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Template-Type: ReDIF-Paper 1.0
Title: The Dynamics of an Aging Population: The Case of Four OECD Countries
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Robert Hagemann
Author-Name: Giuseppe Nicoletti
Author-Person: pni5
Note: AG PE
Number: 2797
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2797
File-URL: http://www.nber.org/papers/w2797.pdf
File-Format: application/pdf
Publication-Status: published as OECD Economic Studies, No. 12, pp. 97-130, (Spring 1989).
Abstract: Demographic changes, such as those anticipated in most OECD countries, have many economics effects that impinge on a country's fiscal viability. Evaluation of the effects of associated changes in capital-labor ratios and the welfare and behavior of different generations requires the use of a dynamic general equilibrium model. The 75 generations - 250 year demographic simulation model, presented in Auerbach and Kotlikoff (1987, Chapter 11), has been modified to incorporate bequest behavior, technological change, the possibility that the economy is open to international trade, and government consumption expenditures that depend on the age composition of the population. The model has been further adapted to study the effects of impending demographic changes in Japan, the Federal Republic of Germany, Sweden and the United States. The simulation results indicate that these changes will have a major impact on rates of national saving, real wage rate and current accounts. One of this paper's fundamental lessons is that allowing for general equilibrium adjustments reduces the adverse welfare effects of increasing dependency ratios. Nevertheless, the welfare costs, and particularly their distributions across cohorts, pose serious challenges for policy makers in some cases.
Handle: RePEc:nbr:nberwo:2797
Template-Type: ReDIF-Paper 1.0
Title: A Dynamic Analysis of Household Dissolution and Living Arrangement Transitions by Elderly Americans
Author-Name: Axel Borsch-Supan
Note: AG
Number: 2808
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2808
File-URL: http://www.nber.org/papers/w2808.pdf
File-Format: application/pdf
Publication-Status: published as "Elderly Americans: A Dynamic Analysis of HOusehold Dissolution and Living Arrangement Transitions" in Issues in the Economics of Aging (ed)David Wise, University of Chicago Press, 1989.
Publication-Status: published as A Dynamic Analysis of Household Dissolution and Living Arrangement Transitions by Elderly Americans, Axel Borsch-Supan. in Issues in the Economics of Aging, Wise. 1990
Abstract: This paper exploits the new non-response files of the Panel Study of income Dynamics in order to study living arrangement transitions of elderly Americans. The focus of the paper is an estimate of the probability of household dissolution, i.e., the probabilities of transitions from living independently to living with adult children or other related or unrelated persons and the probability of becoming institutionalized, and an investigation of the factors causing such transitions. Our main result is an astounding stability of living arrangements even after incisive life-events such as death of a spouse, onset of a disability, or in the years immediately preceding death, in particular the large proportion of elderly who stay living independently until their deaths. Almost two thirds of all elderly are living independently in the year of their deaths. 14.4 percent share at least once housing with relatives or friends, 3.1 percent experience a stay in an institution. Old age, being male or of low income significantly increases the risk of institutionalization. Elderly with a large family and nonwhite elderly are the groups most likely to share housing. All this might be expected. An important new finding, however, is the time trend of these probabilities. Holding all other factors constant, the risk of institutionalization increased substantially between 1968 and 1984 while the likelihood of being "taken in" by relatives or friends markedly decreased.
Handle: RePEc:nbr:nberwo:2808
Template-Type: ReDIF-Paper 1.0
Title: Comparative Advantage and Long-Run Growth
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI IFM
Number: 2809
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2809
File-URL: http://www.nber.org/papers/w2809.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 80, No. 4, pp. 796-815, (September 1990) .
Abstract: We construct a dynamic, two-country model of trade and growth in which endogenous technological progress results from the profit-maximizing behavior of entrepreneurs. We study the role that the external trading environment and that trade and industrial policies play in the determination of long-run growth rates. We find that cross-country differences in efficiency at R&D versus manufacturing (i.e. comparative advantage) bear importantly on the growth effects of economic structure and commercial policies. Our analysis allows for both natural and acquired comparative advantage, and we discuss the primitive determinants of the latter.
Handle: RePEc:nbr:nberwo:2809
Template-Type: ReDIF-Paper 1.0
Title: If Labor is Inelastic, Are Taxes Still Distorting?
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 2810
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2810
File-URL: http://www.nber.org/papers/w2810.pdf
File-Format: application/pdf
Publication-Status: published as "Reconciling Recent Estimates of the Marginal Welfare Cost of Taxation." From The American Economic Review, Vol. 81, No. 1, pp. 302-308, (March 1991)
Abstract: Three recent papers measure the marginal excess burden of labor taxes in the United States. They obtain very different results even where they all use a zero uncompensated labor supply elasticity and assume that the additional revenue is spent on a public good that is separable in utility. The impression is that other parameters must explain the differences in results. Yet each paper uses a different concept of excess burden. Here, I calculate all three measures in one model and show how conceptual differences explain the results. Only one of these measures isolates the distortionary effects of taxes in a way that depends on the compensated labor supply elasticity. The other two measures incorporate income effects and thus depend on the actual change in labor. This result was obscured because those papers report positive marginal excess burden even with a zero uncomspensated labor supply elasticity. This paper shows conditions under which their measure is zero, and it interprets the measures in light of recent literature.
Handle: RePEc:nbr:nberwo:2810
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Variability And Asset Trade
Author-Name: Torsten Persson
Author-Person: ppe28
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 2811
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2811
File-URL: http://www.nber.org/papers/w2811.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 23, No. 3, pp. 485-509, (May 1989).
Abstract: In discussions about different international monetary arrangements it is often maintained that exchange rate variability has a negative influence on international trade and foreign investment. This paper addresses one specific aspect of this general issue, namely the effect of exchange rate variability on capital flows and international portfolio diversification. More precisely, we examine how different monetary policies -- and among those, policies that aim at stabilizing exchange rates -- determine the risk characteristics of nominal assets, and how these risk characteristics determine international portfolio composition and trade in assets, when international asset markets are incomplete.
Handle: RePEc:nbr:nberwo:2811
Template-Type: ReDIF-Paper 1.0
Title: Major Macroeconomic Variables and Leading Indexes: Some Estimates of Their Interrelations, 1886-1982
Author-Name: Victor Zarnowitz
Author-Name: Phillip Braun
Author-Person: pbr232
Note: EFG
Number: 2812
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2812
File-URL: http://www.nber.org/papers/w2812.pdf
File-Format: application/pdf
Publication-Status: published as "Major Macroeconomic Variables and Leading Indexes: Some Estimates of Their Interrelations." From Analyzing Business Cycles: Essays Honoring Geoffrey H. Moore, edited by Philip A. Klein, pp. 177-205. Armonk, NY: M.E. Sharpe, Inc., 1990.
Abstract: We examine the interactions within sets of up to six variables representing output, alternative measures of money and fiscal operations, inflation, interest rate, and indexes of selected leading indicators. Quarterly series are used, each taken with four lags, for three periods: 1949-82. 1919-40, and 1886-1914. The series are in stationary form, as indicated by unit root tests. For the early years, the quality of the available data presents some serious problems. We find evidence of strong effects on output of the leading indexes and the short-term interest rate. The monetary effects are greatly reduced when these variables are included. Most variables depend more on their own lagged values than on any other factors, but this is not true of the rates of change in output and the composite leading indexes. Some interesting interperiod differences are noted and discussed.
