Electoral Competition
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Stephen E. Spear
Note: ME
Number: 2354
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2354
File-URL: http://www.nber.org/papers/w2354.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol.37, pp359-379, December 1988
Abstract: This paper presents a dynamic model of political competition between two "parties" with different policy preferences. A "party" is explicitly modeled as a sequence of overlapping generations of candidates, all of whom face finite decision horizons. In general, there is a conflict between the interests of the individual policymakers and those of the "party" , which includes subsequent generations of candidates. We characterize this conflict and suggest a scheme of "intergenerational transfers" within the party which can resolve or mitigate this conflict. The paper shows how the "overlapping generations" model can be usefully applied to the political arena.
Handle: RePEc:nbr:nberwo:2354
Template-Type: ReDIF-Paper 1.0
Title: Taxes, Budget Deficits ad Consumer Spending: Some New Evidence
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Douglas W. Elmendorf
Author-Person: pel79
Note: EFG PE ME
Number: 2355
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2355
File-URL: http://www.nber.org/papers/w2355.pdf
File-Format: application/pdf
Publication-Status: published as "Government Debt, Government Spending, and Private Sector Behavior Revisited: Comment." From The American Economic Review, Vol. 80, No. 3,pp. 589-599, (June 1990).
Abstract: Because of the restrictive assumptions required to establish the theory of Ricardian equivalence, its relevance in practice is essentially an empirical question. The strongest direct evidence in favor of Ricardian equivalence is Roger Kormendi's (1983) article in the American Economic Review. That paper appeared to provide strong empirical support for Ricardian equivalence by showing that increases in government spending on goods and services depress consumer spending while changes in tax receipts have no effect on consumer spending. The present study shows that Kormendi's results are a misleading implication of the experience during World War I1 when shortages, rationing and patriotic appeals to self-restraint caused an abnormally high rate of saving at the same time that the government deficit-financed a uniquely massive increase in defense spending. When those years are excluded from the sample, Kormendi's results are reversed. The estimates presented here show that in the equation specified by Kormendi, but with the years 1941 through 1946 excluded, increases in tax receipts have had a substantial negative effect on consumption while increases in government spending on goods and services have had essentially no effect on consumption. This evidence is exactly the opposite of the implications of Ricardian equivalence. This conclusion is robust with respect to a variety of modifications in the way that the basic equation is estimated: using an AR1 correction to deal with serial correlation; limiting the analysis to the Federal government's fiscal variables; respecifying the variables as ratios to net national product to reduce collinearity; estimating for the most recent 35 years instead of for the period since 1931; and using an instrumental variable procedure to reduce the problem of endogeneity. In each of these specifications, the results indicate that taxes depress consumer spending while government outlays on goods and services have either a smaller or a totally insignificant effect.
Handle: RePEc:nbr:nberwo:2355
Template-Type: ReDIF-Paper 1.0
Title: Employee Crime, Monitoring, and the Efficiency Wage Hypothesis
Author-Name: William T. Dickens
Author-Name: Lawrence F. Katz
Author-Person: pka266
Author-Name: Kevin Lang
Author-Person: pla83
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: LS
Number: 2356
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2356
File-URL: http://www.nber.org/papers/w2356.pdf
File-Format: application/pdf
Publication-Status: published as Inter-American Law Review, Vol. 20, No. 2, pp. 321-357, (Spring 1989).
Publication-Status: published as "Employee Crime and the Monitoring Puzzle." From Journal of Labor Economics, Vol. 7, No. 3, pp. 331-347, (July 1989).
Abstract: This paper offers some observations on employee crime, economic theories of crime, limits on bonding, and the efficiency wage hypothesis. We demonstrate that the simplest economic theories of crime predict that profit-maximizing firms should follow strategies of minimal monitoring and large penalties for employee crime. Finding overwhelming empirical evidence that firms expend considerable resources trying to detect employee malfeasance and do not impose extremely large penalties, we investigate a number of possible reasons why the simple model's predictions fail. It turns out that plausible explanations for firms large outlays on monitoring of employees also justify the payment of premium wages in some circumstances. There is no legitimate a priori argument that firms should not pay efficiency wages once it is recognized that they expend significant resources on monitoring.
Handle: RePEc:nbr:nberwo:2356
Template-Type: ReDIF-Paper 1.0
Title: An Analysis of the Implications for Stock and Futures Price Volatility of Program Trading and Dynamic Hedging Strategies
Author-Name: Sanford J. Grossman
Author-Person: pgr108
Note: ME
Number: 2357
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2357
File-URL: http://www.nber.org/papers/w2357.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Business, Vol. 61, No. 3, pp. 275-298, (July 1988).
Abstract: Recent advances in financial theory have created an understanding of the environments in which a real security can be synthesized by a dynamic trading strategy in a risk free asset and other securities. We contend that there is a crucial distinction between a synthetic security and a real security, in particular the notion that a real security is redundant when it can be synthesized by a dynamic trading strategy ignores the informational role of real securities markets. The replacement of a real security by synthetic strategies may in itself cause enough uncertainty about the price volatility of the underlying security that the real security is no longer redundant. Portfolio insurance provides a good example of the difference between a synthetic security and a real security. One form of portfolio insurance uses a trading strategy in risk free securities ("cash") and index futures to synthesize a European put on the underlying portfolio. In the absence of a real traded put option (of the appropriate striking price and maturity), there will be less information about the future price volatility associated with current dynamic hedging strategies. There will thus be less information transmitted to those people who could make capital available to liquidity providers. It will therefore be more difficult for the market to absorb the trades implied by the dynamic hedging strategies, In effect, the stocks' future price volatility can rise because of a current lack of information about the extent to which dynamic hedging strategies are in place.
Handle: RePEc:nbr:nberwo:2357
Template-Type: ReDIF-Paper 1.0
Title: Credibility, Real Interest Rates, and the Optimal Speed of Trade Liberalization
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Note: ITI ME IFM
Number: 2358
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2358
File-URL: http://www.nber.org/papers/w2358.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 25, pp. 71-93, (1988).
Abstract: This paper investigates the effects of imperfectly credible trade liberalization programs on welfare and the allocation of real resources. We present a rational expectations model in which a government, with limited access to international financial markets may be forced to abort a liberalization program if hard-currency reserves are depleted too quickly. The liberalization's lack of perfect credibility arts as a distortion which becomes (rationally) intensified under the typical first-best policy of a direct move to free trade. A gradual lowering of trade barriers turns out to he welfare-superior to an immediate liberalization, and to improve the chance that. the program will ultimately succeed. We then derive the optimal speed of liberalization, the intertemporal allocation of resources, and the liberalization program's credibility.
Handle: RePEc:nbr:nberwo:2358
Template-Type: ReDIF-Paper 1.0
Title: Integrated Regressors and Tests of the Permanent Income Hypothesis
Author-Name: James H. Stock
Author-Person: pst148
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: EFG
Number: 2359
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2359
File-URL: http://www.nber.org/papers/w2359.pdf
File-Format: application/pdf
Publication-Status: published as Stock, James H. and Kenneth D. West. "Integrated Regressors and Tests of the Permanent-Income Hypothesis." Journal of Monetary Economics, Vol. 21, No. 1, pp. 85-96, (January 1988)
Abstract: We use recent research on estimation and testing in the presence of unit roots to argue that Hall's (1978) t and F tests of whether consumption is predicted by lagged income, or by lags of consumption beyond the first, are asymptotically valid. A Monte Carlo experiment suggests that the asymptotic t and F distributions provide a good approximation to the actual finite sample distribution.
Handle: RePEc:nbr:nberwo:2359
Template-Type: ReDIF-Paper 1.0
Title: Seasonality, Cost Shocks, and the Production Smoothing Model of Inventories
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Author-Name: Stephen P. Zeldes
Note: ME EFG
Number: 2360
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2360
File-URL: http://www.nber.org/papers/w2360.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 56, No. 4, (July 1988).
Abstract: A great deal of research on the empirical behavior of inventories examines some variant of the production smoothing model of finished goods inventories. The overall assessment of this model that exists in the literature is quite negative: there is little evidence that manufacturers hold inventories of finished goods in order to smooth production patterns. This paper examines whether this negative assessment of the model is due to one or both of two features: costs shocks and seasonal fluctuations. The reason for considering costs shocks is that if firms are buffeted more by cost shocks than demand shocks, production should optimally be more variable than sales. The reasons for considering seasonal fluctuations are that seasonal fluctuations account for a major portion of the variance in production and sales, that seasonal fluctuations are precisely the kinds of fluctuations that producers should most easily smooth, and that seasonally adjusted data is likely to produce spurious rejections of the production smoothing model even when it is correct. We integrate cost shocks and seasonal fluctuations into the analysis of the production smoothing model in three steps. First, we present a general production smoothing model of inventory investment that is consistent with both seasonal and non-seasonal fluctuations in production, sales, and inventories. The model allows for both observable and unobservable changes in marginal costs. Second, we estimate this model using both seasonally adjusted and seasonally unadjusted data plus seasonal dummies. The goal here is to determine whether the incorrect use of seasonally adjusted data has been responsible for the rejections of the production smoothing model reported in previous studies. The third part of our approach is to explicitly examine the seasonal movements in the data. We test whether the residual from an Euler equation is uncorrelated with the seasonal component of contemporaneous sales. Even if unobservable seasonal cost shocks make the seasonal variation in output greater than that in sales, the timing of the resulting seasonal movements in output should not necessarily match that of sales. The results of our empirical work provide a strong negative report on the production smoothing model, even when it includes cost shocks and seasonal fluctuations. At both seasonal and non-seasonal frequencies, there appears to be little evidence that firms hold inventories in order to smooth production. A striking piece of evidence is that in most industries the seasonal in production closely matches the seasonal in shipments, even after accounting for the movements in interest rates, input prices, and the weather.
Handle: RePEc:nbr:nberwo:2360
Template-Type: ReDIF-Paper 1.0
Title: The Evolution of Public Sector Bargaining Laws
Author-Name: Henry S. Farber
Note: LS
Number: 2361
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2361
File-URL: http://www.nber.org/papers/w2361.pdf
File-Format: application/pdf
Publication-Status: published as Farber, Henry S. "The Evolution of Public Sector Bargaining Laws," in When Public Sector Employees Unionize, ed. by Richard B. Freeman and Casey ichniowski, Chicago: UCP, 1988.
Publication-Status: published as The Evolution of Public Sector Bargaining Laws, Henry S. Farber. in When Public Sector Workers Unionize, Freeman and Ichniowski. 1988
Abstract: In 1955 only a few states had laws governing collective bargaining by public employees. By 1984 only a few states were without such laws. The emergence of these policies coincides with a dramatic increase in unionization among public employees, and an important puzzle is the direction of causality between the laws and public employee unionization. A key piece of the solution is understanding the evolution of the public policy in this area, and this is the focus of the analysis in this study. A Markov model of the evolution of these laws is developed based on the idea that states will change their existing policy if and only if their preferences deviate from the existing policy by more than the cost of a change in policy. The key underlying constructs are 1) the intensity of state preferences for or against public sector collective bargaining and 2) the cost of changing an existing policy or enacting a new policy. The model is implemented empirically using state level data on policy for each year from 1955 to 1984. The results suggest that state preferences for a pro-bargaining policy are positively related to 1) the COPE score (a measure of pro-union congressional voting behavior on labor issues), 2) income per capita, and 3) the size of the public sector and negatively related to southern region. The costs of policy change were hypothesized to be a function of structural measures of the legislative process, but no support for this was found in the data. Use of the estimates to predict probabilities of states having laws of various kinds suggests that the model can predict the aggregate distribution of laws relatively well but that the model does less well at distinguishing between states with laws of different types.
Handle: RePEc:nbr:nberwo:2361
Template-Type: ReDIF-Paper 1.0
Title: Tests of Excess Forecast Volatility in the Foreign Exchange and Stock Markets
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Note: ME ITI IFM
Number: 2362
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2362
File-URL: http://www.nber.org/papers/w2362.pdf
File-Format: application/pdf
Abstract: Simple regression tests that have power against the alternatives that. asset prices and expected future asset returns are excessively volatile are developed and performed for the foreign exchange and stock markets. These tests have a number of advantages over alternative, variance hounds techniques. We find evidence that. both exchange rates and stock prices are excessively volatile and that expected returns on foreign exchange and stocks move too much. We also investigate whether these findings ran he attributed to time-varying risk premia, but in our tests the data provide little support for such an alternative hypothesis.
Handle: RePEc:nbr:nberwo:2362
Template-Type: ReDIF-Paper 1.0
Title: New Hope for the Expectations Hypothesis of the Term Structure of Interest Rates
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Note: ME ITI IFM
Number: 2363
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2363
File-URL: http://www.nber.org/papers/w2363.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. XLIV, No. 2, pp. 283-305, (June 1989).
Abstract: Survey data on interest rate expectations are used to separate the forward interest rate into an expected future rate and a term premium. These components are used to test separately two competing alternative hypotheses in tests of the term structure: that the expectations hypothesis does not hold, and that expected future long rates over- or underreact. to changes in short rates. While the spread consistently fails to predict future interest rate changes, we find that the nature of this failure is different, for short versus long maturities. For short maturities, expected future rates are rational forecasts. The poor predictions of the spread can therefore be attributed to variation in term premia. For longer-term bonds, however, we are unable to reject the expectations theory, in that a steeper yield curve reflects a one-for-one increase in expected future long rates. Here the perverse predictions of the spread reflect investors' failure to raise sufficiently their expectations of future long rates when the short rate rises. We confirm earlier findings that bond rates underreact to short rate changes, but now this result cannot be attributed to the term premium.
Handle: RePEc:nbr:nberwo:2363
Template-Type: ReDIF-Paper 1.0
Title: On the Interpretation of Near Random-Walk Behavior in GNP
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: EFG
Number: 2364
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2364
File-URL: http://www.nber.org/papers/w2364.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 78, No. 1, March 1988, pp. 202-209.
Abstract: It is shown that GNP will have an autoregressive root very close to unity in a variant of Taylor's (1980a,b) overlapping wage contracts model, for stylized versions of simple money supply rules and plausible values for the model's parameters. In this variant, monetary policy is the only reason for serial correlation in GNP. It is premature, therefore, to conclude, as some authors, have, that the presence of such a root in U.S. GNP is inconsistent with either a stationary natural rate or with nominal shocks playing a major role in the business cycle.
Handle: RePEc:nbr:nberwo:2364
Template-Type: ReDIF-Paper 1.0
Title: Tariffs, the Real Exchange Rate and the Terms of Trade: On Two Popular Propositions in International Economics
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Sweder van Wijnbergen
Author-Person: pva412
Note: ITI IFM
Number: 2365
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2365
File-URL: http://www.nber.org/papers/w2365.pdf
File-Format: application/pdf
Publication-Status: published as Oxford Economic Papers, Vol. 39, pp. 458-464, (1987).
Abstract: In this paper we investigate the relation between tariff changes, terms of trade changes and the equilibrium real exchange rate. For this purpose we use two models of a small open economy: (1) a three goods version of the Ricardo-Viner model; and (2) a three goods model with full intersectoral factor mobility. We show that, in general, it is not possible to know how the equilibrium real exchange rate will respond to these two disturbances. Moreover, we show that the traditional wisdom that establishes that a tariff hike will always result in a real appreciation, while a terms of trade worsening will generate an equilibrium real depreciation, is incorrect.
Handle: RePEc:nbr:nberwo:2365
Template-Type: ReDIF-Paper 1.0
Title: Firm Characteristics, Unanticipated Inflation, and Stock Returns
Author-Name: Douglas K. Pearce
Author-Name: V. Vance Roley
Note: ME
Number: 2366
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2366
File-URL: http://www.nber.org/papers/w2366.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Finance, Vol. XLIII, No. 4, (September 1988).
Abstract: This paper re-examines the effects of nominal contracts on the relationship between unanticipated inflation and individual stock's rate of return. This study differs in three main ways from previous research. First, announced inflation data are used to examine the effects of unanticipated inflation. Second, a different specification is used to obtain more efficient estimates. Third, additional nominal contracts are considered. The empirical results indicate that time-varying firm characteristics related to inflation predominately determine the effect of unanticipated inflation on a stock's rate of return. A firm's debt-equity ratio appears to be particularly important in determining the response.
Handle: RePEc:nbr:nberwo:2366
Template-Type: ReDIF-Paper 1.0
Title: Recent Estimates of Time-Variation in the Conditional Variance and in the Exchange Risk Premium
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 2367
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2367
File-URL: http://www.nber.org/papers/w2367.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Vol. 7, pp. 115-125, (1988).
Publication-Status: published as Reprinted in On Exchange Rates, J. Frankel, MIT Press, Cambridge, 1993
Abstract: The optimal-diversification model of investors' portfolio behavior can give a linear relationship between the exchange risk premium and the conditional exchange rate variance. This note surveys recent empirical work that allows for the conditional variance itself, and therefore the risk premium, to vary over time. In particular, it examines the implications of recent empirical estimates for earlier arguments, based on the assumption that the conditional variance was constant over time, that the exchange risk premium had to be small in magnitude and variability.
Handle: RePEc:nbr:nberwo:2367
Template-Type: ReDIF-Paper 1.0
Title: Returns to Seniority in Union and Nonunion Jobs: A New Look at the Evidence
Author-Name: Katharine G. Abraham
Author-Person: pab32
Author-Name: Henry S. Farber
Note: LS
Number: 2368
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2368
File-URL: http://www.nber.org/papers/w2368.pdf
File-Format: application/pdf
Publication-Status: published as Katharine G. Abraham & Henry S. Farber, 1988. "Returns to Seniority in Union and Nonunion Jobs: A New Look at the Evidence," ILR Review, Cornell University, ILR School, vol. 42(1), pages 3-19, October.
Abstract: One of the most prominent features of U.S. unionism is the key role played by seniority. However, in cross-sectional data, the positive association between seniority and earnings is typically much stronger for nonunion workers than for union workers. This finding has puzzled previous researchers, since it seems inconsistent with the generalization that seniority is more important in the union sector than in the nonunion sector. We show that standard estimates of the return to seniority are likely to be biased upward and argue that the bias is likely to be larger in the nonunion sector than in the union sector. Corrected estimates imply that the return to seniority is, in fact, larger in the union sector than in the nonunion sector.
Handle: RePEc:nbr:nberwo:2368
Template-Type: ReDIF-Paper 1.0
Title: Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods
Author-Name: Sanford J. Grossman
Author-Person: pgr108
Author-Name: Guy Laroque
Author-Person: pla208
Number: 2369
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2369
File-URL: http://www.nber.org/papers/w2369.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, vol. 58, no. 1, January 1990, pp. 25-51.
Abstract: We analyze a model of optimal consumption and portfolio selection in which consumption services are generated by holding a durable good. The durable good is illiquid in that a transaction cost must be paid when the good is sold. It is shown that optimal consumption is not a smooth function of wealth; it is optimal for the consumer to wait until a large change in wealth occurs before adjusting his consumption. As a consequence, the consumption based capital asset pricing model fails to hold. Nevertheless, it is shown that the standard, one factor, market portfolio based capital asset pricing model does hold in this environment. It is shown that the optimal durable level is characterized by three numbers (not random variables), say x, y, and z (where x < y < z). The consumer views the ratio of consumption to wealth (c/W) as his state variable. If this ratio is between x and z, then he does not sell the durable. If c/W is less than x or greater than z, then he sells his durable and buys a new durable of size S so that S/W = y. Thus y is his "target" level of c/W. If the stock market moves up enough so that c/W falls below x, then he sells his small durable to buy a larger durable. However, there will be many changes in the value of his wealth for which c/W stays between x and z, and thus consumption does not change. Numerical simulations show that small transactions costs can make consumption changes occur very infrequently. Further, the effect of transactions costs on the demand for risky assets is substantial.
Handle: RePEc:nbr:nberwo:2369
Template-Type: ReDIF-Paper 1.0
Title: Market Power and Exchange Rate Adjustment in the Presence of Quotas
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 2370
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2370
File-URL: http://www.nber.org/papers/w2370.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 27, pp. 265-282, (1989).
Abstract: This paper investigates the dependency of the adjustment of prices, exchange rates, and production on the nature of the trade regime. We contrast the adjustment between a quota and a tariff regime for a 'semi-small' economy characterized by monopolistic competitive market structure and short-run nominal contracts under a floating exchange rate regime. Among other issues we focus on the factors determining the behavior of the quota rent and the 'pass- through' of exchange rate adjustment to the domestic prices of importable goods. We demonstrate that the 'pass-through ratio' (measuring the elasticity of the domestic price of importable goods with respect to the exchange rate) is determined by both the commercial policy and by the market power of the various producers. It tends to be higher in a tariff regime because the endogenous adjustment of the quota rent mitigates the 'pass-through'. We also show that the adjustment of the exchange rate tends to be larger in the quota regime than in the tariff regime. In the tariff regime we observe a larger switch of domestic demand relative to the quota regime, and a corresponding smaller exchange rate adjustment. In the quota regime we observe adjustment of the quota rent such as to keep the net domestic demand for foreign goods intact. As a result, the relative price (of the domestic good to the foreign good) facing the foreign consumer adjusts more in the quota regime than in the tariff regime. At the same time the relative price facing domestic consumers in the quota regime adjusts by less than in the tariff regime.
Handle: RePEc:nbr:nberwo:2370
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rates and U.S. Auto Competitiveness
Author-Name: J. David Richardson
Note: ITI IFM
Number: 2371
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2371
File-URL: http://www.nber.org/papers/w2371.pdf
File-Format: application/pdf
Publication-Status: published as Exchange Rates and U.S. Auto Competitiveness, Richard C. Marston, ed., Misalignment of Exchange Rates, Chicago: University of Chicago Press, 1988
Publication-Status: published as Exchange Rates and U.S. Auto Competitiveness, J. David Richardson. in Misalignment of Exchange Rates: Effects on Trade and Industry, Marston. 1988
Abstract: This paper develops unique disaggregated data for three U.S. automakers and three Japanese to assess how changes in exchange rates, factor costs, and voluntary export restraints have affected recent price competitiveness in the U.S. passenger car market. We find support for several familiar relationships. The support provided by the experience of the late 1970s is straightforward. The dollar's foreign- exchange value fell below its historical trend, in both nominal and cost- adjusted (real) terms, relative to the major suppliers of U.S. auto imports. U.S. price competitiveness tracked U.S. cost competitiveness quite closely, as average prices of U.S. automakers rose more slowly than those of their principal rival firms (all Japanese). "Misalignment" of the dollar toward weakness by historical norms was reflected in competitive relative pricing by U.S. auto firms, again with respect to a historical norm. The support provided by the experience of the years 1980-1985 is more complex and interesting. Strong offsetting forces appear to have been at work. Relative to major auto suppliers, the effective nominal dollar rose gradually toward its level of the mid-1970s, but the effective real "auto dollar" rose much faster, increasing to a level well above its historical norm by early 1985. U.S. cost competitiveness deteriorated not so much because of exchange rates, but because unit labor costs in manufacturing rose in the U.S. relative to those in major auto suppliers. U.S. auto price competitiveness began to deteriorate correspondingly, but soon stopped, and instead improved gradually between 1982 and 1985, ending up at about the same level in 1985 as in 1980. The Voluntary Restraint Arrangements (VRAs) with Japan, which began in 1981, seem to be the explanation for why the negative effects of exchange rates and costs on U.S. auto price competitiveness were offset. The VRAs are also a reason why average prices of U.S. automakers rose faster than other U.S. prices as measured by the consumer price index, and why in Japan, average prices on auto sales to the U.S. rose much faster than other Japanese prices. In sum, "misalignment" of the dollar toward strength by historical norms and deteriorating labor cost competitiveness, which tended to undermine the competitiveness of U.S. auto firms, were offset by the Japanese VRAs, which buttressed it. The VRAs, however, undermined the inter-sectoral competitiveness of autos.
Handle: RePEc:nbr:nberwo:2371
Template-Type: ReDIF-Paper 1.0
Title: Open Economy Macroeconomics: New Directions
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 2372
Creation-Date: 1987-08
Order-URL: http://www.nber.org/papers/w2372
File-URL: http://www.nber.org/papers/w2372.pdf
File-Format: application/pdf
Publication-Status: published as Misalignment of Exchange Rates, T.R. Marston (ed), University of Chicago Press, 1988.
Abstract: The paper reviews the directions of research that offer important insights into open economy macroeconomic policy: pricing, waiting and expectations. The pricing discussion centers on the recognition that firms are price setters. This implies that industry shocks such as exchange rate movements or changes in commercial policy have effects on output and prices different from the standard model of a small country under perfect competition. Industrial organization considerations including market structure and product differentiation determine the impact of shocks on output and prices. Extensions of work on irreversible investment, drawing on the option literature, shows the value of waiting. In open economy macroeconomics this theory can be applied not only to questions of employment but also to such topics as the return of capital flight. The expectations literature is being extended to more ambitious stochastic models of policy. If agents extrapolate current disturbances, say in money, and expect a cumulative deviation of money from and initial path there will be large immediate effects of money innovations on exchange rates. These new models extend the Mundell- Fleming models by showing that even small changes in the growth rate of money can bring about large changes, and volatility, in exchange rates.
Handle: RePEc:nbr:nberwo:2372
Template-Type: ReDIF-Paper 1.0
Title: Resolving the International Debt Crisis
Author-Name: Stanley Fischer
Note: ITI IFM
Number: 2373
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2373
File-URL: http://www.nber.org/papers/w2373.pdf
File-Format: application/pdf
Publication-Status: published as Jeffrey D. Sachs, editor. Developing Country Debt and Economic Performance , Vol. 1, The International Financial System. Chicago: University of Chicago Press, 1989.
Publication-Status: published as Resolving the International Debt Crisis, Stanley Fischer. in Developing Country Debt and the World Economy, Sachs. 1989
Abstract: Since August 1982 the international debt crisis has dominated economic policymaking in the developing countries, economic relations between the debtor and creditor countries, the attention of the multilateral institutions in their dealings with the debtor nations, and private sector decisions on lending to the developing countries. The period since 1982 has seen some progress. Neither the commercial nor central banks have had to deal with formal large-scale debt defaults. Balance sheets of creditor banks have been strengthened. There is an active secondary market in developing country debt, and debt to equity swaps are a reality. For the debtors, real interest rates have fallen between 1982 and 1987. Net exports showed extraordinary growth. Budget deficits have been reduced despite falling incomes. In 1987 commodity prices have begun to recover. The period has seen a shift toward rather than away from democracy. But five years after it began, the debt crisis is very much alive. None of the major Latin American countries has restored normal access to the international capital markets. At least one major debtor has been in trouble each year. Three classes of solutions are described and evaluated. Least radical are proposals for procedural reform and changes in the nature of the claims on the existing debt. Some procedural reforms such as multiyear reschedulings and exit vehicles for smaller banks have already begun to be instituted. Others include changes in accounting rules, and U.S. information provision on foreign accounts held in the U.S. Changes in the nature of claims include debt-equity swaps, country funds, interest capitalization, and payment by the debtors in their own currency. The second type of solution is the creation of a facility, or new institution to deal with the overhang of existing debt. The institution would buy the debt from the banks in exchange for claims on the institution, and in turn collect from the debtor countries. The prices at which debt is purchased, and the amounts to be collected from the debtors are the crucial issues. Finally, there are proposals for debt relief, either in direct negotiation between creditors and debtors and/or in conjunction with the creation of a facility.
Handle: RePEc:nbr:nberwo:2373
Template-Type: ReDIF-Paper 1.0
Title: Negotiated Trade Restrictions with Private Political Pressure
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: Tracy R. Lewis
Note: ITI IFM
Number: 2374
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2374
File-URL: http://www.nber.org/papers/w2374.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, November 1991, 1287-1307
Abstract: In this paper we consider a home government with political pressure to restrict trade, at the expense of foreigners. The foreign country is compensated with an income transfer, which can be thought of as a portion of the tariff revenues or quota rents. In this setting the two countries should negotiate over the level of tariff and transfer of rents, depending on the level of political pressure at home. However, if this pressure cannot be directly observed abroad, then the home country may have an incentive to claim arbitrarily high political need and seek corresponding high trade barriers . We resolve this problem by determining incentive compatible trade policies, in which the home government has no incentive to overstate (or understate) the political pressure for protection.
Handle: RePEc:nbr:nberwo:2374
Template-Type: ReDIF-Paper 1.0
Title: Household Formation and Home Ownership: The Impacts of Demographics andTaxes
Author-Name: Patric H. Hendershott
Note: PE
Number: 2375
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2375
File-URL: http://www.nber.org/papers/w2375.pdf
File-Format: application/pdf
Publication-Status: published as "Household Formation and Homeownership: Impacts of Demographic, Sociolog-ical, and Economic Factors." From Housing Finance Review, Vol. 7, No. 2,pp. 201-224, (Summer 1988).
Abstract: This paper summarizes the impact of economic, social and demographic variables on household formations and home ownership in the 1960-85 period and uses this knowledge to forecast household formations, and their split between owners and renters, through the year 2000. High and low growth forecasts are reported, both with and without enactment of the Tax Reform Act of 1986. The forecasts are compared with those of others. Net household formations are expected to be robust through 1990 (above 1 1/2 million per year), but to tail off sharply in the 1990s (down to 1 million by 2000). Home ownership should rise slightly in the 1990s.
Handle: RePEc:nbr:nberwo:2375
Template-Type: ReDIF-Paper 1.0
Title: Finanial Policy and Speculative Runs with a Crawling Peg: Argentina 1979-1981
Author-Name: Robert E. Cumby
Author-Person: pcu115
Author-Name: Sweder van Wijnbergen
Author-Person: pva412
Note: ITI IFM
Number: 2376
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2376
File-URL: http://www.nber.org/papers/w2376.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, vol. 27, no.1/2, pp. 111-127, August 1989.
Abstract: In this paper we present a model of a balance-of-payments crisis and use it to examine the Argentine experiment with a crawling peg between December 1978 and February 1981. The approach taken allows us to examine the evolution of a crisis when the collapse is not a perfectly-foreseen event. The implementation of the model yields plausible values of the one-month ahead probabilities of a collapse of the crawling peg. The probabilities exhibit a sharp increase in the middle of 1980 and indicate a significant loss of credibility throughout the remainder of the year. The results suggest that viability of an exchange rate regime depends strongly on the domestic credit policy followed by the authorities. If this policy is not consistent with the exchange rate policy pursued by the authorities, confidence in the exchange rate policy is undermined.
Handle: RePEc:nbr:nberwo:2376
Template-Type: ReDIF-Paper 1.0
Title: The Interaction Between Capital Investment and R&D in Science-Based Firms
Author-Name: Saul Lach
Author-Person: pla110
Author-Name: Mark Schankerman
Note: PR
Number: 2377
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2377
File-URL: http://www.nber.org/papers/w2377.pdf
File-Format: application/pdf
Publication-Status: published as "Dynamics of R & D and Investment in the Scientific Sector," Journal of Political Economy, Vol. 97, No. 4, pp. 880-904, August 1989.
Abstract: This paper analyzes the interaction among R&D, capital investment , and the stock market rate of return for 191 firms in science-based industries for the period 1973-1981. Using a framework based on dynamic factor analysis, we show how several prominent hypotheses about the determination of R&D and investment generate testable parameter restrictions. The data indicate that R&D Granger-causes investment, but that investment does not Granger-cause R&D. We use this finding to examine the validity of those hypotheses, to characterize the movements over time of R&D and investment, and to measure the stock market valuation of these movements.
Handle: RePEc:nbr:nberwo:2377
Template-Type: ReDIF-Paper 1.0
Title: Argentina: Debt and Macroeconomic Instability
Author-Name: Rudiger Dornbusch
Author-Name: Juan Carlos de Pablo
Note: ITI IFM
Number: 2378
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2378
File-URL: http://www.nber.org/papers/w2378.pdf
File-Format: application/pdf
Publication-Status: published as Developing Country Debt and the World Economy, edited by Jeffrey D. Sachs, Chicago: The University of Chicago Press, 1989.
Publication-Status: published as Debt and Macroeconomic Instability in Argentina, Rudiger Dornbusch, Juan Carlos de Pablo. in Developing Country Debt and the World Economy, Sachs. 1989
Abstract: The paper reviews the Argentine debt experience in the past ten years. The emphasis is on the interaction between relative prices, financial instability, budget .deficits, inflation and debt accumulation. A longer run perspective shows that the continuing fiscal problems have stood in the way of investment and growth.
Handle: RePEc:nbr:nberwo:2378
Template-Type: ReDIF-Paper 1.0
Title: Debt Problems and the World Macro Economy
Author-Name: Rudiger Dornbusch
Note: ITI IFM
Number: 2379
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2379
File-URL: http://www.nber.org/papers/w2379.pdf
File-Format: application/pdf
Publication-Status: published as Developing Country Debt and Economic Performance; Vol. 1, The International Financial System, edited by Jeffrey D. Sachs. Chicago: The University of Chicago Press, 1989.
Publication-Status: published as Debt Problems and the World Macroeconomy, Rudiger Dornbusch. in Developing Country Debt and the World Economy, Sachs. 1989
Abstract: This paper investigates the role of interest rates, commodity prices, growth in bringing the debt crisis about and how they facilitated or made more difficult the first five years of adjustment. We also ask whether and how the world macroeconomy is likely to contribute to the solution of the debt problem in the next five years.
Handle: RePEc:nbr:nberwo:2379
Template-Type: ReDIF-Paper 1.0
Title: Is it Risk? Explaining Deviations from Uncovered Interest Parity
Author-Name: Robert E. Cumby
Author-Person: pcu115
Note: ITI IFM
Number: 2380
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2380
File-URL: http://www.nber.org/papers/w2380.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 22, pp. 279-299, September 1988.
Abstract: This paper analyzes ex-ante returns to forward speculation and asks if these returns can be explained by models of a foreign exchange risk premium. After presenting evidence that both nominal and real expected speculative profits are non-zero, the paper examines if real returns to forward speculation are consistent with consumption-based models of risk premia. Estimates of the conditional covariance between real speculative returns and real consumption growth are presented and, like ex-ante returns to forward speculation, they exhibit statistically significant fluctuations over time and often change sign.
Handle: RePEc:nbr:nberwo:2380
Template-Type: ReDIF-Paper 1.0
Title: The Regularity of Business Cycles
Author-Name: Victor Zarnowitz
Note: EFG
Number: 2381
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2381
File-URL: http://www.nber.org/papers/w2381.pdf
File-Format: application/pdf
Publication-Status: Published as "On the Dating of Business Cycles", Journal of Business, 1963, vol. 36, no. 2, pp. 179-199.
Publication-Status: published as The Regularity of Business Cycles, Victor Zarnowitz. in Business Cycles: Theory, History, Indicators, and Forecasting, Zarnowitz. 1992
Abstract: Do business cycles have predictable periodicities or are they random walks without past regularities or predictive value? Arguments in support of either position are found in the literature, with no apparent convergence to an agreement. This paper first examines the implications of the NBER chronologies and other findings for the question of the regularity of business cycles. It discusses hypotheses and presents evidence concerning the incidence and coexistence of cycles with different periods. An extension of the analysis covers growth cycles in the United States and other major countries. The paper then considers different models -- linear, nonlinear, endogenous, and exogenous -- for what they have to say about the problem. The regularity of investment cycles and the possible asymmetries in cyclical behavior receive particular attention, and some related data and tests are provided. Our results suggest that business cycles defy simple characterizations: they show a strong tendency to recur and at times even near periodicity, along with great diversity and evolution of phase durations. The age of a phase is not of much help in predicting the date of its end; the regularities are mainly in the dynamics of the developing business conditions.
Handle: RePEc:nbr:nberwo:2381
Template-Type: ReDIF-Paper 1.0
Title: Social Security Reforms and Poverty Among Older Dual-Earner Couples
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Note: LS
Number: 2382
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2382
File-URL: http://www.nber.org/papers/w2382.pdf
File-Format: application/pdf
Publication-Status: published as Mitchell, Olivia S. "Social Security Reforms and Poverty Among Older Dual-Earner Couples." Journal of Population Economics, 2(1), 1989, p.39-53
Abstract: Most retirement studies examine older married couples in which the husband is the sole earner. This paper extends the focus of analysis to examine older dual-earner couples. It further evaluates the impact of Social Security reforms on older working couples1 retirement ages and retirement incomes. Specifically, we examine two questions: (1) What are the likely effects of changes in Social Security rules on the retirement decisions of older working women and their husbands? and (2) How are these changes likely to alter the incidence of poverty among retired dual-earner couples? The evidence suggests that benefit reforms intended to bolster the Social Security Administration's financial position are also likely to worsen the economic status of an important minority of dual-earner couples.
Handle: RePEc:nbr:nberwo:2382
Template-Type: ReDIF-Paper 1.0
Title: Consumption Risk and International Asset Returns: Some Empirical Evidence
Author-Name: Robert E. Cumby
Author-Person: pcu115
Note: ME ITI IFM
Number: 2383
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2383
File-URL: http://www.nber.org/papers/w2383.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Vol. 9, no. 2, June 1990.
Abstract: The paper examines if real stock returns in four countries are consistent with consumption-based models of international asset pricing. The paper finds that ex-ante real stock returns exhibit statistically significant fluctuations over time and that these fluctuations cannot be explained by consumption-based models when the conditional covariances between real stock returns and the rate of change of consumption are assumed to be constant over time. These conditional covariances are then modeled and the paper finds that they too exhibit statistically significant fluctuations over time. However, even when conditional covariances are allowed to change over time, the paper finds that the consumption-based models do not fully explain real stock returns.
Handle: RePEc:nbr:nberwo:2383
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Monetary Targeting in the United States: 1976-1984
Author-Name: Carl E. Walsh
Author-Person: pwa23
Note: ME
Number: 2384
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2384
File-URL: http://www.nber.org/papers/w2384.pdf
File-Format: application/pdf
Publication-Status: published as Walsh, Carl E. "Monetary Targeting And Inflation: 1976-1984." FRB San Francisco - Economic Review (Winter 1987): 5-16.
Abstract: This paper attempts to assess empirically the impact on output and inflation of monetary policy in the U-S. during the period of M1 targeting from 1976 to 1984. The impact of policy shocks on output and inflation, and the impact of aggregate demand, aggregate supply and money demand shocks on M1 and the Fed's target path, are examined through the use of impulse response functions. These response functions are based on an orthogonalization of VAR residuals derived from an estimated structural model. The VAR specification reflects the finding that M1 and the Fed's target for M1 are cointegrated. The evidence suggests that money supply shocks and shocks to M1 target have accounted for little of the observed volatility of output or inflation. However, the induced policy response to aggregate demand and supply shocks has contributed to subsequent inflation.