Handle: RePEc:nbr:nberwo:2812
Template-Type: ReDIF-Paper 1.0
Title: A Behavioral Approach to Compliance: OSHA Enforcement's Impact on Workplace Accidents
Author-Name: Wayne Gray
Author-Person: pgr111
Author-Name: John T. Scholz
Note: LS
Number: 2813
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2813
File-URL: http://www.nber.org/papers/w2813.pdf
File-Format: application/pdf
Publication-Status: published as John T. Scholz and Wayne B. Gray, "OSHA Enforcement and Workplace Injuries: A Behavioral Approach to Risk Assessment," Journal of Risk and Uncertainty, Vol. 3, No. 3, pp. 283-305, September 1990.
Abstract: This study test for effects of OSHA enforcement, using data on injuries and OSHA inspections for 6,842 manufacturing plants between 1979 and 1985. We use measures of general deterrence (expected inspections at plants like this one) and specific deterrence (actual inspections at this plant). Both measures of deterrence are found to affect accidents, with a 10% increase in inspections with penalties predicted to reduce accidents by 2%. The existence of specific deterrence effects, the importance of lagged effects, the asymmetrical effects of probability and amount of penalty on accidents, and the tendency of injury rates to self-correct over a few years support a behavioral model of the firm's response to enforcement rather than the traditional expected penalty' model of deterrence theory.
Handle: RePEc:nbr:nberwo:2813
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy, Housing Prices, and Housing Investment
Author-Name: Lawrence H. Goulder
Note: PE
Number: 2814
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2814
File-URL: http://www.nber.org/papers/w2814.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, Vol. 19, 1989.
Abstract: This paper employs a general equilibrium model to assess the effects of major components of the Tax Reform Act of 1986 on the performance of housing and other industries. The model considers both short-term and long-term effects on housing demands, house values, and investment in housing. Model results indicate that in the short run, the recent cuts incorporate tax rates, elimination of investment tax credits, and scaling back of depreciation deductions together have negative implications for investment in non-residential capital but positive effects on housing investment. This mainly reflects the fact that prior to the '86 tax reforms, investment tax credits and favorable depreciation rules disproportionately benefited non-housing industries; thus their removal especially affects industries other than housing and helps ?crowd in housing investment. Over the long term, however, the tax changes imply lower investment in housing as well as in other types of capital. The reduced housing investment stems from adverse effects of the reforms on aggregate output and real income.
Handle: RePEc:nbr:nberwo:2814
Template-Type: ReDIF-Paper 1.0
Title: Should Nations Learn to Live With Inflation?
Author-Name: Stanley Fischer
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG
Number: 2815
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2815
File-URL: http://www.nber.org/papers/w2815.pdf
File-Format: application/pdf
Publication-Status: published as "Should Governments Learn to Live with Inflation?" From The American Economic Review, Vol. 79, No. 2, pp. 382-387, (1989).
Abstract: It is often argued that the most important costs of inflation can be substantially mitigated by indexing reforms. Yet governments in moderate inflation countries have generally been very reluctant to promote institutional changes that would reduce the costs of inflation. Capital income continues to be taxed on a nominal basis, indexed bonds are a rarity, typical mortgage contracts keep nominal rather than real payments constant, and interest is not paid on required reserves. This paper examines the welfare consequences of inflation mitigation measures in the context of dynamic consistency theories of the determination of the inflation rate. Our general conclusion is that recognizing the effects of inflation mitigation measures on the choice of the inflation rate substantially undercuts the welfare case in their favor. It is easy to construct examples in which such measures actually reduce welfare. The case for indexing measures is strongest in settings where governments already have strong anti-inflation reputations, cannot precisely control the inflation rate, and can offset the effects of unanticipated inflation without reducing the costs of anticipated inflation. Conversely, the case for inflation mitigation measures is weakest where governments lack strong reputations, can control the inflation rate, and where indexing makes it easier to live with anticipated inflation.
Handle: RePEc:nbr:nberwo:2815
Template-Type: ReDIF-Paper 1.0
Title: The Health and Earnings of Rejected Disability Insurance Applicants
Author-Name: John Bound
Author-Person: pbo406
Note: LS
Number: 2816
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2816
File-URL: http://www.nber.org/papers/w2816.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 79, No. 3, pp. 482-503, (June 1989).
Abstract: Applicants for Social Security Disability Benefits who fail to pass the medical screening form a natural 'control' group for beneficiaries. Data drawn from the 1972 and 1978 surveys of the disabled done for the Social Security Administration show that fewer than 50% of rejected male applicants work. Typical earnings of those that do are less than 50% of median earnings for other men their age. These data cast doubt on recent econometric work which suggests that the disincentive effects of DI have been substantial.
Handle: RePEc:nbr:nberwo:2816
Template-Type: ReDIF-Paper 1.0
Title: On the Divergence in Unionism among Developed Countries
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 2817
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2817
File-URL: http://www.nber.org/papers/w2817.pdf
File-Format: application/pdf
Publication-Status: published as "On the Divergence of Unionism among Developed Countries." From Labour Relations and Economic Performance, edited by Renato Brunetta and Carlo Dell' Aringa, pp. 304-322. London: Macmillan Press, 1990.
Abstract: In this paper I explore the evolution of unionism in the 1970n and 1980s, when the post-oil shock world economy created a "crisis of unionism" throughout the western world. I try to explain why union representation of work forces fell in some countries but not in others and contrast union responses to the challenge of the period. I find that: -- Rates of unionization diverged greatly among developed countries -- The composition of union members shifted from private sector blue collar workers to public sector end white collar workers in all countries, producing increased divisions within union movements by category of worker -- Changes in the industrial composition of employment, changes in public attitudes toward unionism, and the growth of governmental protection of labor do not explain the divergence in density -- Differing rates of inflation contributed to the divergence, with unions doing better in countries with high inflation. In addition, unemployment raised density in settings where unions disperse unemployment benefits -- The primary reason for the divergence are differences in the incentives and opportunities different industrial relations systems give employers to oppose unions. Unions fared best in neo-corporatist settings and worst in settings where decentralized bargaining creates a strong profit incentive for managers to oppose unions and where management is relatively free to act on that incentive -- Union organizations and modes of operating changed significantly in some countries with declining or endangered unionism but not in others Most strikingly, my analysis indicates that if 1980s trends continue the west will be divided between countries with strong trade union movements operating in a neo-corporatist system, as in Scandinavia, and countries with 'ghetto unionism' limited to special segments of the work force, as in the United States.
Handle: RePEc:nbr:nberwo:2817
Template-Type: ReDIF-Paper 1.0
Title: A Markov Model of Heteroskedasticity, Risk, and Learning in the Stock Market
Author-Name: Christopher M. Turner
Author-Name: Richard Startz
Author-Name: Charles R. Nelson
Author-Person: pne247
Note: ME
Number: 2818
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2818
File-URL: http://www.nber.org/papers/w2818.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, April 1990.
Abstract: Risk premia in the stock market are assumed to move with time varying risk. We present a model in which the variance of time excess return of a portfolio depends on a state variable generated by a first-order Markov process. A model in which the realization of the state is known to economic agents, but unknown to the econometrician. is estimated. The parameter estimates are found to imply that time risk premium declines as time variance of returns rises. We then extend the model to allow agents to be uncertain about time state. Agents make their decisions in period t using a prior distribution of time state based only on past realizations of the excess return through period t-1 plus knowledge of the structure of the model. These parameter estimates from this model are consistent with asset pricing theory.