Handle: RePEc:nbr:nberwo:2384
Template-Type: ReDIF-Paper 1.0
Title: Order Backlogs and Production Smoothing
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: EFG
Number: 2385
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2385
File-URL: http://www.nber.org/papers/w2385.pdf
File-Format: application/pdf
Publication-Status: published as From The Economics of Inventory Management, edited by A. Chikan and M.C. Lovell, pp. 305-317. Amsterdam: Elsevier Science Publishers B.V. (North- Holland), 1988.
Abstract: Empirical examination of some aggregate manufacturing data suggests that order backlogs may help explain two puzzling facts: (1) the variability of production appears to be greater than that of demand, and (2) inventories appear to be drawn down when demand is low, built up when demand is high.
Handle: RePEc:nbr:nberwo:2385
Template-Type: ReDIF-Paper 1.0
Title: Imperfect Competition and the Keynesian Cross
Author-Name: N. Gregory Mankiw
Note: EFG
Number: 2386
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2386
File-URL: http://www.nber.org/papers/w2386.pdf
File-Format: application/pdf
Publication-Status: published as Economics Letters, Vol. 26, no. 1 (1988): 7-13.
Abstract: This paper presents a simple general equilibrium model in which the only non-Walrasian feature is imperfect competition in the goods market. The model is shown to exhibit various Keynesian characteristics. In particular, as competition in the goods market becomes less perfect, the fiscal policy multipliers approach the values implied by the textbook Keynesian cross.
Handle: RePEc:nbr:nberwo:2386
Template-Type: ReDIF-Paper 1.0
Title: Financing Constraints and Corporate Investment
Author-Name: Steven Fazzari
Author-Person: pfa87
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Bruce C. Petersen
Author-Person: ppe145
Note: ME PE
Number: 2387
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2387
File-URL: http://www.nber.org/papers/w2387.pdf
File-Format: application/pdf
Publication-Status: published as Fazzari, Steven M., R. Glenn Hubbard, and Bruce C. Petersen. "Financing Constraints and Corporate Investment." From Brookings Papers on Economic Activity, Vol. 1, pp. 141-195, (1988).
Abstract: Most empirical models of investment rely on the assumption that firms are able to respond to prices set in centralized securities markets (through the "cost of capital" or "q"). An alternative approach emphasizes the importance of cash flow as a determinant of investment spending, because of a "financing hierarchy," in which internal finance has important cost advantages over external finance. We build on recent research concerning imperfections in markets for equity and debt. This work suggests that some firms do not have sufficient access to external capital markets to enable them to respond to changes in the cost of capital, asset prices, or tax-based investment incentives. To the extent that firms are constrained in their ability to raise funds externally, investment spending may be sensitive to the availability of internal finance. That is, investment may display "excess sensitivity" to movements in cash flow. In this paper, we work within the q theory of investment, and examine the importance of a financing hierarchy created by capital-market imperfections. Using panel data on individual manufacturing firms, we compare the investment behavior of rapidly growing firms that exhaust all of their internal finance with that of mature firms paying dividends. We find that q values remain very high for significant periods of time for firms paying no dividends, relative to those for mature firms. We also find that investment is more sensitive to cash flow for the group of firms that our model implies is most likely to face external finance constraints. These results are consistent with the augmented model we propose, which takes into account different financing regimes for different groups of firms. Some extensions and implications for public policy are discussed at the end.
Handle: RePEc:nbr:nberwo:2387
Template-Type: ReDIF-Paper 1.0
Title: Dynamic Behavior of Imperfectly Competitive Economies with Multiple Equilibria
Author-Name: Russell Cooper
Note: EFG
Number: 2388
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2388
File-URL: http://www.nber.org/papers/w2388.pdf
File-Format: application/pdf
Publication-Status: Published as "Equilibrium Selection in Imperfectly Competitive Economieswith Multiple Equilibria", EJ, Vol. 104, no. 426 (1994): 1106-1122.
Abstract: This paper investigates the dynamic behavior of an economy with multiple Nash equilibria. The first part of the paper analyzes an abstract game exhibiting multiple equilibria. A history dependent selection criterion is proposed which induces correlated behavior in equilibrium even though agents are playing one-shot games and disturbances are not correlated over time. The second part of the paper investigates a specific model of multiple equilibria. Here the multiplicity is induced by the presence of a discrete decision on the part of firms regarding their choice of technique. The implications of the selection criterion introduced in the first part of the paper are illustrated through this example. Again correlated behavior emerges in a sequence of independent one-shot games. The model economy may also experience prolonged periods in which a low productivity technology is in use and then, as a consequence of a large real disturbance, may switch to an alternative equilibrium in which a high productivity technology is utilized. The paper also discusses the Pareto ordering of these equilibria.
Handle: RePEc:nbr:nberwo:2388
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Policies and the Stock Market: International Dimensions
Author-Name: Assaf Razin
Author-Person: pra388
Note: ITI IFM
Number: 2389
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2389
File-URL: http://www.nber.org/papers/w2389.pdf
File-Format: application/pdf
Publication-Status: published as "Fiscal Policies and the Integrated World Stock Market," Journal of International Economics, Vol. 29, No. 3, pp. 109-122, (August 1990).
Abstract: The dynamic effects of fiscal policies on the real equilibrium have been the subject of a large body of recent research, emphasizing the intertemporal dimensions of tax and spending policies both in closed and open-economy contexts. The analysis in this paper extends the intertemporal analysis which was conducted under full certainty to uncertain environments. Specifically the paper uses a two-country stochastic general- equilibrium model of the world economy to address issues concerning the effects of government tax and spending policies on private sector consumption asset portfolios and stock market valuations. The key result of the paper is that the consequences of expected future policies and the characteristics of their international transmission depend critically on the precise variability of these policies across states of nature. The effects of current policies on consumption savings and stock market prices are shown, however to conform closely to the predictions of the corresponding certainty intertemporal model.
Handle: RePEc:nbr:nberwo:2389
Template-Type: ReDIF-Paper 1.0
Title: U.S. and Swedish Direct Investment and Exports
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Ksenia Kulchycky
Note: ITI IFM
Number: 2390
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2390
File-URL: http://www.nber.org/papers/w2390.pdf
File-Format: application/pdf
Publication-Status: published as U.S. and Swedish Direct Investment and Exports, Magnus Blomstrom, Robert E. Lipsey, Ksenia Kulchycky. in Trade Policy Issues and Empirical Analysis, Baldwin. 1988
Abstract: Overseas production in a country by affiliates of Swedish and U.S. firms rarely appears to displace exports from the two home countries and in most cases either has no effect or tends to increase home country exports. The positive effect on Swedish exports is evident not only with respect to levels of exports to different countries at one time but also with respect to changes in exports over time. The positive effect on U.S. exports can be observed for minority-owned as well as majority-owned foreign operations.
Handle: RePEc:nbr:nberwo:2390
Template-Type: ReDIF-Paper 1.0
Title: How Much Care Do the Aged Receive from Their Children? A Bimodal Picture of Contact and Assistance
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: John N. Morris
Note: AG
Number: 2391
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2391
File-URL: http://www.nber.org/papers/w2391.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of Aging, ed. by David Wise, University of Chicago Press, March 1990.
Publication-Status: published as How Much Care Do the Aged Receive from Their Children? A Bimodal Picture of Contact and Assistance, Laurence J. Kotlikoff, John N. Morris. in The Economics of Aging, Wise. 1989
Abstract: This paper presents some preliminary findings about contact between the aged and their children based on a new survey of the aged and their children, entitled The Hebrew Rehabilitation Center for the Aged-NBER (HRC-NBER) Child Survey. Data on extended families is quite limited. The HRC-NBER Child Survey represents one of the few attempts to collect economic and demographic data on the elderly and their children. While these data will be used in future,research to test structural models of the living arrangements, the purposes of the current paper are to describe the survey and to examine contact between the elderly and their children. While our findings are preliminary and will be updated and expanded as we receive more data, it appears that a significant minority of the elderly, many of whom need assistance with the activities of daily living, have either no children or have only limited contact with their children. Contact between children and the vulnerable elderly appears to be less than that between children and the nonvulnerable elderly, and the amount of contact between children and the institutionalized elderly seems the least of all. In addition, although many of the parents in our data are very poor, financial support from children to parents, other than in the form of shared housing, is uncommon. The impression given by these data is that many of the elderly are very well cared for by their children, while a significant minority either have no children or have no children who provide significant time or care. Some of the findings for this sample are striking: (1) over a fifth of the elderly have no children. (2) over one half of the elderly either do not have a daughter or do not have a daughter who lives within an hour of them. (3) over half of single elderly males and females and over two fifths of vulnerable single elderly males and females live completely alone. (4) of the elderly who have children, fewer than a quarter live with their children. (5) a small fraction of elderly with children hear from them at most on a yearly basis. (6) almost 10 percent of the children of the elderly have at most yearly contact. (7) financial assistance from children to the elderly, even in cases where the elderly are quite poor, is extremely rare. (8) in a typical month over a quarter of elderly who have children do not physically spend time with their children.
Handle: RePEc:nbr:nberwo:2391
Template-Type: ReDIF-Paper 1.0
Title: Asset Accumulation, Information, and the Life Cycle
Author-Name: Mervyn A. King
Author-Name: Jonathan I. Leape
Note: ME
Number: 2392
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2392
File-URL: http://www.nber.org/papers/w2392.pdf
File-Format: application/pdf
Abstract: Empirical tests of the life cycle model have focused on its implications for the level of a household's total net worth and paid little attention to changes in portfolio composition over the life cycle. In this paper, we examine a new survey of the asset holdings of 6,010 U.S households and show that there is a pronounced life-cycle pattern to both the number and value of assets held by U.S. households. Direct survey evidence suggests that incomplete information is a significant determinant of household portfolio composition. We test the hypothesis that information about investment opportunities arrives stochastically over time, estimating a Poisson model for the arrival of new information.
Handle: RePEc:nbr:nberwo:2392
Template-Type: ReDIF-Paper 1.0
Title: Prices of Single Family Homes Since 1970: New Indexes for Four Cities
Author-Name: Karl E. Case
Author-Person: pca484
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 2393
Creation-Date: 1987-09
Order-URL: http://www.nber.org/papers/w2393
File-URL: http://www.nber.org/papers/w2393.pdf
File-Format: application/pdf
Publication-Status: published as New England Economic Review, pp. 45-56, Sept/Oct 1987
Abstract: This paper uses data on nearly a million homes sold in four metropolitan areas -- Atlanta, Chicago, Dallas and San Francisco -- to construct quarterly indexes of existing home prices between 1970 and 1986. We propose and apply a new method of constructing such indexes which we call the weighted repeat sales method (WRS). We believe the results give an accurate picture of the actual rate of appreciation in home prices in the four cities. The paper explains the construction of the index, discusses the results and compares them with the National Association of Realtors data on the median price of existing single family homes for the period 1981 - 1986.
Handle: RePEc:nbr:nberwo:2393
Template-Type: ReDIF-Paper 1.0
Title: Til Debt Do Us Part: The U.S. Capital Market and Foreign Lending, 1920-1955
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 2394
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2394
File-URL: http://www.nber.org/papers/w2394.pdf
File-Format: application/pdf
Publication-Status: published as Developing Country Debt and Economic Performance, Vol. 1: The Internation-al Financial System, edited by Jeffrey D. Sachs, pp. 107-155. Chicago: The University of Chicago Press, 1989.
Publication-Status: published as The US Capital Market and Foreign Lending, 1920–1955, Barry Eichengreen. in Developing Country Debt and Economic Performance, Volume 1: The International Financial System, Sachs. 1989
Abstract: This paper analyzes U.S. experience with foreign lending in the half-century from 1920. A first question raised by this experience is what ignited the process of U.S. foreign lending. I conclude that lending was restrained at the beginning of the period by the debt overhang associated with reparations and by the post World War I disruption of international trade. Intervention by creditor country governments in the form of the Dawes Loan, League of Nations loans to Central Europe and reconstruction of the gold standard system was needed to initiate long-term capital flows. A second question is how to characterize the operation of the U.S. capital market once lending was again underway. I find that while lenders discriminated among potential borrowers and demanded compensation for default risk, they did so insufficiently. Neither an efficient-markets nor a fads-and-fashions model provides an adequate characterization of the data. A third question is whether default in the 1930s made it more difficult for countries to borrow in the 1940s and 1950s. I find no evidence that countries which interrupted debt service in the 1930s found it more difficult to borrow subsequently than did countries which maintained debt service continuously. Rather, default reduced access to private portfolio capital flows for defaulting and nondefaulting countries alike.
Handle: RePEc:nbr:nberwo:2394
Template-Type: ReDIF-Paper 1.0
Title: The Economic Consequences of Noise Traders
Author-Name: J. Bradford De Long
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Lawrence H. Summers
Author-Person: psu137
Author-Name: Robert J. Waldmann
Author-Person: pwa224
Note: ME
Number: 2395
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2395
File-URL: http://www.nber.org/papers/w2395.pdf
File-Format: application/pdf
Publication-Status: published as "Noise Trader Risk in Financial Markets," Journal of Political Economy, Vol .98, No.4, (August 1990), pp.703-738.
Abstract: The claim that financial markets are efficient is backed by an implicit argument that misinformed "noise traders" can have little influence on asset prices in equilibrium. If noise traders' beliefs are sufficiently different from those of rational agents to significantly affect prices, then noise traders will buy high and sell low. They will then lose money relative to rational investors and eventually be eliminated from the market. We present a simple overlapping-generations model of the stock market in which noise traders with erroneous and stochastic beliefs (a) significantly affect prices and (b) earn higher returns than do rational investors. Noise traders earn high returns because they bear a large amount of the market risk which the presence of noise traders creates in the assets that they hold: their presence raises expected returns because sophisticated investors dislike bearing the risk that noise traders may be irrationally pessimistic and push asset prices down in the future. The model we present has many properties that correspond to the "Keynesian" view of financial markets. (i) Stock prices are more volatile than can be justified on the basis of news about underlying fundamentals. (ii) A rational investor concerned about the short run may be better off guessing the guesses of others than choosing an appropriate P portfolio. (iii) Asset prices diverge frequently but not permanently from average values, giving rise to patterns of mean reversion in stock and bond prices similar to those found directly by Fama and French (1987) for the stock market and to the failures of the expectations hypothesis of the term structure. (iv) Since investors in assets bear not only fundamental but also noise trader risk, the average prices of assets will be below fundamental values; one striking example of substantial divergence between market and fundamental values is the persistent discount on closed-end mutual funds, and a second example is Mehra and Prescott's (1986) finding that American equities sell for much less than the consumption capital asset pricing model would predict. (v) The more the market is dominated by short-term traders as opposed to long-term investors, the poorer is its performance as a social capital allocation mechanism. (vi) Dividend policy and capital structure can matter for the value of the firm even abstracting from tax considerations. And (vii) making assets illiquid and thus no longer subject to the whims of the market -- as is done when a firm goes private -- may enhance their value.
Handle: RePEc:nbr:nberwo:2395
Template-Type: ReDIF-Paper 1.0
Title: Why are Wages Cyclical in the 1970's?
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Note: LS
Number: 2396
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2396
File-URL: http://www.nber.org/papers/w2396.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 8, No. 1, pp. 16-47, 1989.
Abstract: This paper investigates cyclicality in real wages between 1969 and 1982, using 14 years of data from the Panel Survey of Income Dynamics. First, it investigates the extent to which movements in and out of the labor market created apparent wage cyclicality. Second, it investigates whether cyclical movements of workers between heterogeneous wage sectors within the labor market created cyclicality. Little evidence of the first effect is found. The second effect is much more important, and cyclicality clearly occurs in the movement of workers between different labor market sectors. However, sector selection is not correlated with wage determination. Thus, individual wage change estimates of cyclicality need to control for sector location, but need not account for sector selection. The third conclusion of the paper is that cyclicality is present in real wages even within sectors over this time period, and is the result of both cyclicality in overall wage levels (cyclicality in the constant term in wage equations), as well as in the coefficients associated with particular worker characteristics.
Handle: RePEc:nbr:nberwo:2396
Template-Type: ReDIF-Paper 1.0
Title: Disaggregating the Effect of the Business Cycle on the Distribution of Income
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Note: LS
Number: 2397
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2397
File-URL: http://www.nber.org/papers/w2397.pdf
File-Format: application/pdf
Publication-Status: published as Economica, vol. 56, no. 2, pp141-163, May 1989.
Abstract: This paper disaggregates total household income into a complete set of components and studies the comparative cyclicality of these components to economic growth. Comparisons of the relative responsiveness to GNP growth of wages, hours of work, and total labor market income of heads and wives, and transfer income sources of households are made across income, race, sex and age groups. This provides a picture of the channels by which economic growth produces income change. Significant differences in elasticities are found to exist both between different income components and between different population groups for the same components. The narrowing income distribution in times of high growth occurs primarily because of large elasticities on head's labor market income among the poor. Both wages and hours show evidence of cyclicality. The labor market earnings of women -- both wives and household heads -- are far less responsive to growth. Cyclicality in transfer income varies enormously between population groups and by type of transfer.
Handle: RePEc:nbr:nberwo:2397
Template-Type: ReDIF-Paper 1.0
Title: Israel's Stabilization: A Two-Year Review
Author-Name: Michael Bruno
Author-Name: Sylvia Piterman
Note: ITI IFM
Number: 2398
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2398
File-URL: http://www.nber.org/papers/w2398.pdf
File-Format: application/pdf
Publication-Status: published as Inflation Stabilization: Argentian, Israel, Brazil, Bolivia, and Mexico(ed)M. Bruno, G. di-Tella, R. Dornbusch, S. Fischer. MIT Press 1988.
Abstract: The comprehensive stabilization program that Israel launched in July 1985 has brought about a dramatic reduction in inflation at no visible unemployment cost while improving the external financial position of the country. The program's success lies in a drastic cut in the government deficit but was also due to the appropriate initial synchronization of the most important nominal variables. In spite of the continued success of the stabilization program over the last two years, many problems remain. Excessive wage demands and a private consumption boom, in part the result of relative stability, have so far prevented the reduction of inflation to OECD rates. The stabilization process has also unearthed many structural problems of which an oversize public sector stands out in particular. Further reduction of inflation depends on a flexible wage policy and continued budget balance. A further cut in government expenditure and abstention from debt finance are also the key to the success of the capital market and tax reforms. These and other structural reforms will determine whether the recent upsurge in economic activity can be turned into a sustained growth process.
Handle: RePEc:nbr:nberwo:2398
Template-Type: ReDIF-Paper 1.0
Title: Contraction and Expansion: The Divergence of Private Sector and Public Sector Unionism in tht U.S.
Author-Name: Richard B. Freeman
Author-Person: pfr23
Number: 2399
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2399
File-URL: http://www.nber.org/papers/w2399.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 2, No. 2, Spring 1988, pp. 63-88.
Abstract: This paper contrasts the differing experience of public sector unionism, which has expanded in the United States, and private sector unionism, which has contracted, in the past several decades. It uses the experience of other countries, particularly Canada, to rule out some explanations of the divergent trends. The paper finds that the major reason for the private sector decline is increased management opposition to union organization, motivated in part by profit-seeking behavior, and augmented by trade union responses; and that the major reason for the public sector union expansion is decreased market opposition due to pas- sage of comprehensive collective bargaining laws and motivated in part by vote-seeking behavior.
Handle: RePEc:nbr:nberwo:2399
Template-Type: ReDIF-Paper 1.0
Title: Can Futures Market Data Be Used to Understand the Behavior of Real Interest Rates?
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: ME EFG
Number: 2400
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2400
File-URL: http://www.nber.org/papers/w2400.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Finance, Vol. 45, No. 1, pp. 245-257, (March 1990).
Abstract: Understanding the behavior of real interest rates is a central issue in monetary/macro economics. Recently researchers have begun to use futures market data to examine real interest rate behavior. Futures market data can be used to directly construct own-commodity real interest rates ? i.e., the ex-ante real return on a bond in terms of specific commodities -- and then the own-commodity real rates can be used to make inferences about the real interest rate for the aggregate economy, This paper examines whether futures market data can be used to understand the behavior of real interest rates. The conclusion is a negative one: Futures market data do not appear to be particularly informative about real interest rates. In coming to this conclusion, the paper examines the data in several ways. First. the ex-ante relative price movement embedded in the own-commodity real rates (the noise) is calculated to be on the order of over one hundred times more variable than the aggregate real interest rate (the signal), Own-commodity real rates are thus unlikely to contain much information about the aggregate real interest rate. Second. several widely accepted facts about the behavior of aggregate real interest rates in the 1960s are not at all evident in the own-commodity real rate data. Thus, analysis of own- commodity real rates provides a misleading impression of aggregate real rate movements for a period which displays the most striking movements of real interest rates in the postwar period. Finally, an econometric analysis of own-commodity real rate behavior fails to find evidence of a shift in the behavior of real interest rates when the monetary policy regime changes in October 1579, a finding that is at odds with previous strong findings in the literature.
Handle: RePEc:nbr:nberwo:2400
Template-Type: ReDIF-Paper 1.0
Title: Heteroskedasticity-Consistent Estimation of the Variance-Covariance Matrix for the Almost Ideal Demand System
Author-Name: Melvyn A. Fuss
Note: PR
Number: 2401
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2401
File-URL: http://www.nber.org/papers/w2401.pdf
File-Format: application/pdf
Abstract: In this note I demonstrate the previously overlooked fact that if the AIDS aggregate demand model is constructed as the aggregation of individual consumer demands, then the error structure for any individual equation is necessarily heteroskedastic unless the distribution of income is constant across aggregates. Maximum likelihood estimation which ignores this heteroskedasticity yields inconsistent estimates of the variance-covariance matrix and renders likelihood ratio tests of the restrictions of consumer demand theory inappropriate. A heteroskedasticity-consistent estimator of the variance-covariance matrix is proposed by adopting the technique of White (1980) to the case at hand.
Handle: RePEc:nbr:nberwo:2401
Template-Type: ReDIF-Paper 1.0
Title: What Do We Know About Worker Displacement in the U.S.?
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 2402
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2402
File-URL: http://www.nber.org/papers/w2402.pdf
File-Format: application/pdf
Publication-Status: published as DANIEL S. HAMERMESH, 1989. "What Do We Know About Worker Displacement in the U.S.?," Industrial Relations: A Journal of Economy and Society, vol 28(1), pages 51-59.
Abstract: In the United States roughly one-half million workers with 3+ years on the job have become unemployed each year during the 1980s because of plant closings. There is evidence that this represents an increase over earlier periods of similar macroeconomic conditions. Wage cuts within the observed range lower only slightly the probability that a plant will close. The average loss of earnings, due to long spells of post-displacement unemployment and to subsequent reduced wages, is substantial. While minorities suffer an above-average rate of displacement, the earnings losses they experience upon displacement are not disproportionately high. Women and older workers are no more likely than others to become displaced, and their losses are not disproportionate; but workers who have been on the job longer lose more.
Handle: RePEc:nbr:nberwo:2402
Template-Type: ReDIF-Paper 1.0
Title: Trade in Risky Assets
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 2403
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2403
File-URL: http://www.nber.org/papers/w2403.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 78, No. 3, (June 1988).
Abstract: This paper develops a theory of the international trade pattern in risky assets by applying the law of comparative advantage to asset trade. According to this law there is a tendency for a country to import assets that have relatively high autarky prices. The autarky price of an asset is high if the autarky real interest rate is low, or if the asset's autarky risk measure (the product of the risk premium and the asset price) is low. It is examined how autarky interest rates and risk measures are affected by international differences in (i) stochastic properties of output/endowment s , (ii) the rate of time preference, (iii) the degree of risk aversion, and (iv) subjective beliefs, and how such differences predict overall capital account deficits or surpluses as well as the composition of the capital account into trade in arbitrary risky assets and the special cases of sure indexed bonds, stocks (claims to output), and Arrow- Debreu securities.
Handle: RePEc:nbr:nberwo:2403
Template-Type: ReDIF-Paper 1.0
Title: Energy, Obsolescence, and the Productivity Slowdown
Author-Name: Charles R. Hulten
Author-Name: James W. Robertson
Author-Name: Frank C. Wykoff
Note: PR
Number: 2404
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2404
File-URL: http://www.nber.org/papers/w2404.pdf
File-Format: application/pdf
Publication-Status: published as in Technology and Captial Formation, Ed. Dale Jorgenson and Ralph Landers, MIT Press, 1989.
Abstract: The growth rate of output per worker in the U.S. declined sharply during the 1970's. A leading explanation of this phenomenon holds that the dramatic rise in energy prices during the 1970's caused a significant portion of the U.S. capital stock to become obsolete. This led to a decline in effective capital input which, in turn, caused a reduction in the reduction in the growth rate of output per worker. This paper examines a key prediction of this hypothesis. If there is a significant link between energy and capital obsolescence, it should be revealed in the market price of used capital: if rising energy costs did in fact render older, energy-inefficient capital obsolete, prospective buyers should have reduced the price that they were willing to pay for that capital. An examination of the market for used capital before and after the energy price shocks should thus reveal the presence and magnitude of the obsolescence effect. We have carried out this examination for four types of used machine tools and five types of construction equipment. We did not find a general reduction in the price of used equipment after the energy price shocks. Indeed, the price of used construction equipment - the more energy intensive of our two types of capital - tended to increase after 1973. We thus conclude that our data do not support the obsolescence explanation of the productivity of slowdown.
Handle: RePEc:nbr:nberwo:2404
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of Fiscal Policy
Author-Name: Daniel E. Ingberman
Author-Name: Robert P. Inman
Note: PE
Number: 2405
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2405
File-URL: http://www.nber.org/papers/w2405.pdf
File-Format: application/pdf
Publication-Status: published as Ingberman and Inman, "The Political Economy of Fiscal Policy," in Surveys in Public Sector Economics, ed. by Paul G. Hare, New York: Basil Blackwell, August, 1988.
Abstract: If there has been a dominant trend in the evolution of the modern industrial societies of this century it has been the growing importance of government in the allocation of social resources. It is important that we appreciate the fundamentally political nature of the formation of government economic policy. This survey reviews and assesses our present understanding of how the political system might shape a nation's fiscal policy. Our approach is eclectic, drawing both from economics and political science, and decidedly micro-analytic in its orientation. From economics we adopt the perspective of utility maximizing agents and the analytics of trade, agreement, and market failure. From political science we learn just how and when these individual agents might act collectively to provide public goods, redistribute income, or issue government debt. Together the micro-analytics of economics and political science form the core theory of the 'new' political economy and provide a framework for understanding the emergence, and the performance, of governments. There is no more important test for the new discipline than providing a compelling explanation for the formation of fiscal policy in democratic societies.
Handle: RePEc:nbr:nberwo:2405
Template-Type: ReDIF-Paper 1.0
Title: Economic Incentives and Political Institutions: Spending and Voting in School Budget Agenda
Author-Name: Thomas Romer
Author-Name: Howard Rosenthal
Author-Name: Vincent Munley
Note: PE
Number: 2406
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2406
File-URL: http://www.nber.org/papers/w2406.pdf
File-Format: application/pdf
Publication-Status: Published as "Economic Incentives and Political Institutions: Spending and Voting in School Budget Referenda", Journal of Public Economics, Vol. 49(1992).
Abstract: Allocation of resources in the local public sector involves economic and political forces. Spending for elementary and secondary education is a major area of public expenditure. In many states, the bulk of this spending is subject to referendum. In addition, grants-in-aid from state governments to local school districts form an important component of the district revenues. This paper has two main features. One is the characterization of local spending when the state aid structure is of the closed-end matching grant type. Under this structure, local tax price is endogenous, since the amount of state subsidy depends on the district's spending choice. The other main feature is the linking of spending proposals to referendum outcomes. In this way, our model makes use of voting data to shed light on the extent to which referenda constrain spending. The empirical setting is public school budget referenda in 544 New York school districts for the 1975-76 school year. Our econometric results and simulations based on them reveal considerable sensitivity of spending to the form of the grant structure, as well as to the referendum requirement. In addition, large school districts appear to behave more like "budget-maximizers" than do small districts, where proposals appear to be more in line with "median voter" demands.
Handle: RePEc:nbr:nberwo:2406
Template-Type: ReDIF-Paper 1.0
Title: Transactions Costs and Internal Labor Markets
Author-Name: Sherwin Rosen
Note: LS
Number: 2407
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2407
File-URL: http://www.nber.org/papers/w2407.pdf
File-Format: application/pdf
Publication-Status: published as Rosen, Sherwin. "Transactions Costs and Internal Labor Markets." Journal of Law, Economics, and Organization, Vol. 4, No. 1, (Spring 1988), pp. 49-64.
Abstract: The concept of transactions costs used by Coase in "The Nature of the Firm" is applied to the internal labor market of an organization. Under joint production it is shown that the number of transaction-specific prices necessary to decentralize labor allocations rises geometrically with the size of the work force. Complexity of calculation and costs of implementation constrains the possibilities for internal decentralization through a price mechanism and substitutes a more authoritarian system of allocation instead. These same issues of complexity and implementation costs limit the usefulness of agency theory as a conceptual framework for this problem. The analysis suggests that an internal labor market must be viewed in a more comprehensive framework of a personnel management system.
Handle: RePEc:nbr:nberwo:2407
Template-Type: ReDIF-Paper 1.0
Title: United States-Japan Economic Relations
Author-Name: Rachel McCulloch
Author-Person: pmc10
Note: ITI IFM
Number: 2408
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2408
File-URL: http://www.nber.org/papers/w2408.pdf
File-Format: application/pdf
Publication-Status: published as United States-Japan Economic Relations, Rachel McCulloch. in Trade Policy Issues and Empirical Analysis, Baldwin. 1988
Publication-Status: published as Macroeconomic Policy and Trade Performance: International Implications and U.S. Budget Deficits, Rachel McCulloch. in Issues in US-EC Trade Relations, Baldwin, Hamilton, and Sapir. 1988
Abstract: The bilateral relationship with Japan now dominates American thinking on the benefits and costs of foreign trade. This paper reevaluates the past and future course of U.S.-Japan economic relations. It identifies six distinct aspects of the relationship that may underlie the continuing friction: bilateral imbalance on merchandise trade, capital flows from Japan to the United States, the yen/dollar exchange rate, sectoral trade distortions, Japan's technological catch-up, and societal differences. For each source of conflict, the main causes and potential remedies are assessed. Several important conclusions emerge from the analysis. First, although the bilateral trade and capital-account imbalances were produced primarily by macroeconomic factors and can therefore be viewed as "temporary" rather than long-term developments, elimination of the imbalances without serious damage may be difficult to achieve. In terms of sectoral adjustments, the U.S.-Japan relationship is entering a new phase as the two nations grow more similar in terms of technology base, abundance of capital and skilled labor, and per capita income. Two-way trade in technology and in technology-based services will become increasingly important, while both nations will cope with similar problems of adjustment to pressure from a new tier of competitors in Asia and elsewhere. As the aggregate imbalances diminish, sectoral trade conflict will be concentrated on the two ends of the technology spectrum, with issues raised both by conflicting approaches to the phasing out of uncompetitive industries and by the nurturing of new technology-based industries.
Handle: RePEc:nbr:nberwo:2408
Template-Type: ReDIF-Paper 1.0
Title: Prospects for Liberalizing the International Trading System
Author-Name: Anne O. Krueger
Note: ITI IFM
Number: 2409
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2409
File-URL: http://www.nber.org/papers/w2409.pdf
File-Format: application/pdf
Publication-Status: published as Krueger, Anne O. "Prospects for Liberalizing the International Trading System," in International Finance & Trade in a Polycentric World Ecnomy, eds. S. Borner, Basel Switzerland: International Economic Association, 1988.
Abstract: This paper analyzes the equilibrium degree of protection as the outcome of the interaction of demands for protection and the demand for a liberal international trading order. It then assesses the current balance. On one hand, the nature of technical progress, the institution of the Uruguay Round, the mounting costs of agricultural protections and the increasingly high costs of protection as the world economy integrates all conduce toward a more liberal trading order. Demands for protection will intensify to the extent that growth decelerates, that trade negotiators fail to find mechanism to deal with nontariff barriers and that the United States fails to assume this leadership role that was earlier taken.
Handle: RePEc:nbr:nberwo:2409
Template-Type: ReDIF-Paper 1.0
Title: Investment, Openness, and Country Risk
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 2410
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2410
File-URL: http://www.nber.org/papers/w2410.pdf
File-Format: application/pdf
Publication-Status: published as Analytical Issues in Debt, edited by Jacob A. Frenkel, Michael P. Dooley,and Peter Wickham, pp. 83-101. Washington, DC: International Monetary Fund, 1989.
Abstract: The purpose of this study is to draw attention to the linkages between country risk and the openness of an economy, and to demonstrate that in the long run the openness of an economy is endogenously determined by the interaction between endowments and policies. The presence of country risk poses a problem for the smooth operation of international credit markets: the ex-ante first best policy is for countries to pre-commit themselves to no-default policies. Such a commitment, however, may not be credible because it may not be the optimal ex-post policy. This suggests a special role for policies leading towards investment in openness - as a way to increase the credibility of a no- default commitment. The paper studies the optimal implementation of these policies. Our analysis demonstrates that a rise in country risk is associated with more frequent defaults and consequently with a lower level of investment. The resultant drop in investment is larger in activities with greater reliance on international trade The presence of country risk is shown to introduce a distortion, calling for financial policies in the form of a tax on consumption borrowing and a different tax on investment borrowing. The optimal investment borrowing tax balances two effects: the aggregate indebtedness and the openness effects. The stronger the openness effect, the lower the optimal investment borrowing tax; and if this effect dominates, the optimal policy is in the form of an investment subsidy. A final topic of our analysis is a study of the nature of country risk in the presence of equity finance. We demonstrate that swapping nominal debt with equities may have useful consequences for reducing country risk, but it cannot eliminate the fundamental problems associated with international credit.
Handle: RePEc:nbr:nberwo:2410
Template-Type: ReDIF-Paper 1.0
Title: The Marginal Value of Social Security
Author-Name: Michael D. Hurd
Author-Person: phu137
Note: AG
Number: 2411
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2411
File-URL: http://www.nber.org/papers/w2411.pdf
File-Format: application/pdf
Publication-Status: published as (With Michael J. Boskin) Published as "The Effect of Social Security on Retirement in the Early 1970's", Quarterly Journal of Economics, Vol. 99,no. 4 (1984): 767-790.
Abstract: If annuities such as Social Security are not chosen freely, the consumption path typically cannot be determined independently of the path of annuities. This constraint reduces the value of the annuity from the point of view of the annuitant. I measure the value of the annuity by the marginal rate of substitution (MRS), the amount of bequeathable wealth that will substitute for a dollar of annuity wealth. In the analytical section of the paper, I show that the MRS increases as bequeathable wealth increases; in that sense the wealthy benefit more from Social Security than the poor. In the empirical section, I estimate the MRS for a sample of retired single elderly. The MRS varies considerably from individual to individual because of differences in the mix of bequeathable wealth and annuities. For the parameter values that best fit the data, a substantial fraction of the sample has more Social Security than it would like in that it would be willing to trade, at the margin, a claim to Social Security for an increase in bequeathable wealth.
Handle: RePEc:nbr:nberwo:2411
Template-Type: ReDIF-Paper 1.0
Title: The Equilibrium and Optimal Timing of Price Changes
Author-Name: Laurence Ball
Author-Person: pba605
Author-Name: David Romer
Author-Person: pro406
Note: EFG
Number: 2412
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2412
File-URL: http://www.nber.org/papers/w2412.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 56 (2), No. 186, pp. 179-198, (April 1989)
Abstract: This paper studies the welfare properties of the equilibrium timing of price changes. Staggered price-setting has the advantage that it permits rapid adjustment to firm-specific shocks but the disadvantage that it causes price level inertia and therefore increases aggregate fluctuations. Because each firm ignores its contribution to inertia, staggering can be a stable equilibrium even if it is highly inefficient. In addition, there can be multiple equilibria in the timing of price changes; indeed, whenever there is an inefficient staggered equilibrium, there is also an efficient equilibrium with synchronized price-setting.
Handle: RePEc:nbr:nberwo:2412
Template-Type: ReDIF-Paper 1.0
Title: Seigniorage, Operating Rules and the High Inflation Trap
Author-Name: Michael Bruno
Author-Name: Stanley Fischer
Note: EFG
Number: 2413
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2413
File-URL: http://www.nber.org/papers/w2413.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. 104, No. 2, pp. 353-374, (May 1990).
Abstract: A given amount of seigniorage revenue can be collected at either a high or a low rate of inflation. Thus there ray be two equilibria when a government finances its deficit by printing money--implying that an economy may be stuck in a high inflation equilibrium when, with the same fiscal policy, it could be at a lower inflation rate. We show that under rational expectations the high inflation equilibrium is stable and the low inflation equilibrium unstable; under adaptive expectations or lagged adjustment of money balances with rational expectations, it may be the low inflation equilibrium that is stable. Extending the model to allow for bond as well as money financing of deficits, we show that one of the equilibria disappears if the government sets a nominal anchor for the economy, for instance by fixing the growth rate of money. The dual equilibria and their stability.
Handle: RePEc:nbr:nberwo:2413
Template-Type: ReDIF-Paper 1.0
Title: Worker Knowledge of Pension Provisions
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Note: LS AG
Number: 2414
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2414
File-URL: http://www.nber.org/papers/w2414.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 6, January 1988, pp. 21-39.
Abstract: This paper evaluates the quality of workers' information regarding pension offerings using both administrative records and worker reports of pension provisions. Missing and misinformation proves to be widespread. Unionized employees, higher income workers and those in large firms, the better educated, and those with greater seniority are better informed about their pensions. There are also demographic differences: nonwhites have less pension knowledge than whites, but women are better informed than men along several pension dimensions. Myopia about pension incentive structures is troubling since workers may save or consume suboptimally, change jobs, or retire earlier than they would have if equipped with better pension information. The prevalence of missing data should also be troubling to empirical pension analysts using data sets reporting workers' assessments of pension provisions.
Handle: RePEc:nbr:nberwo:2414
Template-Type: ReDIF-Paper 1.0
Title: The Importance of Gifts and Inheritances Among the Affluent
Author-Name: Michael D. Hurd
Author-Person: phu137
Author-Name: B. Gabriela Mundaca
Author-Person: pmu281
Note: AG
Number: 2415
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2415
File-URL: http://www.nber.org/papers/w2415.pdf
File-Format: application/pdf
Publication-Status: published as In The Measurement of Saving, Investment, and Wealth. Robert E. Lipsey, and Helen Tice, eds. University of Chicago Press: Chicago, 1989.