Handle: RePEc:nbr:nberwo:2818
Template-Type: ReDIF-Paper 1.0
Title: Budget Deficits, Tax Incentives and Inflation: A Surprising Lesson From The 1983-84 Recovery
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Douglas W. Elmendorf
Author-Person: pel79
Note: EFG ME PE
Number: 2819
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2819
File-URL: http://www.nber.org/papers/w2819.pdf
File-Format: application/pdf
Publication-Status: published as Tax Policy and the Economy, vol. 3, 1989. (ed) L. Summers, pp1-24, MIT Press
Publication-Status: published as Budget Deficits, Tax Incentives, and Inflation: A Surprising Lesson from the 1983–1984 Recovery, Martin Feldstein, Douglas W. Elmendorf. in Tax Policy and the Economy, Volume 3, Summers. 1989
Abstract: The first two years of the economic expansion that began in 1983 were unusually strong and were accompanied by better inflation performance than would have been expected on the basis of experience in past recoveries. Our evidence contradicts the popular view that the recovery was the result of a consumer boom financed by reductions in the personal income tax. We also find no support for the proposition that the recovery reflected an increase in the supply of labor induced by the reduction in personal marginal tax rates. The driving force behind the recovery of nominal demand was the shift to an expansionary monetary policy. The rapid expansion of nominal GNP can be explained by monetary policy without any reference to changes in fiscal and tax policy. But the growth of real GNP was more rapid than would have been expected on the basis of the rise in total nominal spending and the increase in the price level was correspondingly less. The most likely cause of this favorable division of the nominal GNP increase was the sharp rise in the dollar that occurred at this time. Although part of the dollar's rise can be attributed to the successful anti-inflationary monetary policy, the dollar also increased because of the rise in real interest rates that resulted from the combination of the increase in anticipated budget deficits and the improved tax incentives for investment in equipment and structures. Thus, expansionary fiscal policy did contribute to the greater-than-expected rise of real GNP in 1983-84 but it did so through an unusual channel. The fiscal expansion raised output because it caused a favorable supply shock to prices and not because it was a traditional stimulus to demand. The budget deficit and investment incentives were expansionary in the short run because, by causing a rise of the dollar, they reduced inflation and thus permitted a faster growth of real GNP.
Handle: RePEc:nbr:nberwo:2819
Template-Type: ReDIF-Paper 1.0
Title: Imperfect Annuity Markets, Unintended Bequests, and the Optimal Age Structure of Social Security Benefits
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 2820
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2820
File-URL: http://www.nber.org/papers/w2820.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, 41(4), February 1990, pp.31-43.
Abstract: The social security program now provides a constant real benefit throughout each retirees lifetime. This paper examines whether total welfare would rise if benefits were lower in early retirement years (when most individuals have some saving with which to finance consumption) and higher in later years (when the uncertainty of survival and the absence of actuarially fair private annuities makes the availability of social security benefits more important.) The analysis shows that there is a potentially important difference between the structure of benefits that would be preferred by the current population of workers and retirees and the structure of benefits that would maximize the steady state level of social welfare. This difference reflects the role of unintended bequests. The provision of higher benefits to older retirees reduces individually optimal savings and therefore the level of unintended bequests. While those bequests may have no value to the retirees, they are clearly of value to the young workers who will receive those bequests. More generally, the system of level benefits raises the steady state level of the capital stock and of total real income. The present paper provides an explicit analysis of a case in which the current workers want benefits to increase with age while the social security system that maximizes steady state welfare would provide higher benefits to young retirees than to the very old.
Handle: RePEc:nbr:nberwo:2820
Template-Type: ReDIF-Paper 1.0
Title: On The Possibility of Price Decreasing Bubbles
Author-Name: Philippe Weil
Author-Person: pwe97
Note: ME
Number: 2821
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2821
File-URL: http://www.nber.org/papers/w2821.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 58, no. 6 (1990): 1467-1474.
Abstract: It is often argued that a rational bubble, because it is positive, must increase the price of a stock. This argument is not valid in general: as soon as bubbles affect interest rates, the fundamental value of a stock depends on whether or not a bubble is present. The existence of a rational bubble then might, by raising equilibrium interest rates, depress the fundamental to such an extent that the sum of the positive bubble and decreased fundamental falls short of the fundamental, no-bubble price. Under conditions made precise below, there can therefore be price decreasing bubbles, and an asset can be "undervalued."
Handle: RePEc:nbr:nberwo:2821
Template-Type: ReDIF-Paper 1.0
Title: Money, Time Preference and External Balance
Author-Name: Philippe Weil
Author-Person: pwe97
Note: ME
Number: 2822
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2822
File-URL: http://www.nber.org/papers/w2822.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 33, nos. 2/3 (1989): 564-572.
Abstract: In monetary economies, international differences in rates of time preference do not in general lead to long run trade imbalances -- in sharp contrast with Butter's 119811 results on non-monetary overlapping generation economies. This claim is documented within the context of a simple two country framework in which new immortal families enter each economy over time, with the two countries differing only in their subjective discount rates. Even if consumers are more "impatient" at home than abroad, trade is balanced in the long run in the presence of valued fiat currencies in constant supply, and the current account is indeterminate.
Handle: RePEc:nbr:nberwo:2822
Template-Type: ReDIF-Paper 1.0
Title: Money, Credit, and Business Fluctuations
Author-Name: Joseph E. Stiglitz
Note: EFG ME
Number: 2823
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2823
File-URL: http://www.nber.org/papers/w2823.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Record, pp. 307-322, (December 1988).
Abstract: This paper provides a critique of standard theories of money, in particular those based on money as a medium of exchange. Money is important because of the relationship between money and credit. The process of judging credit worthiness, in which banks play a central role, involves the collection and processing of information. Like many other economic activities involving information, these processes are not well described by means of standard production functions. Changes in economic circumstances can have marked effects on the relevance of previously accumulated information and accordingly on the supply of credit. Changes in the availability of credit may have marked effects on the level of economic activity, while changes in real interest rates seem to play a relatively minor role in economic fluctuations. This alternative view has a number of implications for policy, both at the macro-economic level (for instance, on the role of monetary policy for stabilization purposes and the choice of targets) and at the micro-economic level.
Handle: RePEc:nbr:nberwo:2823
Template-Type: ReDIF-Paper 1.0
Title: Risk Aversion and Intertemporal Substitution in the Capital Asset Pricing Model
Author-Name: Alberto Giovannini
Author-Name: Philippe Weil
Author-Person: pwe97
Note: ME
Number: 2824
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2824
File-URL: http://www.nber.org/papers/w2824.pdf
File-Format: application/pdf
Abstract: When tastes are represented by a class of generalized preferences which -- unlike traditional Von-Neumann preferences -- do not confuse behavior towards risk with attitudes towards intertemporal substitution, the true beta of an asset is, in general, an average of its consumption and market betas. We show that the two parameters measuring risk aversion and intertemporal substitution affect consumption and portfolio allocation decisions in symmetrical ways. A unit elasticity of intertemporal substitution gives rise to myopia in consumption-savings decisions (the future does not affect the optimal consumption plan), while a unit coefficient of relative risk aversion gives rise to myopia in portfolio allocation (the future does not affect optimal portfolio allocation). The empirical evidence is consistent with the behavior of intertemporal maximizers who have a unit coefficient of relative risk aversion and an elasticity of intertemporal substitution different from 1.
Handle: RePEc:nbr:nberwo:2824
Template-Type: ReDIF-Paper 1.0
Title: Money Stock Targeting, Base Drift and Price-Level Predictability: Lessons From the U.K. Experience
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Ehsan U. Choudhri
Author-Person: pch482
Author-Name: Anna J. Schwartz
Note: EFG ME ITI IFM
Number: 2825
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2825
File-URL: http://www.nber.org/papers/w2825.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 25, No. 21, pp. 253-272, (March 1990).
Abstract: It is controversial whether money stock targeting without base drift (i.e. following a trend-stationary growth path) makes the price level more predictable in the presence of permanent shocks to money demand. Developing a procedure that does not run into the Lucas critique, and applying this procedure to the case of the U.K., the paper finds that the variance of the trend inflation rate in the U.K. would have been reduced by more than one half if the Bank of England had not allowed base drift.
Handle: RePEc:nbr:nberwo:2825
Template-Type: ReDIF-Paper 1.0
Title: The General Equilibrium Effects of Inflation on Housing Consumption and Investment
Author-Name: James Berkovec
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 2826
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2826
File-URL: http://www.nber.org/papers/w2826.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 79, no.2, pp.277-282, (May 1989).
Abstract: In a mean-variance portfolio choice model, each of 3,578 households from the 1983 Survey of Consumer Finances has calculated preferences over housing, other consumption, and risk. Each household is constrained such that any owner-occupied housing in portfolio must match housing services consumed. Corporate taxes are modeled in some detail, and regression coefficients are used to estimate the adjusted gross income, itemizable deductions, and statutory marginal tax rate of each household. General equilibrium simulation results indicate that inflation does not necessarily increase total owner housing. Top-bracket households increase their owner housing, while others switch into bonds. The greater number of households in low-brackets implies that the homeownership rate can fall even if the amount of owner housing rises.
Handle: RePEc:nbr:nberwo:2826
Template-Type: ReDIF-Paper 1.0
Title: Pregnancy Resolution as an Indicator of Wantedness and its Impact on the Initiation of Early Prenatal Care
Author-Name: Theodore J. Joyce
Author-Person: pjo112
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 2827
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2827
File-URL: http://www.nber.org/papers/w2827.pdf
File-Format: application/pdf
Publication-Status: published as "Pregnancy Wantedness and the Early Initiation of Prenatal Care." From Demography, Vol. 27, No. 1, pp. 1-17, (February 1990).
Abstract: The study examines the impact of the wantedness of a pregnancy on the demand for early prenatal care. Past attempts to address this question have depended on the self-assessments of women as to the wantedness of their pregnancy and birth. Our approach can be described as a form of revealed preference in which only those pregnancies that are voluntarily terminated by induced abortion are considered to be unwanted. Using a cohort of pregnant women in New York City, we estimate a prenatal care demand function in which we control for the probability of giving birth, given a woman is pregnant. We interpret this control as a measure of wantedness. The results indicate that if the black and Hispanic women who aborted, had instead given birth, they would have delayed the initiation of prenatal care, on average, over three-quarters of a month longer than the mean number of months of delay that were actually observed for the women who gave birth. By allowing women to terminate an unwanted pregnancy, induced abortion increases the average utilization of prenatal care among black and Hispanic women relative to what would have been observed if the women who aborted had instead given birth.
Handle: RePEc:nbr:nberwo:2827
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Hysteresis: The Real Effects of Large vs Small Policy Misalignments
Author-Name: Richard Baldwin
Author-Person: pba124
Author-Name: Richard Lyons
Author-Person: ply9
Note: ITI IFM
Number: 2828
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2828
File-URL: http://www.nber.org/papers/w2828.pdf
File-Format: application/pdf
Publication-Status: published as "Exchange Rate Hyteresis: Large nersus Small Policy Misalignments" European Economic Review, Jan 1994, vol 38, pp 1-22
Abstract: Using the sticky price monetary model of exchange rate determination and the sunk cost model of trade hysteresis, we show that a sufficiently large policy misalignment can induce hysteresis in the trade balance and thereby alter the steady?state real exchange rate. Thus in our model exchange rate dynamics are path dependent, PPP need not hold and money need not be neutral even in the very long run. We present only positive analysis but conjecture that the results have strong welfare, policy, and econometric implications. Since hysteresis in our model can entail industrial dislocation and the scrappage of sunk assets, we suggest that these factors may constitute a welfare cost of large policy misalignments that have not been formally considered. On the policy side, one could sensibly argue against the dollar volatility of the 1980s without at the same time arguing for a return to a formal exchange rate regime (because 1980s-size swings may involve welfare costs that 1970s-size swings do not). Lastly, since the long-run exchange rate is path dependent, standard empirical tests of exchange rate models may be misspecified.
Handle: RePEc:nbr:nberwo:2828
Template-Type: ReDIF-Paper 1.0
Title: The Equity Premium Puzzle and the Riskfree Rate Puzzle
Author-Name: Philippe Weil
Author-Person: pwe97
Note: ME
Number: 2829
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2829
File-URL: http://www.nber.org/papers/w2829.pdf
File-Format: application/pdf
Publication-Status: Published as "The Equity Premium Puzzle and the Risk-Free Rate Puzzle", Journal of Monetary Economics, Vol. 24, no. 3 (1989): 401-422.
Abstract: This paper studies the implications for general equilibrium asset pricing of a recently introduced class of Kreps-Porteus non-expected utility preferences, which is characterized by a constant intertemporal elasticity of substitution and a constant, but unrelated, coefficient of relative risk aversion. It is shown that the solution to the "equity premium puzzle" documented by Mehra and Prescott [19851 cannot be found, for plausibly calibrated parameter values, by simply separating risk aversion from intertemporal substitution. Rather, relaxing the parametric restriction on tastes implicit in the time-addictive expected utility specification and adopting Kreps-Porteus preferences in the direction of "more realism" is likely to add a "riskfree rate puzzle" to Mehra's and Prescott's "equity premium puzzle."
Handle: RePEc:nbr:nberwo:2829
Template-Type: ReDIF-Paper 1.0
Title: Wages, Employer Costs, and Employee Performance in the Firm
Author-Name: Harry J. Holzer
Author-Person: pho162
Note: LS
Number: 2830
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2830
File-URL: http://www.nber.org/papers/w2830.pdf
File-Format: application/pdf
Publication-Status: published as Industrial & Labor Relations Review, Vol. 43, No. 3, pp.147s-164s, (February 1990).
Abstract: In this paper I use data from a survey of firms to estimate the effects of a firm's wage level on several measures of its hiring costs and the characteristics and performance of its employees. These measures include the previous experience and current tenure of its employees; subjective productivity scores for these employees; job vacancy rates; perceived ease of hiring qualified workers for the firs; and hours spent hiring and training new workers. In doing so, I distinguish the case of high wages imposed on s firm by unions from that in which the firm might be choosing its wage level in order to maximize its profits. I also provide some rough measures of the extent to which firms offset their high wage costs in each case. The results show generally positive effects of firm wages on employee experience and tenure as well as on subjective productivity scores. The firm's wages generally have negative effects on job vacancy rates and positive effects on the perceived ease of hiring qualified workers. Training time is also reduced. While the magnitude of each individual effect may not always be large or even significant, their combined effects suggest that firms offset a good deal of their higher wage costs through improved productivity and lower hiring and turnover costs among their employees.