Publication-Status: published as The Importance of Gifts and Inheritances Among the Affluent, Michael D. Hurd, B. Gabriela Mundaca. in The Measurement of Saving, Investment, and Wealth, Lipsey and Tice. 1989
Abstract: Using data from the 1964 Survey of the Economic Behavior of the Affluent, we estimate directly the fraction of household assets which come from inheritances and the fraction from gifts. These data are well suited for this calculation because the survey is heavily weighted toward households with high incomes, and because the respondents were directly asked about the sources of their wealth. We estimate that 15-202 of household wealth came from inheritances and 5-102 from gifts. Even in households with very high incomes, very few people say that a large fraction of their assets were inherited or were given to them. According to the responses in this survey, it is not creditable that as much as 50% of household assets came from gifts and inheritances. Using data from the 1983 Survey of Consumer Finances with high income supplement, we roughly confirm the 1964 results, although the 1983 data are much less complete than the 1964 data.
Handle: RePEc:nbr:nberwo:2415
Template-Type: ReDIF-Paper 1.0
Title: Commitment and the Modern Union: Assessing the Link Between Premarital Cohabitation and Subsequent Marital Stability
Author-Name: Neil G. Bennett
Author-Name: Ann Klimas Blanc
Author-Name: David E. Bloom
Author-Person: pbl79
Note: LS
Number: 2416
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2416
File-URL: http://www.nber.org/papers/w2416.pdf
File-Format: application/pdf
Publication-Status: published as American Sociological Review, vol. 53, no. 1, pp. 127-138, February 1988.
Abstract: In recent years, the incidence of premarital cohabitation has increased dramatically in many countries of Western Europe and in the United States. As cohabitation becomes a more common experience, it is increasingly important to understand the links between cohabitation and other steps in the process of family formation and dissolution. We focus on the relationship between pre- marital cohabitation and subsequent marital stability, and analyze data from the 1981 Women in Sweden survey using a hazards model approach. Our results indicate that women who premaritally cohabit have almost 80 percent higher marital dissolution rates than those who do not cohabit. Women who cohabit for over three years prior to marriage have over 50 percent higher dissolution rates than women who cohabit for shorter durations. Last, cohabitors and non-cohabitors whose marriages have remained intact for eight years appear to have identical dissolution rates after that time. In addition, we provide evidence that strongly suggests a weaker commitment, on the part of those who cohabit premaritally, to the institution of marriage.
Handle: RePEc:nbr:nberwo:2416
Template-Type: ReDIF-Paper 1.0
Title: Trade in Nominal Assets: Monetary Policy, and Price Level and Exchange Rate Risk
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 2417
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2417
File-URL: http://www.nber.org/papers/w2417.pdf
File-Format: application/pdf
Publication-Status: published as "Trade in Nominal Assets." From Journal of International Economics, Vol. 26, No. 1/2, pp. 1-28, (February 1989).
Abstract: In a previous paper, "Trade in Risky Assets," I have analyzed the pattern of international trade in risky real assets between barter economies, relying on the Law of Comparative Advantage and using autarky asset price differences to predict the pattern of asset trade. In this paper the analysis is extended to international trade in nominal assets (assets with returns paid in currencies) between monetary economies. The risk characteristics of real returns on nominal assets depend on price level and exchange rate risk, and therefore on monetary policy. It is examined how different combinations of monetary policies and exchange rate regimes affect nominal assets' return risk characteristics, their autarky prices, and hence their trade pattern, when countries differ with respect to their outputs or their attitudes towards risk. When world asset markets are incomplete, different monetary policies and exchange rate regimes have dramatic effects on risk characteristics of home and foreign currency bonds and on the trade pattern in these assets, as well as on aggregate capital and current accounts.
Handle: RePEc:nbr:nberwo:2417
Template-Type: ReDIF-Paper 1.0
Title: The Costs of Conflict Resolution and Financial Distress: Evidence from the Texaco-Pennzoil Litigation
Author-Name: David M. Cutler
Author-Person: pcu64
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: ME PE
Number: 2418
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2418
File-URL: http://www.nber.org/papers/w2418.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, Vol. 19, No. 2, pp. 157-172, (Summer 1988).
Abstract: This paper uses data on the abnormal returns earned by the shareholders of Texaco and Pennzoil to examine whether resources were "lost" in the course of the litigation. We find that the leakage involved in the forced transfer is enormous: each dollar of value lost by Texaco's shareholders has been matched by only about 30 cents gain to the owners of Pennzoil. Our estimates suggest that the Texaco-Pennzoil conflict has reduced the combined equity value of the two companies by about $2 billion. Further losses have been suffered by Texaco's bondholders, though these may be offset by the tax collections that would result if Texaco made a large payment to Pennzoil.
Handle: RePEc:nbr:nberwo:2418
Template-Type: ReDIF-Paper 1.0
Title: Have Productivity Levels Converged? Productivity Growth, Convergence, and Welfare in the Very Long Run
Author-Name: J. Bradford De Long
Note: ME
Number: 2419
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2419
File-URL: http://www.nber.org/papers/w2419.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 78, No. 6 (December 1988), pp. 1138-54.
Abstract: Economists believe that because technology is a public good national productivity levels should "converge." William Baumol(1986) argues that the imprint of convergence can be seen over the past century if one focuses attention on relatively rich nations that had the social capability to take advantage of machine technology. Using Maddison's (1 982) data, he finds that the productivity levels of sixteen such nations have converged since 1870. But convergence in Baumol's sample is guaranteed by construction. Maddison's (1982) study is by design of nations that have successfully developed and today have high incomes -- that have converged. Baumol's data are thus contaminated by sample selection bias and tell us little about whether those nations have converged that were seen a century ago as having the social capability for rapid industrialization. Considering an unbiased sample of nations that appeared ex ante likely to converge, and correcting econometrically for inevitable errors in independent variables dated 1870, reveals that rates of growth since 1870 are not strongly related to levels of 1870 income. The forces making for "convergence" have been counterbalanced by forces making for "divergence" even for those nations which should have converged most easily. There is one factor does emerge as a good ex ante predictor of a nation's rate of growth since 1870: the dominant religion. Holding constant 1870 per capita income, nations that had Protestant religious establishments in 1870 have 1979 per capita incomes more than one-third higher than do nations that had Catholic establishments. Interpretation of this fact is very difficult, but it does suggest that Max Weber [I9051 (1958) may have something to teach us about the forces that have determined growth in the industrial West over the past century.
Handle: RePEc:nbr:nberwo:2419
Template-Type: ReDIF-Paper 1.0
Title: Import Competition and the Stock Market Return to Capital
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: James A. Levinsohn
Author-Person: ple386
Note: ITI IFM
Number: 2420
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2420
File-URL: http://www.nber.org/papers/w2420.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 79, No. 5, pp. 1065-1087, (December 1989).
Abstract: We measure the responsiveness of returns to capital invested in six U.S. industries to shocks to the prices of competing import goods. Recognizing that most capital services are not traded on spot rental markets, we treat the intersectoral mobility of capital as the outgrowth of investment behavior. Then the return to capital is realized as an asset return to equity holders. . We model expected returns by CAPM, and relate "excess" returns in a period to unanticipated shocks to the variables that affect current and future profits. We find that positive shocks to import prices cause higher than normal stock market returns in all six industries. The magnitudes of the responses are consistent with the hypothesis that capital is highly sector specific in five of these industries.
Handle: RePEc:nbr:nberwo:2420
Template-Type: ReDIF-Paper 1.0
Title: Bank Portfolio Choice with Private Information About Loan Quality: Theory and Implications for Regulation
Author-Name: Deborah Lucas
Author-Person: plu94
Author-Name: Robert L. McDonald
Note: ME
Number: 2421
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2421
File-URL: http://www.nber.org/papers/w2421.pdf
File-Format: application/pdf
Publication-Status: published as "Bank Portfolio Choice With Private Information About Loan Quality." From Journal of Banking and Finance, Vol. 11, pp. 473-497, (1987).
Abstract: This paper models bank asset choice when shareholders know more about loan quality than do outsiders. Because of this informational asymmetry, the price of loans in the secondary market is the price for poor quality loans. Banks desire to hold marketable securities in order to avoid liquidating good quality loans at the "lemons" price, but also have a countervailing desire to hold risky loans in order to maximize the value of deposit insurance. In this context, portfolio composition and bank safety is examined as a function of the market distribution of loan quality, and the distribution of deposits. The model suggests that off-balance sheet commitments have little effect on bankruptcy risk, and induce banks to hold more securities. We also show that an increase in the bank equity requirement will unambiguously increase bank safety in the long run. In the short run, banks are unambiguously riskier on-balance-sheet, although the effect on bank safety is ambiguous.
Handle: RePEc:nbr:nberwo:2421
Template-Type: ReDIF-Paper 1.0
Title: Bank Financing and Investment Decisions with Asymmetric Information
Author-Name: Deborah Lucas
Author-Person: plu94
Author-Name: Robert L. McDonald
Note: ME
Number: 2422
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2422
File-URL: http://www.nber.org/papers/w2422.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics 23, No. 1 Spring 1992, 86-105
Abstract: Banks know more about the quality of their assets than do outside investors. This informational asymmetry can distort investment decisions if the bank must raise funds from uninformed outsiders, and assets sold will be subject to a lemons discount. Using a three-period equilibrium model we examine the effect of asymmetric information about loan quality on the asset and liability decisions of banks and the market valuation of bank liabilities. The existence of a precautionary demand for T-bills against future liquidity needs depends both on the regulatory environment and the informational structure. If banks are ex ante identical, issuing risky debt to fund a deposit outflow is preferred to holding T-bills ex ante. However, if banks have partial knowledge of loan quality, and if their asset choice is observable, they may hold T-bills to signal their quality, enabling them to issue risky debt at a lower interest rate.
Handle: RePEc:nbr:nberwo:2422
Template-Type: ReDIF-Paper 1.0
Title: The Learning Curve and Optimal Production Under Uncertainty
Author-Name: Saman Majd
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Note: ME
Number: 2423
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2423
File-URL: http://www.nber.org/papers/w2423.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, vol. 20, no. 3, pp. 331-343, Autumn, 1989.
Abstract: This paper examines the implications of the learning curve in a world of uncertainty. We consider a competitive firm whose costs decline with cumulative output. Because the price of the firm's output evolves stochastically, future production and cumulative output are unknown, and are contingent on future prices and costs. We derive an optimal decision rule that maximizes the firm's market value: produce when price exceeds a critical level, which is a declining function of cumulative output. We show how the shadow value of cumulative production, as well as the total value of the firm, depend on the volatility of price and other parameters. Over the relevant range of prices, uncertainty reduces the shadow value of cumulative production, and therefore increases the critical price required for the firm to begin producing.
Handle: RePEc:nbr:nberwo:2423
Template-Type: ReDIF-Paper 1.0
Title: Adjustment in the World Economy
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 2424
Creation-Date: 1987-10
Order-URL: http://www.nber.org/papers/w2424
File-URL: http://www.nber.org/papers/w2424.pdf
File-Format: application/pdf
Publication-Status: published as Krugman, Paul "Adjustment in the World Economy." GROUP OF THIRTY OCCASION AL PAPERS, No. 24, (1987), pp. 1-40.
Abstract: There is a widespread view that world payments imbalances can be remedied through increased demand in surplus countries and reduced demand in deficit countries, without any need for real exchange rate changes. In fact shifts in demand and real exchange rate adjustment are necessary couplets, not substitutes. The essential reason for this complementarity is that a much higher fraction of a marginal dollar of US than of foreign spending falls on US output. As a result, a redistribution of world spending away from the US leads to an excess supply of US goods unless accompanied by a decline in their relative price. Although some economists believe that the integration of world capital markets somehow eliminates this problem, this is a fallacy that confuses accounting identities with behavior. The paper also addresses a number of relates issues, such as the role of budget deficits in determining domestic demand and the effectiveness of nominal exchange rates changes in producing real depreciation.
Handle: RePEc:nbr:nberwo:2424
Template-Type: ReDIF-Paper 1.0
Title: Inventories and the Propagation of Sectoral Shocks
Author-Name: Russell Cooper
Author-Name: John C. Haltiwanger
Author-Person: pha231
Note: EFG
Number: 2425
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2425
File-URL: http://www.nber.org/papers/w2425.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 80, No. 1, pp. 170-190, (March 1990).
Abstract: This paper studies the dynamic properties of an imperfectly competitive economy with inventory holdings. In particular, we focus on the serial correlation in aggregate output and employment produced by the holding of inventories in one sector of the economy and the co-movement between sectors of an economy over the cycle resulting from demand linkages. This model is then contrasted with a simple, competitive real business cycle model with inventories. We find that the predictions of these models with regards to the co-movement of employment may differ. Based on this, we present empirical evidence on the co-movement of employment over the business cycle which is consistent with the predictions of the model of imperfect competition with inventory holdings and demand linkages.
Handle: RePEc:nbr:nberwo:2425
Template-Type: ReDIF-Paper 1.0
Title: Pensions, Efficiency Wages, and Job Mobility
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 2426
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2426
File-URL: http://www.nber.org/papers/w2426.pdf
File-Format: application/pdf
Publication-Status: published as Pension Incentives and Job Mobility. Kalamazoo, MI: Upjohn Institute for Employment Policy, 1995.
Abstract: This paper finds that compensation premia and not pension backloading are responsible for the low mobility rates from jobs with pensions. Compensation premia, which may represent efficiency wages, are calculated as the difference in compensation between the current job and the best alternative job, allowing for the fact that such premia are observed only for job changers. The amount of pension backloading is calculated from data provided by employers to the Survey of Consumer Finances, greatly improving the precision of measurement over past efforts. This finding has important implications for labor market analysis and for policies concerning pension regulation.
Handle: RePEc:nbr:nberwo:2426
Template-Type: ReDIF-Paper 1.0
Title: Federal Deductibility and Local Property Tax Rates
Author-Name: Douglas Holtz-Eakin
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 2427
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2427
File-URL: http://www.nber.org/papers/w2427.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Urban Economics, Vol. 27, No. 3, pp. 269-284, (May 1990).
Abstract: In current discussions of tax reform in the United States, there is considerable controversy concerning the effects of allowing individuals to deduct state and local taxes when calculating their federal income tax liability. Recent econometric work has suggested that federal deductibility of state and local taxes has raised the proportion of these taxes -- especially property taxes -- in local budgets. This paper lends additional support to these earlier findings by showing that one channel through which deductibility leads to higher local property tax revenues is by increasing the rate of local property taxation. Specifically, we find that if deductibility were eliminated, the mean property tax rate in our sample of 82 communities would fall by 0.00715 ($7.15 per thousand dollars of assessed property), or 21.1 percent of the mean tax rate.
Handle: RePEc:nbr:nberwo:2427
Template-Type: ReDIF-Paper 1.0
Title: Equilibrium Political Budget Cycles
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: ME
Number: 2428
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2428
File-URL: http://www.nber.org/papers/w2428.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 80, No. 1, pp. 21-36, (March 1990).
Abstract: Prior to elections, governments (at all levels) frequently undertake a consumption binge. Taxes are cut, transfers are raised, and government spending is distorted towards highly visible items. The "political business cycle" (better be thought of as "the political budget cycle") has been intensively examined, at least for the case of national elections. A number of proposals have been advanced for mitigating electoral cycles in fiscal policy. The present paper is the first effort to provide a fully-specified equilibrium framework for analyzing such proposals. A political budget cycle arises here via a multidimensional signaling process, in which incumbent leaders try to convince voters that they have recently been doing an excellent job in administering the government. Efforts to mitigate the cycle can easily prove counterproductive, either by impeding the transmission of information or by inducing politicians to select more costly ways of signaling. The model also indicates new directions for empirical research.
Handle: RePEc:nbr:nberwo:2428
Template-Type: ReDIF-Paper 1.0
Title: Risk, Uncertainty and Exchange Rates
Author-Name: Robert J. Hodrick
Author-Person: pho115
Note: ITI IFM
Number: 2429
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2429
File-URL: http://www.nber.org/papers/w2429.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 23, No. 3, pp. 433-459, (May 1989).
Abstract: This paper explores a new direction for empirical models of exchange rate determination. The motivation arises from two well documented facts, the failure of log-linear empirical exchange rate models of the 1970's and the variability of risk premiums in the forward market. Rational maximizing models of economic behavior imply that changes in the conditional variances of exogenous processes, such as future monetary policies, future government spending, and future rates of income growth, can have a significant effect on risk premiums in the foreign exchange market and can induce conditional volatility of spot exchange rates. I examine theoretically how changes in these exogenous conditional variances affect the level of the current exchange rate, and I attempt to quantify the extent that this channel explains exchange rate volatility using autoregressive conditional heteroscedastic models.
Handle: RePEc:nbr:nberwo:2429
Template-Type: ReDIF-Paper 1.0
Title: Tax Neutrality and Intangible Capital
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Andrew B. Lyon
Author-Person: ply2
Note: PE
Number: 2430
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2430
File-URL: http://www.nber.org/papers/w2430.pdf
File-Format: application/pdf
Publication-Status: published as Tax Neutrality and Intangible Capital, Don Fullerton, Andrew B. Lyon. in Tax Policy and the Economy: Volume 2, Summers. 1988
Abstract: Many studies measure capital stocks and effective tax rates for different industries, but they consider only tangible assets such as equipment, structures, inventories, and land. Some of these studies also have estimated that the welfare cost of tax differences among these assets under prior law is about $10 billion per year or 13 percent of all corporate income tax revenue. Since the investment tax credit was available only for equipment, its repeal raises the effective rate of taxation of equipment toward that of other assets and virtually eliminates this welfare cost. However, firms also own intangible assets such as trademarks, copyrights, patents, a good reputation, or general production expertise. This paper provides alternative measures of the intangible capital stock, and it investigates implications for distortions caused by taxes. The existence of intangible capital markedly alters welfare cost calculations. Investments in advertising and R&D are expensed, so the effective rate of tax on these assets is less than that on equipment under prior law. With large differences between these assets and other tangible assets, we find that the welfare cost measure under prior law increases to $13 billion per year. Repeal of the investment credit taxes equipment more like other tangible assets but less like intangible assets. The welfare cost still falls, to about $7 billion per year, but it is no longer "virtually eliminated." With additional sources of intangible capital, credit repeal could actually increase welfare costs. Finally, however, the Tax Reform Act of 1986 not only repeals the investment tax credit but reduces rates as well. Efficiency always increases in this model because the taxation of tangible assets is reduced toward that of intangible assets.
Handle: RePEc:nbr:nberwo:2430
Template-Type: ReDIF-Paper 1.0
Title: Credible Commitment and Exchange Rate Stability: Canada's Interwar Experience
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Angela Redish
Author-Person: pre9
Note: ME
Number: 2431
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2431
File-URL: http://www.nber.org/papers/w2431.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, Vol. 23, No. 2, pp. 357-380, (May 1990).
Abstract: In January 1929 the Canadian government suspended gold exports and began a floating exchange rate regime that endured until the onset of World War 11. In sharp contrast with the experience of other countries which left the gold standard, deflation and declining economic activity continued in Canada until 1933. This paper examines the determinants of the Canadian exchange rate in the 1930's and provides an answer to the question of why the Canadian dollar did not depreciate in the early 1930's despite Canada's de facto departure from the Gold Standard. We develop the answer in two stages. First, we show that the government made a clear commitment to maintain a contractionary monetary policy. It did so because it believed: that monetary expansion would increase the value of external obligations without reducing the value of domestic obligations; and that even if all contractual obligations were met, Canada would lose her reputation as a responsible debtor. Second, we argue that the government's commitment was viewed by the public as credible. The credible commitment dominated market agent's expectations of the evolution of the exchange rate.