Handle: RePEc:nbr:nberwo:2830
Template-Type: ReDIF-Paper 1.0
Title: Disability Status as an Unobservable: Estimates From a Structural Model
Author-Name: Robert Haveman
Author-Person: pha310
Author-Name: Barbara Wolfe
Author-Person: pwo47
Author-Name: Fung Mey Huang
Note: EH
Number: 2831
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2831
File-URL: http://www.nber.org/papers/w2831.pdf
File-Format: application/pdf
Abstract: We propose an index of "true disability" by treating disability status as an unobservable phenomenon which is both causally related to a number of exogenous characteristics of an individual and correlated with a number of observed indicators of health, impairment and qualifications for employment. First, we define true disability and distinguish it from related concepts. We then discuss the importance of an objective and reliable measure of disability for research on the determinants of behavior. Next, we present the specification of our structural model for estimating true disability as a latent variable. Finally, we report the results of our estimation in a simple model of Labor force participation, and compare the effect of using the constructed index and a self-reported disability measure on understanding the determinants of behavior and choice.
Handle: RePEc:nbr:nberwo:2831
Template-Type: ReDIF-Paper 1.0
Title: Venture Capital and Capital Gains Taxation
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 2832
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2832
File-URL: http://www.nber.org/papers/w2832.pdf
File-Format: application/pdf
Publication-Status: published as Tax Policy and the Economy, Vol. 3, edited by Lawrence H. Summers, pp. 47- 67. Cambridge, MA:: MIT Press, 1989.
Publication-Status: published as Venture Capital and Capital Gains Taxation, James M. Poterba. in Tax Policy and the Economy, Volume 3, Summers. 1989
Abstract: This paper investigates the links between capital gains taxation and the level of venture capital activity. I examine two explanations of how reducing the personal capital gains tax rate may spur venture capital: the first focuses on the supply of funds to the venture industry, and the second on the supply of entrepreneurs. The supply of funds is unlikely to be the principal mechanism through which the tax affects venture capital, since less than half of venture investors face individual capital gains tax liability on their realized gains. Moreover, most of the growth in venture funding during the last decade has come from tax-exempt investors. Individual capital gains taxes may however have a significant influence on the demand for venture funds. These taxes have an important impact on the incentives of entrepreneurs and other employees of start-up firms who forego wage and salary income and accept compensation through corporate stock and options. The paper closes by noting that reducing the tax rate on all gains is a relatively blunt device for encouraging venture investment. Venture investments account for less than one percent of realized capital gains.
Handle: RePEc:nbr:nberwo:2832
Template-Type: ReDIF-Paper 1.0
Title: Lifetime Incidence and the Distributional Burden of Excise Taxes
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 2833
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2833
File-URL: http://www.nber.org/papers/w2833.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 79, No. 2, pp. 325-330, (May 1989).
Abstract: This implies that low-income households in one year have some chance of being higher-income households in other years, and significantly affects the estimated distributional burden of excise taxes. This paper shows that household expenditures on gasoline, alcohol, and tobacco as a share of total consumption (a proxy for lifetime income) are much more equally distributed than expenditures as a share of annual income. From a longer-horizon perspective, excise taxes on these goods are therefore much less regressive than standard analyses suggest.
Handle: RePEc:nbr:nberwo:2833
Template-Type: ReDIF-Paper 1.0
Title: A Time-Series Analysis of Unemployment and Health: The Case of Birth Outcomes in New York City
Author-Name: Theodore J. Joyce
Author-Person: pjo112
Note: EH
Number: 2834
Creation-Date: 1989-01
Order-URL: http://www.nber.org/papers/w2834
File-URL: http://www.nber.org/papers/w2834.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol. 8, No. 4, pp. 419-436, (1989).
Abstract: Lifetime income is less variable than annual household income, since the latter reflects transitory shocks to wages, family status, and employment. The paper presents an aggregate time-series analysis of unemployment and infant health that improves on previous work in several ways. First, the data is monthly as opposed to annual and pertains to New York City from January, 1970 to December, 1986. Second, a structural production function is estimated in which the race-specific percentage of low-birthweight births is the health outcome. Because we are able to control for the race-specific percentage of women who begin care in the first trimester as well as the percentage of births to unmarried mothers, the unemployment rate as a proxy for maternal stress enters the production function as one among a set of well-defined health Inputs. Third, because a pregnancy is limited to at most ten months, we can specify a lag length with confidence. Fourth. the data is tested for stationarity and the production function is estimated in levels as well as in deviations from trend. We find no cyclical variation in the percentage of low-birthweight births. The results are insensitive to changes in lag length. the omission of relevant inputs, and the functional form of the coefficients on the distributed lag.
Handle: RePEc:nbr:nberwo:2834
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Dynamics Under Stochastic Regime Shifts: A Unified Approach
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 2835
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2835
File-URL: http://www.nber.org/papers/w2835.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 31, pp. 203-229, (1991).
Abstract: Techniques of regulated Brownian motion are used to analyze the behavior of the exchange rate when official policy reaction functions are subject to future stochastic changes. We examine exchange-rate dynamics in alternative cases where the authorities promise (i) to confine a floating rate within a predetermined range and (ii) to peg the currency once it reaches a predetermined future level. Similarities between these and several related examples of regime switching are stressed
Handle: RePEc:nbr:nberwo:2835
Template-Type: ReDIF-Paper 1.0
Title: How Incentive-Incompatible Deposit-Insurance Funds Fail
Author-Name: Edward J. Kane
Author-Person: pka853
Note: ME
Number: 2836
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2836
File-URL: http://www.nber.org/papers/w2836.pdf
File-Format: application/pdf
Publication-Status: published as "The Incentive Incompatibility of Government Sponsored Deposit-Insurance Funds," George Kaufman (ed.), Research in Financial Services: Private and Public Policy. JAI Press, 1992, pp. 51-91
Publication-Status: published as Kane, Edward J. "How Incentive-Incompatible Deposit-Insurance Funds Fail," Research in Financial Services, 1992, v4(1), 51-92.
Abstract: An incentive-incompatible deposit-insurance fund (IIDIF) is a scheme. Lot guaranteeing deposits at client institutions that deploys defective systems of information collection, client monitoring, and risk management. These defective systems encourage voluntary risk- taking by clients and by managers and politicians responsible for administering the fund. The paper focuses on how principal-agent conflicts and asymmetries in the distribution of information lead to myopic behavior by IIDIF managers and by politicians who appoint and constrain them. Drawing on data developed in legislative hearings and investigations and in sworn depositions, the paper documents that managers of IISIFs in Ohio and Maryland knew well in advance of their funds' 1985 failures that important clients were both economically insolvent and engaging in inappropriate forms of risk-taking. It also establishes that staff proposals for publicizing and bringing these clients' risk-taking under administrative control were repeatedly rejected. The analysis has a forward-looking purpose. Congress and federal regulators have managed the massively undercapitalized Federal Savings and Loan Insurance Corporation (FSLIC) in much the same way Ohio and Maryland officials did. Unless and until incentives supporting political, bureaucratic and private risk-taking are reformed, the possibility of a FSLIC meltdown cannot be dismissed. To encourage timely intervention into insolvencies developing in a deposit-insurance fund's client base, the most meaningful reforms would be to force the development and release of estimates of the market value of the insurance enterprise and to require fund managers to use the threat of takeover to force decapitalized clients to recapitalize well before they approach insolvency.
Handle: RePEc:nbr:nberwo:2836
Template-Type: ReDIF-Paper 1.0
Title: Tax Policies For the 1990's: Personal Saving, Business Investment, and Corporate Debt
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 2837
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2837
File-URL: http://www.nber.org/papers/w2837.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, 79(2), May 1989, pp.108-112.
Abstract: Although the tax reforms of the 1980s substantially lowered the excess burden caused by high marginal tax rates, there were also significant adverse effects on incentives to save and to invest in business plant and equipment. Effective tax rates on. real capital gains and real net interest income remain very high because the tax rules do not recognize the difference between real and nominal magnitudes. These high effective tax rates discourage personal saving. The paper discusses a number of ways in which the tax law could be modified to encourage more saving and less borrowing. Existing tax rules bias corporate decisions in favor of debt finance relative to equity finance and in favor of investments in intangible assets (like advertising, consumer goodwill, and R and D) relative to investments in plant and equipment. The paper discusses the use of a cashflow corporate tax (with complete expensing of investment and no deduction for interest payments) as a way of remedying both of these biases in our current tax law.
Handle: RePEc:nbr:nberwo:2837
Template-Type: ReDIF-Paper 1.0
Title: The Case Against Trying to Stabilize the Dollar
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: ITI IFM
Number: 2838
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2838
File-URL: http://www.nber.org/papers/w2838.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 79, no. 2 (1989): 36-40.
Abstract: Better domestic economic policies in the 15 years since the collapse of the Bretton Woods system would have prevented the extreme fluctuations of the dollar's exchange value during those years. The pursuit of policies here and abroad that are appropriate for domestic growth in the future should reduce the likelihood of such substantial exchange rate swings in the years ahead. But elevating exchange rate stability to a separate goal of economic policy could have serious adverse consequences. Trying to achieve that goal would mean diverting monetary and fiscal policies from their customary roles and thereby, risking excessive inflation and unemployment and inadequate capital formation. Succeeding in the efforts to achieve dollar stability would mean harmful distortions in the balance of trade and in the international flow of capital.
Handle: RePEc:nbr:nberwo:2838
Template-Type: ReDIF-Paper 1.0
Title: Auctioning U.S. Import Quotas, Foreign Response, and Alternative Policies
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Note: ITI IFM
Number: 2839
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2839
File-URL: http://www.nber.org/papers/w2839.pdf
File-Format: application/pdf
Publication-Status: published as The International Trade Journal, Vol. 3, No.3, pp239-259, Spring 1989.
Abstract: In this paper we quantify the potential revenue available to the U.S. from auctioning import quotas, and the resulting drop in foreign producer surplus relative to free trade. Previous estimates of auction revenue are in the range of $3 7-5.15 billion for 1986 or 1987. Using simulation results from computable partial or general equilibrium models, we find that this revenue gain would be at the expense of a large drop in foreign producer surplus. Ignoring textiles and apparel, the potential auction revenue is $1 3-2.15 billion, and the foreign loss is $0.5-O.7 billion relative to free trade. One alternative to auction quotas is a system of tariff-rate quotas, which are designed to keep supplier countries welfare equal to that in free trade. We calculate that the tariff-rate quotas could raise $067-1.55 billion in revenue for the U.S. While this amount is less than available through auction quotas, it could still fund a significant program of worker adjustment, and would mitigate the foreign response.
Handle: RePEc:nbr:nberwo:2839
Template-Type: ReDIF-Paper 1.0
Title: The Case of the Vanishing Revenues: Auction Quotas with Monopoly
Author-Name: Kala Krishna
Author-Person: pkr26
Note: ITI IFM
Number: 2840
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2840
File-URL: http://www.nber.org/papers/w2840.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 80, No. 4, pp. 828-836, (September 1990) .
Abstract: This paper examines the effects of auctioning quota licenses when monopoly power exists. With a foreign monopoly and domestic competition the sales of licenses will raise any revenue if domestic and foreign markets are segmented. More surprisingly, the inability to raise revenue is shown to persist even when partial or perfect arbitrage across markets is possible, as long as the quota is not too far from the free trade import level. In contrast, when there is a home monopoly and foreign competition, the price of a quota license can be positive so that selling licenses can dominate giving them away. However, because of the absence of any profit shifting, welfare falls even when licenses do indeed raise revenue.
Handle: RePEc:nbr:nberwo:2840
Template-Type: ReDIF-Paper 1.0
Title: From Deficit Delusion to the Fiscal Balance Rule: Looking For an Economically Meaningful Way to Assess Fiscal Policy
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 2841
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2841
File-URL: http://www.nber.org/papers/w2841.pdf
File-Format: application/pdf
Publication-Status: published as "From Deficit Delusion to the Fiscal Balance Rule - Looking for a Sensible Way to Measure Fiscal Policy," The Journal of Economics, Seventh Supplement , 1993.
Publication-Status: published as Generational Accounting Around the World. Auerbach, Alan J., Laurence J. Kotlikoff, and Willi Leibfritz, eds., Chicago: The University of Chicago Press, 1999, pp. 9-30.
Publication-Status: published as From Deficit Delusion to the Fiscal Balance Rule: Looking for an Economically Meaningful Way to Assess Fiscal Policy , Laurence J. Kotlikoff, Laurence J. Kotlikoff, Willi Leibfritz. in Generational Accounting around the World, Auerbach, Kotlikoff, and Leibfritz. 1999
Abstract: Notwithstanding its widespread use as a measure of fiscal policy, the government deficit is not a well-defined concept from the perspective of neoclassical macro economics. From the neoclassical perspective the deficit is an arbitrary accounting construct whose value depends on how the government chooses to label its receipts and payments. This paper demonstrates the arbitrary nature of government deficits. The argument that the deficit is not well-defined is first framed in a simple certainty model with nondistortionary policies, and then in settings with uncertain policy, distortionary policy, and liquidity constraints. As an alternative to economically arbitrary deficits, the paper indicates that the "Fiscal Balance Rule" is one norm for measuring whether current policy will place a larger or smaller burden on future generations than it does on current generations. The Fiscal Balance Rule is based on the economy's intertemporal budget constraint and appears to underlie actual attempts to run tight fiscal policy. It says take in net present value from each new young generation an amount equal to the flow of government consumption less interest on the difference between a) the value of the economy's capital stock and b) the present value difference between the future consumption and future labor earnings of existing older generations. While the rule is a mouth-full, one can use existing data to check whether it is being obeyed and, therefore, whether future generations are likely to be treated better or worse than current generations.
Handle: RePEc:nbr:nberwo:2841
Template-Type: ReDIF-Paper 1.0
Title: Housing Wealth and Aggregate Saving
Author-Name: Jonathan Skinner
Author-Person: psk23
Note: PE
Number: 2842
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2842
File-URL: http://www.nber.org/papers/w2842.pdf
File-Format: application/pdf
Publication-Status: published as Skinner, Jonathan. "Housing Wealth And Aggregate Saving," Regional Science and Urban Economics, 1989, v19(2), 305-324.