Handle: RePEc:nbr:nberwo:2431
Template-Type: ReDIF-Paper 1.0
Title: The Equilibrium and Optimal Timing of Price Changes
Author-Name: Laurence Ball
Author-Person: pba605
Author-Name: David Romer
Author-Person: pro406
Note: EFG
Number: 2432
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2432
Publication-Status: published as Review of Economic Studies, April 1989, vol 56(2), no. 186 pp. 179-198
Abstract: This paper was an accidental re-issue of w2412
Handle: RePEc:nbr:nberwo:2432
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Mental Distress on Income: Results from a Community Survey
Author-Name: Richard G. Frank
Author-Name: Paul J. Gertler
Author-Person: pge194
Note: EH
Number: 2433
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2433
File-URL: http://www.nber.org/papers/w2433.pdf
File-Format: application/pdf
Publication-Status: published as "An Assesment of Measurement Error Bias for Estimating the Effect of Mental Distress on Income." From The Journal of Human Resources, Vol. XXVI, No. 1 , pp. 154-164, (Winter 1991).
Abstract: We employ a unique data set from a community based survey to assess the effect of mental distress on earnings. The main advantage of the data is that detailed measurements of mental health status were made on all subjects in the study. This means that our population-based measure of mental distress does not rely on a patient having had contact with the health care system and obtaining a diagnosis from a provider. The use of diagnosis-based measures may introduce measurement-error bias into the estimates. Our results show that the presence of mental distress reduces earnings by approximately 21% to 33%. To assess the magnitude of any measurement-error bias we present a estimates of models using measures of mental health both on a population-wide basis and on a diagnosis basis. The estimated impact of mental illness on earning is only 9% lower using the using the diagnosis-based measure. The conclusion drawn from this is that little bias is introduced by using the diagnosis-based measure.
Handle: RePEc:nbr:nberwo:2433
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Effects of Price Controls: The Role of Market Structure
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI IFM
Number: 2434
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2434
File-URL: http://www.nber.org/papers/w2434.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal, Vol. 98, No. 391, pp. 340-354, (June 1988).
Abstract: Price controls were part of Israel's stabilization program of July 1985. Some results of the program seem to be inconsistent with competitive macroeconomic models. It is suggested that these results are consistent with an economy that has an oligopolistic market structure. The paper explores the effects of market structure on macroeconomic performance in the presence and absence of price control.
Handle: RePEc:nbr:nberwo:2434
Template-Type: ReDIF-Paper 1.0
Title: The Real Exchange Rate and Employment in U.S. Manufacturing: State and Regional Results
Author-Name: William H. Branson
Author-Name: James P. Love
Note: ITI IFM
Number: 2435
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2435
File-URL: http://www.nber.org/papers/w2435.pdf
File-Format: application/pdf
Abstract: In a series of earlier papers we have examined the impact of exchange rate movements on employment and output in the manufacturing sector, disaggregated by industry sector and by production and non-production workers. In this paper we examine the impact of exchange rate movements on manufacturing employment, disaggregated geographically, using census divisions, regions, states and SMSA's as the unit of analysis. Empirical estimates of employment changes are first presented for the four census regions, the nine census divisions, and the fifty states plus the District of Columbia. For the country as a whole, we estimate that movements in the real exchange rate led to the loss of about 1 million manufacturing jobs over this period. We go on to examine in greater detail manufacturing employment in New York State, and report that exchange rate movements had a much larger impact in the areas outside of New York City than in the metropolitan area. This result is consistent with earlier work that found that employment in management or research is not as sensitive to exchange rate movements as employment in production processes. The New York results are followed by an examination of manufacturing employment in five southern states with large rural populations. Some policy makers have expressed a concern that manufacturing employment in rural areas suffered more than in urban areas during the period of the dollar appreciation. We find that within these five states, the impact of the exchange rate on manufacturing employment in the non-SMSA areas was the same or less than was the case for employment within SMSA areas. Finally, we use a multivariate model to explore why manufacturing employment is more sensitive to exchange rate movements in some states than in others. Factors which are associated with greater sensitivity of manufacturing employment to exchange rate movements are: the percent of the population living outside of SMSA areas, the level of production worker wages, and crude oil production. Factors that are associated with less sensitivity of manufacturing employment to exchange rate movements include the percent of the population with 4 years or more of college or per-capita expenditures on public secondary schools.
Handle: RePEc:nbr:nberwo:2435
Template-Type: ReDIF-Paper 1.0
Title: Permanent Income, Current Income, and Consumption
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: N. Gregory Mankiw
Note: EFG ME
Number: 2436
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2436
File-URL: http://www.nber.org/papers/w2436.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business & Economic Statistics, Vol. 8, No. 3, pp. 265-279, (July 1990).
Abstract: This paper reexamines the consistency of the permanent income hypothesis with aggregate, post-war, United States data. The permanent income hypothesis is nested within a more general model in which a fraction of income accrues to individuals who consume their current income rather than their permanent income. This fraction is estimated to be 40 or 50 percent, indicating a substantial departure from the permanent income hypothesis. This finding is robust to various statistical problems that have plagued previous work, such as time aggregation, and cannot be easily explained by appealing to changes in the real interest rate or to non-separabilities in the utility function.
Handle: RePEc:nbr:nberwo:2436
Template-Type: ReDIF-Paper 1.0
Title: Trade Deficits in the Long Run
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 2437
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2437
File-URL: http://www.nber.org/papers/w2437.pdf
File-Format: application/pdf
Publication-Status: published as Barry J. Eichengreen, 1987. "Trade deficits in the long run," Proceedings, Federal Reserve Bank of St. Louis, pages 239-285.
Publication-Status: published as U.S. Trade Deficit: Causes, Consequences and Cures, edited by Albert E. Burger, pp. 239-278. Norwell, MA: Kluwer Academic Publishers, 1989.
Abstract: This paper provides an historical perspective on the recent behavior of the U.S. trade deficit. Judged by U.S. historical experience, the trade deficit has reached what is now unprecedented levels. That unprecedented deficit has its principal source not in changes in market structure affecting the speed with which quantities respond to prices but in the policy environment, namely the monetary-fiscal policy mix. While other industrial countries have run comparable merchandise trade deficits at various points in the past, these countries either financed their deficits out of interest earnings on prior foreign investments or through the large-scale export of services, or used the debt they incurred to finance investment in infra- structure and to expand their capacity to export. Neither of these scenarios has a counterpart in current U.S. experience. How easily can the trade deficit be eliminated if historical experience is a guide? Typically, the rapid reduction of deficits has been achieved through the reduction of imports; this typically entails restraints on aggregate demand from which recession results. Trade deficits have been reduced most quickly and at lowest cost when at least one of two conditions prevails: a favorable shock to the terms of trade or a reallocation of resources toward investment in export-oriented sectors. The first of these conditions is largely beyond the authorities' control, while the second must be initiated well in advance. Barring a fortuitous terms-of-trade shock, this does not give cause for optimism that the conditions are present for rapidly eliminating the U.S. trade deficit at low cost.
Handle: RePEc:nbr:nberwo:2437
Template-Type: ReDIF-Paper 1.0
Title: The Farm Labor Force by Region, 1820-1860: Revised Estimates and Implications for Growth
Author-Name: Thomas Weiss
Author-Person: pwe260
Note: DAE
Number: 2438
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2438
File-URL: http://www.nber.org/papers/w2438.pdf
File-Format: application/pdf
Abstract: This paper sets forth new estimates of the farm labor force covering the period 1820 to 1860, for the United States and the major geographic regions. At the national level, the new figures are noticeably different from the previous estimates. In particular, the new estimates lower the 1820 farm labor force by about 8 percent, while raising the figures for 1840, 1850, and 1860 by 7 to 10 percent. As a consequence, the farm work force grew more rapidly than was previously believed, while farm productivity and per capita income grew more slowly. The impact of the revisions, of course, varied by subperiod. The new figures also alter our picture of variations in regional economic performance, the more so in some regions. In particular, the pace and timing of the shift out of farming in New England has been changed substantially. The paper also discusses the reasons for the discrepancies between the new and old series, and provides some assessment of the new evidence.
Handle: RePEc:nbr:nberwo:2438
Template-Type: ReDIF-Paper 1.0
Title: Pension Wealth, Age-Wealth Profiles and the Distribution of Net Worth
Author-Name: Ann A. McDermed
Author-Name: Robert L. Clark
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 2439
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2439
File-URL: http://www.nber.org/papers/w2439.pdf
File-Format: application/pdf
Publication-Status: published as The Measurement of jSaving, Investment, and Wealth. Ed. by Robert Lipsey, and Helen Stone Tice, 1989. pp689-731. University of Chicago Press, Chicago
Publication-Status: published as Pension Wealth, Age-Wealth Profiles, and the Distribution of Net Worth, Ann McDermed, Robert L. Clark, Steven G. Allen. in The Measurement of Saving, Investment, and Wealth, Lipsey and Tice. 1989
Abstract: This study estimates the magnitude of pension wealth and compares pension wealth to net worth for households in the 1983 Survey of Consumer Finance (SCF). The SCF is the first data set to provide detailed information on both household finances and pension characteristics. The pension information is provided by the employer, so that it is much more detailed and likely to be more accurate than the pension data used in previous studies. Pension wealth was estimated under two sets of assumptions. Under the projected earnings approach, mean pension wealth is $98,291, which represents 43 percent of mean net worth for households with pensions. Under the legal method of calculating pension wealth, mean pension wealth is $47,541, which represents 26 percent of mean net worth for households with pensions. Both estimates are much larger than those obtained in earlier studies. The study also examines how estimates of inequality in the wealth distribution change when pension wealth is added to household balance sheets. Using a variety of methods and assumptions, the distribution becomes more equal when the definition of wealth is expanded to include pension assets.
Handle: RePEc:nbr:nberwo:2439
Template-Type: ReDIF-Paper 1.0
Title: Changes in the Cyclical Behavior of Individual Production Series
Author-Name: Christina D. Romer
Author-Person: pro407
Note: EFG
Number: 2440
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2440
File-URL: http://www.nber.org/papers/w2440.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics. Vol 106, Feb. 1991, pp1-31
Abstract: This paper uses simple time series techniques to analyze changes in the short-run behavior of 38 physical production series for 1889-1984. The main finding is that fluctuations in these output series in the periods 1889-1914 and 1947-1984 are very similar, while those in the period 1922- 1939 are anomalous. Relative to the prewar era, the postwar era exhibits only a slight damping of fluctuations and no increase in the persistence of short-run movements. At the same time, the correlation between the growth rates of the 38 goods is very low in both the prewar and postwar eras and has declined slightly over time.
Handle: RePEc:nbr:nberwo:2440
Template-Type: ReDIF-Paper 1.0
Title: Portfolio Diversification, Real Interest Rates, and the Balance of Payments
Author-Name: Carol L. Osler
Author-Person: pos14
Note: ITI IFM
Number: 2441
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2441
File-URL: http://www.nber.org/papers/w2441.pdf
File-Format: application/pdf
Publication-Status: published as "Factor Prices Under Integrated Markets for Risky Capital" European Economic Review, Vol. 35, No. 6, pp. 89-107, (August 1991).
Abstract: The paper shows that differences in real interest rates across countries can arise even with perfect competition and fully integrated international capital markets. Specifically, we find that factor returns will differ across countries which are identical except for differences in technological riskiness, overall productivity, or labor force size. We also show that differences across countries in technological riskiness, in risk aversion, in population size and in overall productivity will lead to a non-zero current account in the steady state. Higher technological riskiness, greater risk aversion, and a larger population should be associated with a current account surplus. The analysis is carried out using a two-country Diamond overlapping-generations model in which technological uncertainty is reflected in factor returns.
Handle: RePEc:nbr:nberwo:2441
Template-Type: ReDIF-Paper 1.0
Title: Social Security and Earlier Retirement in Japan: Cross-Sectional Evidence
Author-Name: Tetsuji Yamada
Author-Name: Tadashi Yamada
Note: EH
Number: 2442
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2442
File-URL: http://www.nber.org/papers/w2442.pdf
File-Format: application/pdf
Publication-Status: published as "The Labor Force Participation & Elderly Males in Japan." Journal of the Japanese and International Economcis, Vol. 4, pp. 1-23, eds. M. Aoki, K. Hamada, M. Ohyama, M. Okuno-Fijiwara, T. Ito, Academic Press: 1990.
Abstract: The estimated elasticity of the probability of retirement with respect to social security retirement benefits declines as individuals age. The negative impact of social security retirement benefits on full-time workers is much greater than the impact on part-time workers for all age groups. Earnings test in Japan is, therefore, more effective on full-time workers than part-time workers among the elderly. Social security retirement benefits also provide the elderly with an incentive to prolong their unemployment status. The marginal effect of the market unemployment rate on full-time work is significantly larger than that on part-time work and both effects are negative. The e1asticit.y of retirement with respect to the market unemployment rate for those in their 60's is two to three times larger than those aged 70 and over. Retirement of those in their GO'S is quite responsive to changes in labor market condition.
Handle: RePEc:nbr:nberwo:2442
Template-Type: ReDIF-Paper 1.0
Title: Lending to an Insecure Sovereign
Author-Name: Herschel I. Grossman
Note: ME
Number: 2443
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2443
File-URL: http://www.nber.org/papers/w2443.pdf
File-Format: application/pdf
Abstract: This paper analyzes a reputational equilibrium for sovereign debt in a model in which the sovereign borrows to finance spending for defense against threats to its survival in power. In this model, the amount of sovereign debt and defense spending, the resulting survival probability, and the sovereign's implied discount rate for future consumption are determined simultaneously. The optimal amount of debt and defense spending equates the marginal cost of defense spending in reducing the level of consumption to the marginal benefit of defense spending in increasing the probability of surviving to enjoy future consumption. In the reputational equilibrium, however, the amount of debt and the associated discount rate must be small enough that the short-run gains from debt repudiation are not larger than the long-run costs from the loss of a trustworthy reputation. The analysis shows that the interest rate on the sovereign's debt and the discount rate for the sovereign that results from optimal borrowing and defense spending can be small enough that optimal borrowing and defense spending satisfy the condition for a reputational equilibrium. In this case, the sovereign's inability to make an irrevocable commitment not to repudiate its debts does not hinder its ability to finance its defense against threats to its survival. This result is more likely to obtain the smaller is the expected rate of return that lenders require, the larger is the amount of servicing that a potential successor sovereign would rationally provide for debts incurred by the current sovereign, and the closer is the relation between the current sovereign's discount rate and its probability of surviving in power.
Handle: RePEc:nbr:nberwo:2443
Template-Type: ReDIF-Paper 1.0
Title: Nutrition and Infant Health in Japan
Author-Name: Tadashi Yamada
Author-Name: Tetsuji Yamada
Author-Name: Frank Chaloupka
Author-Person: pch236
Note: EH
Number: 2444
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2444
File-URL: http://www.nber.org/papers/w2444.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Human Resources, Vol. XXIV, No. 4, pp. 725-736, (Fall 1989).
Abstract: The model presented in this paper emphasizes the importance of the mother's nutritional intake as a determinant of infant health. Using cross-sectional market averages for 1980 and 1981 in Japan, we find that the nutrient intake of the mother during pregnancy is a potential determinant of neonatal and infant mortality in Japan, with increased consumption of calcium and iron leading to improved birth outcomes. Using the results obtained from the estimation of neonatal and infant mortality production functions, we note that increases in the prices of food items, in particular milk and meat, would lead to increases in neonatal and infant mortality rates. We discover that the availability of abortion in Japan, unlike in the U.S., is positively related to mortality rates, although never significantly. Finally, we see that cigarette smoking, alcohol consumption, and poor environmental quality all have strongly adverse effects on newborn survival outcomes in Japan.
Handle: RePEc:nbr:nberwo:2444
Template-Type: ReDIF-Paper 1.0
Title: Predicting Criminal Recidivism Using "Split Population" Survival Time Models
Author-Name: Peter Schmidt
Author-Name: Ann Dryden Witte
Note: LS
Number: 2445
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2445
File-URL: http://www.nber.org/papers/w2445.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Econometrics, Vol. 40, No. 1, (January 1989).
Abstract: In this paper we develop a survival time model in which the probability of eventual failure is less than one, and in which both the probability of eventual failure and the timing of failure depend (separately) on individual characteristics. We apply this model to data on the tiring of return to prison for a sample of prison releasees, and we use it to make predictions of whether or not individuals return to prison. Our predictions are more accurate than previous predictions of criminal recidivism. The model we develop has potential applications in economics: far example, it could tie used to model the probability of default and the timing of default on loans.
Handle: RePEc:nbr:nberwo:2445
Template-Type: ReDIF-Paper 1.0
Title: Investor Behavior in the October 1987 Stock Market Crash: Survey Evidence
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 2446
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2446
File-URL: http://www.nber.org/papers/w2446.pdf
File-Format: application/pdf
Publication-Status: published as Robert Shiller, Market Volatility, MIT Press, 1989
Abstract: Questionnaires were sent out at the time of the October 19, 1987 stock market crash to both individual and institutional investors inquiring about their behavior during the crash. Nearly 1000 responses were received. The survey results show that: 1. no news story or rumor appearing on the 19th or over the preceding weekend was responsible for investor behavior, 2. investors' importance rating of news appearing over the preceding week showed only a slight relation to decisions to buy or sell, 3. there was a great deal of investor talk and anxiety around October 19, much more than suggested by the volume of trade, 4. Many investors thought that they could predict the market, 5. Both buyers and sellers generally thought before the crash that the market was overvalued, 6. Most investors interpreted the crash as due to the psychology of other investors, 7. Many investors were influenced by technical analysis considerations, 8. Portfolio insurance is only a small part of predetermined stop-loss behavior, and 9. Some investors changed their investment strategy before the crash.
Handle: RePEc:nbr:nberwo:2446
Template-Type: ReDIF-Paper 1.0
Title: Factor Prices and Welfare Under Integrated Capital Markets
Author-Name: Carol L. Osler
Author-Person: pos14
Note: ITI IFM
Number: 2447
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2447
File-URL: http://www.nber.org/papers/w2447.pdf
File-Format: application/pdf
Publication-Status: published as "Explaining the Absence of International Factor-Price Convergence" Journal of International Money and Finance, Vol. 10, No. 1, (March 1991).
Abstract: This paper considers the effect on factor prices and welfare of trade between economies whose production is characterized by nation-specific technological uncertainty. The analysis is carried out using a two-country Diamond overlapping-generations model in which technological uncertainty is reflected in factor prices, and "equities" refer to claims on the returns to capital. We find that trade in capital is complementary to trade in commodities, in the sense that adding free trade in capital to the spectrum of permitted economic activities will cause significant changes in wages, output, and capital returns. Furthermore, for countries which are identical, or not very different, factor prices move in parallel when free trade in capital is introduced. Specifically, as we show in the text, capital returns fall, while wages rise, in both countries. These results are based on the portfolio diversification permitted by international capital market integration: the reduction of portfolio risk associated with portfolio diversification induces adjustments in savings behavior which, in turn, change factor prices. In the realm of normative economics we find that, upon the introduction of free trade in capital, the associated changes in portfolio risk and factor returns have welfare effects entirely distinct from those conventionally associated with open markets for goods.
Handle: RePEc:nbr:nberwo:2447
Template-Type: ReDIF-Paper 1.0
Title: Economic Development and the Timing and Components of Population Growth
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 2448
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2448
File-URL: http://www.nber.org/papers/w2448.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Policy Modeling, Vol. 10, No. 1, pp. 57-81, (April 1988).