Publication-Status: published as Regional Science and Urban Economics, vol. 19, 1989, pp.305-324.
Abstract: The recent appreciation in housing value can have large effects on aggregate saving. This paper uses a simulation model to show that aggregate saving will decline substantially if life cycle homeowners spend down their housing windfalls. Homeowners with a bequest motive, however, may save more to assist their children in buying the now more expensive housing. To test whether families spend their housing capital gains, I use housing, income, and consumption data from the Panel Study of Income Dynamics. While a cross-section time-series regression implies that housing wealth does affect saving, a fixed-effects model finds no effect.
Handle: RePEc:nbr:nberwo:2842
Template-Type: ReDIF-Paper 1.0
Title: Predicting Nursing Home Utilization Among the High-Risk Elderly
Author-Name: Alan M. Garber
Author-Name: Thomas E. MaCurdy
Note: AG EH
Number: 2843
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2843
File-URL: http://www.nber.org/papers/w2843.pdf
File-Format: application/pdf
Publication-Status: published as Issues in the Economics of Aging, ed. David A. Wise, University of Chicago Press, 1990, pp. 173-200
Publication-Status: published as Predicting Nursing Home Utilization among the High-Risk Elderly, Alan M. Garber, Thomas E. MaCurdy. in Issues in the Economics of Aging, Wise. 1990
Abstract: This paper explores the influence of various characteristics on nursing home utilization. It examines a targeted population of elderly individuals whose poor health and lack of social supports were expected to lead to heavy use of long-term care. We develop an empirical framework based on a transition probability model to describe the frequency and duration of nursing home admissions. Using longitudinal data on the high-risk elderly enrollees of the National Long-Term Care Demonstration ("Channeling" demonstration), we. find that a small set of characteristics distinguish individuals who are likely to be heavy utilizers of nursing homes from low utilizers. The factors associated with a high likelihood of institutionalization are not identical to the health characteristics associated with high mortality; for example, the likelihood of death increases with age, but nursing home utilization does not, when functional status and other characteristics are held constant. A somewhat healthier population might have used nursing homes more heavily than the Channeling participants, whose nursing home utilization was limited by high mortality.
Handle: RePEc:nbr:nberwo:2843
Template-Type: ReDIF-Paper 1.0
Title: Adequacy of International Transactions and Position Data for Policy Coordination
Author-Name: Lois Stekler
Note: ITI IFM
Number: 2844
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2844
File-URL: http://www.nber.org/papers/w2844.pdf
File-Format: application/pdf
Publication-Status: published as Adequacy of International Transactions and Position Data for Policy Coordination, Lois Stekler. in International Policy Coordination and Exchange Rate Fluctuations, Branson, Frenkel, and Goldstein. 1990
Abstract: This paper examines the adequacy of data on current accounts and international indebtedness as measures of the need for policy adjustments and coordination. Doubts about the adequacy of these data have been raised by the growth of the global current account discrepancy and the statistical discrepancy in the U.S. international transactions accounts. The paper includes a brief review of the conclusions of the IMF working party on the world current account discrepancy and a detailed examination of the data on U.S. international transactions and net investment position. Both investigations support the conclusion that large shifts in reported data on current accounts end investment positions are likely to reflect real changes. However, even if data were completely accurate, a given current account or investment position may not clearly indicate the magnitude of necessary policy changes because of lags in the adjustment process or underlying trends. This point is illustrated by the tendency of U.S. net investment income to grow as a result of the continued expansion of both claims and liabilities combined with a higher average rate of return on claims. This underlying tendency is likely to counteract, in part, the negative impact on future net investment income of growing U.S. net indebtedness to foreigners.
Handle: RePEc:nbr:nberwo:2844
Template-Type: ReDIF-Paper 1.0
Title: Sources of IRA Saving
Author-Name: Daniel Feenberg
Author-Person: pfe56
Author-Name: Jonathan Skinner
Author-Person: psk23
Note: PE
Number: 2845
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2845
File-URL: http://www.nber.org/papers/w2845.pdf
File-Format: application/pdf
Publication-Status: published as in Tax Policy and the Economy, vol. 3, MIT Press: 1989, ed. Larry Summers
Publication-Status: published as Sources of IRA Saving, Daniel Feenberg, Jonathan Skinner. in Tax Policy and the Economy, Volume 3, Summers. 1989
Abstract: To address the question of whether IRA5 contribute to capital formation, we use the IRS/University of Michigan taxpayer sample for income tax returns during 1980-84. By matching families across a five-year period, we can estimate the dynamic interactions of IRA purchases and other types of saving, correct for individual differences, and test whether IRA purchases are in part offset by other (net) asset sales. The "reshuffling" hypothesis implies that taxpayers who enroll in IRAs should, over time, experience a drop in net taxable interest and dividend income as their taxable assets (or new loans) are used to purchase IRAs. Conversely, the "new saving" view of IRAs implies that taxable interest and dividend income should be unaffected by IRA purchases. We find little or no evidence which favors the view that IRAs are funded by cashing out existing taxable assets. In fact, individuals who purchased IRAs in each year between 1982-84 increased their asset holdings by more than those who did not purchase IRAs. In one sense, our results strongly confirm the studies by Venti and Wise and Hubbard that IRA saving represents new saving. But shuffling could still occur, albeit on a secondary level: families who are accumulating both taxable assets and IRAs might have accumulated even more taxable assets had IRA5 not been available
Handle: RePEc:nbr:nberwo:2845
Template-Type: ReDIF-Paper 1.0
Title: Comovements in Stock Prices and Comovements in Dividends
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 2846
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2846
File-URL: http://www.nber.org/papers/w2846.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, vol.44, pp719-729, July 1989
Abstract: Simple efficient markets models imply that the covariance between prices of speculative assets cannot exceed the covariance between their respective fundamentals unless there is positive information pooling. Positive information pooling occurs when there is more information, in a sense defined here, about the aggregate of the fundamentals than there is about the individual fundamentals. With constant discount rates, the covariance between prices (detrended by dividing by a moving average of lagged dividends) in the U. K. and the U. S. exceeds the covariance of the measure of fundamentals, and there is no evidence of positive information pooling. Regression tests of forecast errors in one country on a real price variable in another country show significantly negative coefficients. When the present value formula uses short rates to discount, there is less evidence of excess comovement.
Handle: RePEc:nbr:nberwo:2846
Template-Type: ReDIF-Paper 1.0
Title: Integration of Mortgage and Capital Markets and the Accumulation of Residential Capital
Author-Name: Patric H. Hendershott
Author-Name: Robert Van Order
Author-Person: pva397
Note: ME
Number: 2847
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2847
File-URL: http://www.nber.org/papers/w2847.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, Vol. 19, pp. 189-210, (1989).
Abstract: The securitization of fixed-rate mortgages suggests that the FRA/VA market was fully integrated with capital markets by the early l98Os and that the conventional market moved toward integration during the l98Os. Assuming full integration of FHA/VA5 via the GNMA securitization process, we first estimate equations explaining near-par GNMA prices weekly for the 1981-88 period. The price is then set equal to the new-issue price and, based upon the preferred equation, the perfect-market retail coupon rate is computed. Next we estimate equations (for three year segments of the 1971-88 period) explaining conventional commitment mortgage coupon rates in terms of current and lagged values of this perfect-market coupon rate. Finally, we examine differences between the perfect-market and actual coupon rates and compute the impact of these differences on residential capital accumulation.