Abstract: This paper examines the relationship between population growth and economic growth in developing countries from 1965 to 1985. Our results indicate that developing countries were able to shift their labor force from low-productivity agriculture to the higher-productivity industry and service sectors, and to increase productivity within those sectors, despite the rapid growth of their populations. We also find that at given rates of population growth, income growth is related to the time path of population growth and that population growth due to high birth and death rates is associated with slower income growth than population growth due to relatively low birth and death rates. Hence, the timing and components of population growth are important elements in the process of economic development.
Handle: RePEc:nbr:nberwo:2448
Template-Type: ReDIF-Paper 1.0
Title: Trade Policy under Endogenous Credibility
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: Kenneth Kletzer
Note: ITI IFM
Number: 2449
Creation-Date: 1987-11
Order-URL: http://www.nber.org/papers/w2449
File-URL: http://www.nber.org/papers/w2449.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics Volume 36, October 1991, 213-228
Abstract: Because trade liberalization which is anticipated to be temporary creates a divergence between the effective domestic rate of interest and the world rate of interest, tariff-reduction in the presence of international financial asset trade may reduce welfare for a small country. Calvo has argued that even though the government intends to liberalize trade permanently, if the private sector believes with some probability that a tariff will be imposed in the future, then free trade may not be optimal. This paper first formalizes this argument and discusses the optimal policy for a government which seeks to maximize representative household welfare. The government's lack of credibility is represented by a set of beliefs the private sector holds about the type of government it faces. Next, beliefs are endoqenized by allowing me private sector to update them using Bayes' rule. In one approach, the true government's objective is maximize welfare for the economy, so that it does not seek to imitate another type, in contrast with other recent models of policy credibility. With learning, the government eventually adopts free trade, even though restricted trade is optimal initially.
Handle: RePEc:nbr:nberwo:2449
Template-Type: ReDIF-Paper 1.0
Title: What Do We Learn from Unit Roots in Macroeconomic Time Series?
Author-Name: Danny Quah
Author-Person: pqu9
Note: EFG
Number: 2450
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2450
File-URL: http://www.nber.org/papers/w2450.pdf
File-Format: application/pdf
Abstract: It is often argued that the presence of a unit root in aggregate output implies that there is no "business cycle": the economy does not return to trend following a disturbance. This paper makes this notion precise, but then develops a simple aggregative model where this relation is contradicted. In the model output both has a unit root, and displays repeated short-run fluctuations around a deterministic trend. Some summary statistical evidence is presented that suggests the phenomena described in the paper is not without empirical basis.
Handle: RePEc:nbr:nberwo:2450
Template-Type: ReDIF-Paper 1.0
Title: Welfare Dominance: An Application to Commodity Taxation
Author-Name: Shlomo Yitzhaki
Author-Person: pyi12
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 2451
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2451
File-URL: http://www.nber.org/papers/w2451.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review. Volume 81, No. 3, pp.480-496, June 1991
Abstract: In this paper, we suggest a method which enables the user to identify commodities that all individuals who can agree on certain weak assumptions with regard to the social welfare function will agree upon as worth subsidizing or taxing in the absence of efficiency considerations. The method is based on an extension of the stochastic dominance criteria and is illustrated using data from Israel.
Handle: RePEc:nbr:nberwo:2451
Template-Type: ReDIF-Paper 1.0
Title: Quality Upgrading and its Welfare Cost in U.S. Steel Imports, 1969-74
Author-Name: Randi Boorstein
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Note: ITI IFM
Number: 2452
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2452
File-URL: http://www.nber.org/papers/w2452.pdf
File-Format: application/pdf
Publication-Status: published as in E. Helpman and A. Razin, eds., International Trade and Trade Policy, MIT Press, 1991, p. 167-186
Abstract: In this paper we measure the quality change which has occurred in U.S. steel imports during the 1969-74 VRA, using an index number method. Under this approach, the yearly changes in unit values is broken into three components: a quality-adjusted or pure price index; a quality index, which measures changes in the product mix; and a supplier index, which measures changes in the source of supply. We also derive a measure of welfare cost, which equals the inverse of a Paasche price index minus the inverse of an exact price index. Over the 1969-74 VRA period we find quality upgrading of 7.4 percent in U.S. steel imports, which occurs most strongly in the first year. The welfare cost of quality change varies around one percent of import expenditure during 1970-73. This cost is at least as large as the conventional deadweight loss triangle, but smaller than the transfer of quota rents.
Handle: RePEc:nbr:nberwo:2452
Template-Type: ReDIF-Paper 1.0
Title: Symmetric Pass-Through of Tariffs and Exchange Rates Under Imperfect Competition: An Empirical Test
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Note: ITI IFM
Number: 2453
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2453
File-URL: http://www.nber.org/papers/w2453.pdf
File-Format: application/pdf
Publication-Status: published as Feenstra, Robert C. "Symmetric Pass-Through of Tariffs and Exchange Rates Under Imperfect Competition: An Empirical Test." Journal of International Economics, vol. 27, no. 1/2, pp. 25-45, August 1989.
Abstract: This paper examines the effect of tariffs and exchange rates on U.S. prices of Japanese cars, trucks and motorcycles. In particular, we test whether the long run pass-through of tariffs and exchange rates are identical: the symmetry hypothesis. We find that this hypothesis is easily accepted in our sample. We also find that the pass-through relation varies across products, ranging from about 0.6 for trucks to unity for motorcycles. These coefficients have very different implications for trade policy. We explain the results based on demand, cost and institutional conditions in each industry. We also find weak evidence that the pass-through of exchange rates has fallen in more recent years.
Handle: RePEc:nbr:nberwo:2453
Template-Type: ReDIF-Paper 1.0
Title: Wage Gaps vs. Output Gaps: Is There a Common Story for All of Europe?
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG ITI IFM
Number: 2454
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2454
File-URL: http://www.nber.org/papers/w2454.pdf
File-Format: application/pdf
Publication-Status: published as "Wage Gaps vs. Output Gaps: Is There a Common Story for All Europe?" Macro and Micro Policies for More Growth and Employment: Symposium 1987, edited by Herbert Giersch, pp. 97-151. Tubingen: J.C.B. Mohr, 1987.
Abstract: This paper studies the relationship between real wages and unernployment in Europe. It finds no evidence that high real wages are responsible for the differing behavior of unemployment in Europe as contrasted with the U. S., and across European countries finds patterns of real wage behavior that are the opposite of what would be required to link high real wages and high unemployment. Among the specific results are: (1) After adjustment for the income of the self-employed, there is no evidence of excessive real wages in Europe. "Wage gap" (i.e., labor's share) indexes on a 1972 base were almost identical in Europe and the U. S. in 1963 and 1984. The slight bulge in the European wage gap between 1974 and 1978 amounts to only about five percentage points over the IT. S. values. (2) There was indeed a real wage explosion between 1966 and 1975 in three small high-unemployment countries (Belgium, Denmark, Netherlands). But the wage gap barely moved in the four large high-unemployment countries (France, Germany, Italy, U. K.), and in fact increased substantially less than in low-unemployment Austria. Thus the wage gap concept is almost useless in providing an explanation of differences in unemployment experience within Europe. (3) Further skepticism regarding the relevance of wage and price adjustment for the European unemployment problem is provided by aggregation tests. Tests for pooling of wage change equations across national boundaries in Europe are accepted universally. There are no significant differences in wage behavior within Europe, except for country-specific instances of wage push or incomes policies. (4) The paper does not explain high unemployment in Europe, and it does not deny that the natural unemployment rate compatible with a constant inflation rate has increased substantially since 1972 in every European country. However, output gaps in Europe are not zero. The econometric estimates imply that the unemployment rate could be pushed down by three percentage points, particularly in France and Germany, without causing an acceleration of inflation. (5) Some might argue that wage gaps in Europe in the 1980s have been pushed down by economic slack and would bounce back if unemployment fell substantially. However, the claim that wage gaps have been held down by high unemployment and low output in the 1980s amounts to an acceptance of one of the major conclusions of this paper: Europe has experienced a substantial Keynesian output gap in the 19808, and not all of the increase in European unemployment is "structural" or "classical" in nature.
Handle: RePEc:nbr:nberwo:2454
Template-Type: ReDIF-Paper 1.0
Title: U.S. Commercial Banks and the Developing Country Debt Crisis
Author-Name: Jeffrey Sachs
Author-Name: Harry Huizinga
Note: ITI IFM
Number: 2455
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2455
File-URL: http://www.nber.org/papers/w2455.pdf
File-Format: application/pdf
Publication-Status: published as Sachs, Jeffrey and Harry Huizinga. "U.S. Commercial Banks and the Developing-Country Debt Crisis." Brookings Papers on Economic Activity, 1987:2, pp. 555-606.
Abstract: The major theme of this paper is that the commercial banks have weathered the debt crisis, while many debtor countries remain in economic paralysis or worse. There is a growing consensus that much of the LDC debt will not be fully serviced in the future, and that consensus is reflected in at least two ways: in the discounts observed in the secondary market prices for LDC debt, and in the discounts in the stock market pricing of banks with exposure in the LDCs.
Handle: RePEc:nbr:nberwo:2455
Template-Type: ReDIF-Paper 1.0
Title: Means of Payment in Takeovers: Results for the U.K. and U.S.
Author-Name: Robert S. Harris
Author-Name: Julian Franks
Author-Name: Colin Mayer
Author-Person: pma206
Note: ME
Number: 2456
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2456
File-URL: http://www.nber.org/papers/w2456.pdf
File-Format: application/pdf
Abstract: This paper examines means of payment in over 2,500 acquisitions in the UK and US over the period 1955 to 1985. Data on financing proportions, bid premia and postmerger performance are used to test the validity of tax and information hypotheses. It is difficult to explain many of the results in terms of tax effects. Capital gains tax does not appear to be a primary determinant of financing patterns in the UK in a period in which there were substantial variations in the tax rate. As well the tax motivated "trapped equity" model is inconsistent with several observations on financing patterns. In both countries much larger acquiree bid premia are associated with cash than equity bids, consistent with information models suggesting that high valuing bidders make cash offers and low valuing bidders make securities offers. Even after controlling for the form of takeover (tender versus merger) and whether the bid is contested, cash offers provide substantially higher wealth gains to target shareholders. In the US bidders using all equity suffer significant abnormal losses at the time of the bid announcement consistent with the findings on the wealth effects of seasoned new equity offerings in the US. In the UK, however, no such losses are evident, perhaps reflecting the fact that in the UK equity bids are typically underwritten. Finally, we find that acquirors making cash offers have better postmerger shareprice performance than do those using equity. These results are consistent with the hypothesis that bidders are motivated to use overvalued equity to acquire other firms.
Handle: RePEc:nbr:nberwo:2456
Template-Type: ReDIF-Paper 1.0
Title: Patents, Citations and Innovations: Tracing the Links
Author-Name: Manuel Trajtenberg
Author-Person: ptr35
Note: PR
Number: 2457
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2457
File-URL: http://www.nber.org/papers/w2457.pdf
File-Format: application/pdf
Publication-Status: published as "A Penny for Your Quotes: Patent Citations and the Value of Innovations," The Rand Journal of Economics, Spring 1990, 21(1), 172-187.
Abstract: The goal is to tackle anew the main problems encountered in using patent data in economic research, namely, the large variance in the value of patents, and the difficulties in matching patents with economic categories. The first is addressed with the aid of patent citations, the second with computerized search techniques for large databases. The proposed solutions are applied to the case of Computed Tomography (CT) Scanners, a pathbreaking innovation in medical technology. The main findings are that patents weighted by citations are highly correlated with the value of innovations, and that important innovations generate further innovative activity (R&D), and hence bring about down-the-line patents.
Handle: RePEc:nbr:nberwo:2457
Template-Type: ReDIF-Paper 1.0
Title: Information and Multi-Period Optimal Income Taxation with Government Commitment
Author-Name: Dagobert L. Brito
Author-Name: Jonathan H. Hamilton
Author-Name: Steven M. Slutsky
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 2458
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2458
File-URL: http://www.nber.org/papers/w2458.pdf
File-Format: application/pdf
Publication-Status: Published as "Dynamic Optimal Income Taxation with Government Commitment", Journal of Public Economics, Vol. 44, no. 1 (1991).
Abstract: The optimal income taxation problem has been extensively studied in one- period models. When consumers work for many periods, this paper analyzes what information, if any, that the government learns about abilities in one period can be used in later periods to attain more redistribution than in a one- period world. liken the government must commit itself to future tax schedules, the gains cane from relaxing self-selection constraints by intertemporal nonstationarity. The effect of nonstationarity is analogous to that of randomization in one-period models. In a model with two ability classes it is shown that the key use of information is that only a single lifetime self-selection constraint for each type of consumer must be imposed. Sane necessary and sufficient conditions for randomization or nonstationarity are given. The planner can make additional use of the information when individual and social rates of time discounting differ. In this case, the limiting tax schedule is a nondistorting one if the government has a lower discount rate than individuals.
Handle: RePEc:nbr:nberwo:2458
Template-Type: ReDIF-Paper 1.0
Title: Trigger Strategies and Price Dynamics in Equity and Foreign Exchange Markets
Author-Name: Paul R. Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 2459
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2459
File-URL: http://www.nber.org/papers/w2459.pdf
File-Format: application/pdf
Abstract: Trigger strategist-s may be defined as act-ors in asset markets who buy or sell when the price reaches a predetermined level ; t-hey include participants in portfolio insurance schemes in equity markets and central banks who intervene to defend an exchange rate target zone. This paper presents an approach to modeling the effects of trigger strategists, with emphasis on how target zones affect market expectations. It is shown that a commitment to defend a target zone will generate stabilizing expectations within the band, which may generate a "target zone honeymoon" . an extended period in which the announcement of a target. zone stabilizes exchange rates without any need for action on the part of authorities. However, an imperfectly credible target zone is vulnerable to crises in which the market tests the authorities' resolve.
Handle: RePEc:nbr:nberwo:2459
Template-Type: ReDIF-Paper 1.0
Title: International Capital Mobility and Tax Evasion
Author-Name: Alberto Giovannini
Note: ITI IFM
Number: 2460
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2460
File-URL: http://www.nber.org/papers/w2460.pdf
File-Format: application/pdf
Publication-Status: published as "International Capital Mobility and Tax Avoidance." Banca Nazionale del Lavoro Quarterly Review, No. 177, pp. 197-223, June 1991.
Abstract: This paper studies the welfare effects of international investment to evade domestic taxes on domestic investment income. Capital mobility for tax evasion eliminates distortions in the intertemporal allocation of consumption, but introduces distortions in domestic production. Conversely, a regime where residents pay taxes on all investment income, domestic and foreign, introduces distortions in intertemporal consumption allocation, but leaves domestic production distortion-free. The relative magnitude of the interest elasticity of savings and the interest elasticity of domestic investment determines the welfare effects of capital movements for the purpose tax evasion.
Handle: RePEc:nbr:nberwo:2460
Template-Type: ReDIF-Paper 1.0
Title: Some Notes on the Scientific Methods of Simon Kuznets
Author-Name: Robert W. Fogel
Note: DAE
Number: 2461
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2461
File-URL: http://www.nber.org/papers/w2461.pdf
File-Format: application/pdf
Publication-Status: published as Economic Development, the Family, and Income Distribution: Selected Essays, S. Kuznets. Cambridge: Cambridge University Press, 1989.
Abstract: This paper discusses the scientific methods that guided the economic research of Simon Kuznets, with particular stress on his approach to measurement and theory. The paper closes with the transcription of a brief autobiographical talk by Kuznets at a dinner in honor of his eightieth birthday.
Handle: RePEc:nbr:nberwo:2461
Template-Type: ReDIF-Paper 1.0
Title: The Incidence and Efficiency Costs of Corporate Taxation when Corporate and Noncorporate Firms Produce the Same Good
Author-Name: Jane G. Gravelle
Author-Person: pgr185
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 2462
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2462
File-URL: http://www.nber.org/papers/w2462.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 97, No. 4, pp. 749-780, (August 1989).
Abstract: This year marks the twenty-fifth anniversary of Arnold Harberger's celebrated model of the corporation income tax. While the model has been enormously useful as an analytical device for studying two sector economies, its usefulness for understanding the incidence and excess burden of the corporate income tax remains in question. One difficulty confronting all empirical analyses of the Harberger Model is how to treat noncorporate production in primarily corporate sectors and corporate production in primarily noncorporate sectors. The Harberger Model provides no real guide to this question since it assumes that one good is produced only by corporations and the other good is produced only by noncorporate firms. Stated differently, Harberger models the differential taxation of capital used in the production of different goods, rather than the taxation of capital used by corporations per se. This paper presents a two good model with corporate and noncorporate production of both goods. The incidence of the corporate tax in our Mutual Production Model (MPM) can differ markedly from that in the Harberger model. A hallmark of Harberger's corporate tax incidence formula is its dependence on differences across sectors in elasticities of substitution between capital and labor. In contrast, the incidence of the corporate tax in the MPM may fall 100 percent on capital regardless of sector differences in substitution elasticities. The difference between the two models in the deadweight loss from corporate taxation is also striking. Using the Harberger - Shoven data and assuming unitary substitution and demand elasticities, the deadweight loss is over ten times larger in the CES version of the MPM than in the Harberger Model. Part of the explanation for this difference is that in the Harberger Model only the difference in the average corporate tax in the two sectors is distortionary, while the entire tax is distortionary in the MPM. A second reason for the larger excess burden in the MPM is that the MPM has a very large, indeed infinite, substitution elasticity in demand between corporate and noncorporate goods; in contrast, applications of the Harberger Model assume this elasticity is quite small.
Handle: RePEc:nbr:nberwo:2462
Template-Type: ReDIF-Paper 1.0
Title: Pension Backloading, Wage Taxes, and Work Disincentives
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: David A. Wise
Author-Person: pwi45
Note: LS AG
Number: 2463
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2463
File-URL: http://www.nber.org/papers/w2463.pdf
File-Format: application/pdf
Publication-Status: published as Tax Policy and the Economy. ed. L. Summers, vol. 2, MIT Press, 1988.
Publication-Status: published as Laurence J. Kotlikoff & David A. Wise, 1988. "Pension Backloading, Wage Taxes, and Work Disincentives," Tax Policy and the Economy, vol 2, pages 161-196.
Publication-Status: published as Pension Backloading, Wage Taxes, and Work Disincentives, Laurence J. Kotlikoff, David A. Wise. in Tax Policy and the Economy: Volume 2, Summers. 1988
Abstract: The Federal Government is actively involved in encouraging the formation and growth of private pensions and in regulating their behavior. The primary form of encouragement is the government's tax subsidization of pensions. A primary attribute of pension plan provisions is an implicit tax on employment after certain ages. The primary form of pension regulation is through ERISA, the Employee Retirement Income Security Act. The government's involvement in encouraging and regulating private pensions appears to reflect its desire that workers have a secure source of old age income which will lessen their reliance on Social Security. In recent years the government has reacted to demographic changes, and their effects on Social Security funding, and the increase in early retirement by also using its pension and Social Security tax and regulatory policies to encourage workers to delay their retirement decision. This paper examines the structure of pension plans with two questions in mind. First have government pension backloading regulations aimed at assuring future pension benefits been effective? and, second, has the structure of old age pension accrual at the end of the workspan, an implicit tax, greatly limited the effectiveness of government policy in reversing the trend to early retirement? The answers to these questions are important for assessing the benefits of the government's tax subsidization of pensions, as they are currently structured. The principal findings of this study are: (1) ERISA regulations notwithstanding, a significant proportion of defined benefit plans exhibit severe backloading. Indeed, backloading is an inherent property of defined benefit pension plans. (2) A large fraction of defined benefit plans embed very substantial old age work disincentives, through an implicit tax on wage earnings. (3) These pension retirement incentives are often much greater than Social Security's retirement incentives. (4) Evidence from one large Fortune 500 firm indicates that pension retirement incentives can greatly increase the extent of early retirement.
Handle: RePEc:nbr:nberwo:2463
Template-Type: ReDIF-Paper 1.0
Title: The Flexible Exchange Rate System: Experience and Alternatives
Author-Name: Rudiger Dornbusch
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 2464
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2464
File-URL: http://www.nber.org/papers/w2464.pdf
File-Format: application/pdf
Publication-Status: published as International Finance and Trade in a Polycentric World, edited by Silvio Borner, pp. 151-197. London: Macmillan Press, 1988. Reprinted in On Exchange Rates, J. Frankel, MIT Press, Cambridge, 1993
Publication-Status: published as First half reprinted as Flexible Exchange rates: Experience Vs. Theory. Journal of Portfolio Management, Vol. 15, No. 2, pp. 45-54, Winter 1989.
Abstract: We review ten aspects of how floating exchange rates have worked in practice, contrasted with ten characteristics that the system was supposed to have in theory. We conclude that the foreign exchange market is characterized by high transactions-volume, short-term horizons, and an absence of stabilizing speculation. As a result, the exchange rate at times strays from the equilibrium level dictated by fundamentals, contrary to theory. We then look at ten proposed alternatives to the current system. Four entail decentralized policy rules: new classical macroeconomics, a gold standard, monetarism, and nominal income targeting. Four foresee enhanced international coordination: G-7 "objective indicators," Williamson target zones, McKinnon "world monetarism," and a "Hosomi Fund." Two propose enhanced independence: a "Tobin tax" on transactions, and a dual exchange rate. We conclude that one might build a case for intervention from the observed failure of international financial markets to behave as in the theoretical ideal, but that government intervention in practice is just as likely to fall short of the theoretical ideal
Handle: RePEc:nbr:nberwo:2464
Template-Type: ReDIF-Paper 1.0
Title: Industry Effects and Appropriability Measures in the Stock Markets Valuation of R&D and Patents
Author-Name: Iain Cockburn
Author-Person: pco166
Author-Name: Zvi Griliches
Note: PR
Number: 2465
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2465
File-URL: http://www.nber.org/papers/w2465.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Proceedings Issue vol. 78, no. 2, May 1988. PP. 4 19-423.
Abstract: This paper examines the stock market's valuation of a firm's innovative activity. We estimate the market's relative valuation of firms' tangible and intangible assets, focusing on knowledge capital in the form of accumulated "stocks" of R&D and patents. We tried to improve upon our estimates of the stock market's valuation of knowledge capital embodied in such "stocks" by bringing in measures of the appropriability environment facing a firm from the Yale Survey on Industrial Research and Development. The responses to Survey questions about the effectiveness of patents as a mechanism for protecting the returns from innovation turn out to be of some use: there is evidence of an interaction between industry level measures of the effectiveness of patents and the market's valuation of a firm's past R&D and patenting performance, as well as its current R&D moves. We find no evidence, however, that other appropriability mechanisms differ enough across industries to leave measurable traces in our data. The structure of the Yale Survey makes it possible to estimate the sampling error in the appropriability measures derived from it. This information was used by us in an errors-in-variables context, but with little success. In the absence of R&D variables, our estimates imply that a two standard deviation increase in our index of patent effectiveness would raise the value of a patent held by our average firm from $0.4 million to $1.0 million. When R&D variables are introduced into the equations, the patents variables become insignificant - R&D expenditures are a better measure of input to the innovative function of firms than patents are of its output - but we estimate that the same experiment would induce changes in q of between 10 and 27 percent for the average firm, approximately doubling the market's valuation of this kind of capital.
Handle: RePEc:nbr:nberwo:2465
Template-Type: ReDIF-Paper 1.0
Title: The Gains from Fiscal Cooperation in the Two Commodity Real Trade Model
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ITI IFM
Number: 2466
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2466
File-URL: http://www.nber.org/papers/w2466.pdf
File-Format: application/pdf
Publication-Status: published as Turnovsky, Stephen J. "The Gains from Fiscal Cooperation in the Two Commodity Real Trade Model," Journal of International Economics, Vol. 25, 1988.
Abstract: This paper analyzes the gains from fiscal cooperation within the context of the standard two commodity real trade model. It shows how the adjustment in terms of trade is the critical factor in determining the effects of moving from a noncooperative equilibrium. In general, a noncooperative equilibrium leads to an overexpansion of government expenditure on the export good and an underexpansion on the import good, relative to a cooperative equilibrium. The specific example of a logarithmic economy is also considered. The paper discusses further the welfare effects resulting from the formation of a coalition among two countries.
Handle: RePEc:nbr:nberwo:2466
Template-Type: ReDIF-Paper 1.0
Title: Dynamic Strategic Monetary Policies and Coordination in Interdependent Economies
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Author-Name: Tamer Basar
Author-Name: Vasco d'Orey
Note: ITI IFM
Number: 2467
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2467
File-URL: http://www.nber.org/papers/w2467.pdf
File-Format: application/pdf
Publication-Status: published as From American Economic Review, Vol. 78, No. 3, pp. 341-361, (June 1988).
Abstract: This paper develops strategic monetary policies using a standard two-country macro model under flexible exchange rates. The equilibria considered include feedback Nash and feedback Stackelberg, both of which are compared to the Pareto optimal cooperative equilibrium. The optimal policies are obtained as feedback rules in which real money supplies are adjusted to movements in the real exchange rate. The properties of these policies and their welfare implications are analyzed using numerical simulations. The contrast in the present results with those obtained previously for a short-run horizon suggest the importance of both intertemporal and intratemporal tradeoffs in the determination of optimal strategic policies.
Handle: RePEc:nbr:nberwo:2467
Template-Type: ReDIF-Paper 1.0
Title: The Politics of Ambiguity
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Alex Cukierman
Author-Person: pcu20
Note: ME
Number: 2468
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2468
File-URL: http://www.nber.org/papers/w2468.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 105, no. 4 (1990): 829-850.
Abstract: Politicians have generally two motives: they wish to hold office as long as possible and wish to implement their preferred policies. Thus they face a trade-off between the policies which maximize their choices of reelection and their most preferred policies (or the policies most preferred by the constituency which they represent). This paper analyzes this trade-off in a dynamic electoral model in which the voters are not fully informed about the preferences of the incumbent. First, we show that in general there is incomplete policy convergence: the incumbent follows a policy which is intermediate between the other party ideal policy and his own ideal policy. Second, we show that under some circumstances, the incumbent has an incentive to choose procedures which make it more difficult for voters to pinpoint his preferences with absolute precision. Thus, politicians may prefer to be ambiguous and "hide", at least up to a certain extent, their true preferences. This result holds for a wide range of parameter values and, in some range, even if voters are risk averse.
Handle: RePEc:nbr:nberwo:2468
Template-Type: ReDIF-Paper 1.0
Title: Quits, Moves, Spatial Equilibrium and Workplace Relocation
Author-Name: Jeffrey S. Zax
Note: LS
Number: 2469
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2469
File-URL: http://www.nber.org/papers/w2469.pdf
File-Format: application/pdf
Publication-Status: published as Zax, Jeffrey S. & Kain, John F., 1991. "Commutes, quits, and moves," Journal of Urban Economics, Elsevier, vol. 29(2), pages 153-165, March.
Abstract: When worker commutes are suboptimal, quits and moves are related. Either a quit, a move, or both can achieve an optimal commute. However, with fixed costs to quitting and moving, a quit or move alone is more likely than both together. Payroll records of a firm which relocated from the central business district to a suburb of a major metropolitan area confirm this. They demonstrate that white employees rarely quit and move at the same time. Simultaneous bivariate probit estimates of move and quit behavior demonstrate that uncontrolled shocks to quits and mover are negatively correlated. Furthermore, during the spatial dislocation caused by the firm's relocation, quits and moves were direct substitutes. Employees who quit were approximately 29% less likely to move. Those who moved were approximately 40% less likely to quit.
Handle: RePEc:nbr:nberwo:2469
Template-Type: ReDIF-Paper 1.0
Title: A Dynamic Programming Model of Retirement Behavior
Author-Name: John Rust
Author-Person: pru5
Note: AG
Number: 2470
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2470
File-URL: http://www.nber.org/papers/w2470.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of Aging, ed. by David Wise, University of Chicago Press, March 1990.
Publication-Status: published as A Dynamic Programming Model of Retirement Behavior, John P. Rust. in The Economics of Aging, Wise. 1989
Abstract: This paper formulates a model of retirement behavior based on the solution to a stochastic dynamic programming problem. The workers objective is to maximize expected discounted utility over his remaining lifetime. At each time period the worker chooses how much to consume and whether to work full-time, part-time, or exit the labor force. The model accounts for the sequential nature f the retirement decision problem, and the role of expectations of uncertain future variables such as the worker's future lifespan, health status, marital and family status, employment status, as well as earnings from employment, assets, and social security retirement, disability and medicare payments. This paper applies a "nested fixed point" algorithm that converts the dynamic programming problem into the problem of repeatedly recomputing the fixed point to a contraction mapping operator as a subroutine of a standard nonlinear maximum likelihood program. The goal of the paper is to demonstrate that a fairly complex and realistic formulation of the retirement problem can be estimated using this algorithm and a current generation supercomputer, the Cray-2.
Handle: RePEc:nbr:nberwo:2470
Template-Type: ReDIF-Paper 1.0
Title: The Dynamics of Housing Demand by the Elderly: Wealth, Cash Flow, and Demographic Effects
Author-Name: Jonathan Feinstein
Author-Person: pfe36
Author-Name: Daniel McFadden
Note: AG
Number: 2471
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2471
File-URL: http://www.nber.org/papers/w2471.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of Aging, Ed. by David Wise, University of Chicago Press, March 1989.
Publication-Status: published as The Dynamics of Housing Demand by the Elderly: Wealth, Cash Flow, and Demographic Effects, Jonathan Feinstein, Daniel McFadden. in The Economics of Aging, Wise. 1989
Abstract: Using Waves one through fifteen of the PSID data set, we investigate the pattern of housing mobility amongst the elderly. We focus especially on two issues: (1) Determining which household characteristics tend to increase the probability of a move; and (2) Whether elderly households systematically move to smaller, less expensive dwellings when they do move, and, if so, which characteristics make such "downsizing" particularly likely. We find that wealthier households are less likely to move and to downsize, and that changes in family composition or retirement status significantly increase the likelihood of a move. We do not find much evidence of imperfections in the housing market, or of pervasive liquidity constraints. Finally, we develop a Lagrange Multiplier test for unobserved heterogeneity amongst elderly households, and strongly reject the null hypothesis of homogeneity.
Handle: RePEc:nbr:nberwo:2471
Template-Type: ReDIF-Paper 1.0
Title: The Case of the Negative Nominal Interest Rates: New Estimates of the Term Structure of Interest Rates During the Great Depression
Author-Name: Stephen G. Cecchetti
Author-Person: pce4
Note: ME
Number: 2472
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2472
File-URL: http://www.nber.org/papers/w2472.pdf
File-Format: application/pdf
Publication-Status: published as Cecchetti, Stephen G., "The Case of the Negative Nominal Interest Rates: New Estimates of the Term Structure of Interest Rates During the Great Depression," Journal of Political Economy, Vol. 96, No. 6, December 1988.
Abstract: During the 1930s and early 1940s U.S. Treasury bonds and notes had negative nominal yields as they approached maturity. But since an investor can always hold cash, this is impossible. Any bond must have a positive nominal yield. This paper poses a resolution to this puzzle: in addition to making coupon payments, Treasury securities were options that gave the owner the right to buy a new security on a future date. The paper proposes a method for valuing this 'exchange privilege' and computing the yield to the coupon bearing component of these composite bond/options. The case of the negative nominal interest rates demonstrates that the construction of accurate data requires close examination of the institutional environment, even when studying financial markets. The corrected bond and note yields are used to calculate new estimates of the term structure of interest rates from 1929 to 1949. These new data allow one to follow changes in the both the level and the shape of the yield curve during the Great Depression.
Handle: RePEc:nbr:nberwo:2472
Template-Type: ReDIF-Paper 1.0
Title: Recent Developments in Macroeocnomics
Author-Name: Stanley Fischer
Note: EFG
Number: 2473
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2473
File-URL: http://www.nber.org/papers/w2473.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Journal, Vol. 98, No. 391, pp. 294-339, (June 1988).
Abstract: This paper surveys much of modern macroeconomics. The focus is on the core macroeconomic issue, of the reasons for macroeconomic fluctuations and sometimes persistent unemployment. To provide continuity and perspective on how promising research leads of the past turned out, the paper starts by summarizing developments since the Barro-Fischer (1976) survey of monetary economics. Sections III and IV develop in some detail the current representations of the two basic approaches to macroeconomics: the equilibrium business cycle approach and new Keynesianism respectively. Brief sketches of developments in several areas of research in Section V broaden the coverage. Section VI contains concluding comments.
Handle: RePEc:nbr:nberwo:2473
Template-Type: ReDIF-Paper 1.0
Title: Recent Developments in Macroeconomics: A Very Quick Refresher Course
Author-Name: N. Gregory Mankiw
Note: EFG
Number: 2474
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2474
File-URL: http://www.nber.org/papers/w2474.pdf
File-Format: application/pdf
Publication-Status: published as Mankiw, N. Gregory, "Recent Developments in Macroeconomics: A Very Quick Refresher Course." Journal of Money, Credit and Banking, Vol. 20, No. 3, pp. 436-449, (August 1988, Part 2).
Publication-Status: published as N. Gregory Mankiw, 1988. "Recent developments in macroeconomics: a very quick refresher course," Proceedings, Federal Reserve Bank of Cleveland, pages 436-458.
Abstract: This paper outlines the major developments in macroeconomics over the past two decades. It examines the reasons for the breakdown in the consensus view of the 1960s and how this breakdown has guided research in macroeconomics. The introduction and importance of "rational expectations" are discussed, as are recent advances within the new classical and new Keynesian paradigms.
Handle: RePEc:nbr:nberwo:2474
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy and Performance in the U.S., Japan and Europe, 1973-86
Author-Name: Stanley Fischer
Note: EFG
Number: 2475
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2475
File-URL: http://www.nber.org/papers/w2475.pdf
File-Format: application/pdf
Publication-Status: published as Y. Suzuki and M. Okabe, editors. Toward a World of Economic Stability. Tokyo: University of Tokyo Press, 1988.
Abstract: Monetary policies in the U.S., Japan, Germany and the United Kingdom over the period 1973-1986 are compared and evaluated, with the aim of drawing lessons for monetary policy from the recent historical record. All four countries shifted during this period to money targeting, though with differing degrees of commitment, seriousness and persistence. The Bundesbank and the Bank of Japan each focus on one money target, described by the Bundesbank as a target, and by the Bank of Japan as a projection. None of the countries has stuck rigorously to the targets, though the Bank of Japan has come close. The most striking contrast in the outcomes of policy is between Japan and Germany in the second oil shock. Both their central banks must by that stage have acquired significant anti-inflationary reputations. Nonetheless, whereas the rate of increase of nominal wages in Japan fell to accommodate the increased price of oil, and Japan avoided a recession, the rate of wage increase in Germany increased, and was followed by a serious recession. The cause of the difference in results appears to lie much less in the credibility of the policymakers than in the behavior of wage-earners. Differences between the outcomes of policy in the U.S. and U.K. also suggest that the role of the reputation of policymakers is at best extremely difficult to quantify. Outcomes in all countries suggest that monetary rules that do not accommodate to changes in velocity can cause unnecessary movements in output.
Handle: RePEc:nbr:nberwo:2475
Template-Type: ReDIF-Paper 1.0
Title: Real Rigidities and the Non-Neutrality of Money
Author-Name: Laurence Ball
Author-Person: pba605
Author-Name: David Romer
Author-Person: pro406
Note: EFG
Number: 2476
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2476
File-URL: http://www.nber.org/papers/w2476.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 57, No. 2, pp. 183-203, (April 1990).
Publication-Status: published as Reprinted in Mankiw and Romer, New Keynesian Economics, M.I.T. Press, 1991.
Abstract: Rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks. And, by themselves, small frictions in nominal adjustment, such as costs of changing prices, create only small non-neutralities. But this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions. The paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for several specific sources of real rigidity: costs of adjusting real prices, asymmetric demand arising from imperfect information, and efficiency wages.
Handle: RePEc:nbr:nberwo:2476
Template-Type: ReDIF-Paper 1.0
Title: Productivity in American Whaling: The New Bedford Fleet in the Nineteenth Century
Author-Name: Lance Davis
Author-Name: Robert E. Gallman
Author-Name: Teresa Hutchins
Note: DAE
Number: 2477
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2477
File-URL: http://www.nber.org/papers/w2477.pdf
File-Format: application/pdf
Publication-Status: published as in Oxford Economic Papers, Vol. 39, No. 4, pp. 738-759, December 1987.
Publication-Status: published as in Business History Review, vol 62, no. 4
Publication-Status: published as in "Markets in History", ed David Galenson, Cambridge University Press
Publication-Status: published as in "Quantitative Economic History", N.F.R.Crafts, N.H.Dimsdale, and S. Engerman(eds.) (Oxford:Oxford University Press ,1991), pp.142-164.
Abstract: From the end of the War of 1812 until the Civil War the New Bedford whaling fleet grew spectacularly; thereafter it declined, equally spectacularly. By the end of the century New Bedford's day was over. During the 88 years of this period, the technical configuration of the fleet, the hunting grounds visited, and the types of whales pursued all changed dramatically, and more than once. The literature on whaling suggests that the collapse of the industry was due, in part, to declining productivity, occasioned by the disappearance of the whales (because of over-hunting) and the deterioration of the quality of labor. The shifts in the composition of the fleet are viewed, chiefly, as the result of efforts by whalemen to overcome their problems. In this paper, productivity data (superlative indexes), by voyage, are employed in multiple regression analysis to trace the relationships between the changes in the composition of the fleet and productivity. The propositions that declining labor quality and whale stocks had important consequences for productivity are subjected to test, while the impacts of technical changes on productivity are measured.
Handle: RePEc:nbr:nberwo:2477
Template-Type: ReDIF-Paper 1.0
Title: The Taxation of Income from Capital in the United States, 1980-86
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Marios Karayannis
Note: PE
Number: 2478
Creation-Date: 1987-12
Order-URL: http://www.nber.org/papers/w2478
File-URL: http://www.nber.org/papers/w2478.pdf
File-Format: application/pdf
Publication-Status: published as Tax Reform and the Cost of Capital: An Internation Comparison, ed. Dale W. Jorgenson and Ralph Landau, Washington DC: The Brookings Institution,p. 333-367, 1993
Abstract: Tax rules have changed almost yearly in the United States since 1980. In particular, the Economic Recovery Tax Act of 1981 reduced marginal tax rates and shortened depreciation lifetimes, while the Tax Reform Act of 1986 reduced marginal tax rates, repealed the investment tax credit, and lengthened depreciation lifetimes.
Handle: RePEc:nbr:nberwo:2478