Handle: RePEc:nbr:nberwo:2847
Template-Type: ReDIF-Paper 1.0
Title: Precautionary Saving in the Small and in the Large
Author-Name: Miles S. Kimball
Author-Person: pki97
Note: ME
Number: 2848
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2848
File-URL: http://www.nber.org/papers/w2848.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, vo. 58, no. 1, January 1990.
Abstract: The theory of precautionary saving is shown in this paper to be isomorphic to the Arrow-Pratt theory of risk aversion, making possible the application of a large body of knowledge about risk aversion to precautionary saving, and more generally, to the theory of optimal choice under risk. In particular, a measure of the strength of precautionary saving motive analogous to the Arrow-Pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving, and to give a new interpretation of the Oreze-Modigliani substitution effect.
Handle: RePEc:nbr:nberwo:2848
Template-Type: ReDIF-Paper 1.0
Title: Obstacles to Coordination, and a Consideration of Two Proposals to Overcome Them
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 2849
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2849
File-URL: http://www.nber.org/papers/w2849.pdf
File-Format: application/pdf
Publication-Status: published as "International Nominal Targeting (INT): A Proposal for Overcoming Obstacles to Policy Coordination." From Rivista di Politica Economica, Vol. LXXIX, No. XII, pp. 257-294, (December 1989), edited by John McCallum and Robert Mundell.
Publication-Status: published as Reprinted in On Exchange Rates, J. Frankel, MIT Press, Cambridge, 1993
Abstract: The paper reviews the obstacles to successful international macroeconomic policy coordination, and then offers a proposal for coordination that is designed to have the best chance of overcoming these obstacles: an international version of nominal GNP targeting. There are three sorts of obstacles to coordination: uncertainty, enforcement, and inflation-fighting credibility. Enforcement is always a problem for coordination, but the problem is particularly great in the presence of uncertainty. This is partly because it is difficult to verify compliance if the "performance criteria" are not directly enough under the control of the authorities and partly because a country may end up regretting ex post the criterion that it agreed to ex ante if the criterion is not directly enough related to the target variables about which it ultimately cares. For example, a country that commits to a narrow range for the money supply may regret the commitment if a shift in velocity occurs. The time-inconsistency of inflation-fighting has been offered as a third reason why policy-makers would be better off renouncing period-by-period coordination of discretionary policymaking. But the way to establish inflation-fighting credibility is to precommit to some nominal anchor. The paper argues that International Nominal Targeting (INT) is the best choice for nominal anchor, as well as the best choice for the performance criterion by which compliance with international agreements can be monitored. Nominal GNP (or, better yet, nominal demand) is superior to other candidates such as Ml as a candidate for the nominal variable on which policy-makers should focus, because it is far more robust to velocity shifts and other uncertainties.
Handle: RePEc:nbr:nberwo:2849
Template-Type: ReDIF-Paper 1.0
Title: Sovereign Debt Repurchases: No Cure for Overhang
Author-Name: Jeremy Bulow
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: ME ITI IFM
Number: 2850
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2850
File-URL: http://www.nber.org/papers/w2850.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 106, pp. 1219-1235 (November 1991).
Abstract: We show, in a reasonably general model, that if a highly indebted country has good investment projects available to it, then it will not benefit from using any of its resources to buy back debt at market prices. Debt buybacks and debt-equity swaps only make sense for the country if these programs are heavily subsidized by creditors. This result holds for all buyback programs large and small, so long as they involve voluntary creditor participation and are not part of a larger deal including offsetting concessions from lenders. Our analysis therefore casts doubt on the popular argument that unilateral debt repurchases benefit HICs by relieving "debt overhang".
Handle: RePEc:nbr:nberwo:2850
Template-Type: ReDIF-Paper 1.0
Title: Medicaid and the Cost of Improving Access to Nursing Home Care
Author-Name: Paul J. Gertler
Author-Person: pge194
Note: EH
Number: 2851
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2851
File-URL: http://www.nber.org/papers/w2851.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol. 74, no. 2, May 1992, pp. 338-345
Abstract: In this paper I show that the Medicaid program can improve the access of financially indigent patients to nursing home care by raising the rate of return paid on Medicaid patients' care, but only at the cost of lower quality of care. To quantify the policy tradeoff, I derive expressions for the elasticity of access with respect to total Medicaid expenditures and the elasticity of access with respect to quality. These elasticities expressions are complicated by the fact that Medicaid payment formulas are cost based and, therefore, depend on the quality choices of nursing homes. Using New York State data, I find that a 10% increase in Medicaid expenditures induces a 4.1% increase in Medicaid patient care but also reduces nursing home expenditures on patient services by about 3.4%.
Handle: RePEc:nbr:nberwo:2851
Template-Type: ReDIF-Paper 1.0
Title: Money, Income and Prices After the 1980s
Author-Name: Benjamin M. Friedman
Author-Name: Kenneth N. Kuttner
Author-Person: pku75
Note: ME
Number: 2852
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2852
File-URL: http://www.nber.org/papers/w2852.pdf
File-Format: application/pdf
Publication-Status: published as "Money, Income, Prices, and Interest Rates." From The American Economic Review, Vol. 82, No. 3, pp. 472-492, (June 1992).
Abstract: Three empirical findings presented in this paper show that evidence based on the most recent U.S. experience does not indicate the kind of close or reliable relationship between money and nonfinancial economic activity that, if present, might warrant basing the design and implementation of monetary policy on money in a formally systematic way: First, extending the familiar time-series analysis to include data from the 1980s sharply weakens the evidence from prior periods showing that such relationships existed between money and nominal income, or between money and either real income or prices considered separately. Focusing on data from 1970 onward destroys this evidence altogether. Second, the finding by Stock and Watson that particular forms of time-series experiments still showed a significant role for money in affecting real output through 1985 not only becomes weaker on the inclusion of data from 1986 and 1987 but also, even for data through 1985 only, turns out to depend on the use in their analysis of a particular short-term interest rate, the Treasury bill rate. Using instead the commercial paper rate, which apparently is superior in capturing the information in financial prices that matters for real output, also greatly weakens their result. Simultaneously using the commercial paper rate and including data through 1987 destroys it altogether. Third, extending the analysis through 1987 also destroys the time-series evidence from earlier periods showing that money and income are co-integrated. Even if monetary policy were to be conducted in terms of targets for money growth, the failure of money and income to be co-integrated means that there is no empirical ground for resisting the "base drift" that results from persistent random differences between actual money growth and the corresponding target.
Handle: RePEc:nbr:nberwo:2852
Template-Type: ReDIF-Paper 1.0
Title: Second Mortgages and Household Saving
Author-Name: Joyce M. Manchester
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 2853
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2853
File-URL: http://www.nber.org/papers/w2853.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, Vol. 19, No. 2, pp. 325-346, (1989).
Abstract: Second mortgages accounted for 10.8% of the stock of outstanding mortgage debt at the end of 1987, up from 3.6% at the beginning of the 198Os. This paper investigates the determinants of second mortgage borrowing and the characteristics of second mortgage borrowers. We first calculate the outstanding stock of home equity that remains to be borrowed against on tax-preferred terms, recognizing the limits on interest deductions in the 1986 Tax Reform Act and the 1987 Omnibus Budget Reconciliation Act. Despite these limits, we estimate that more than two trillion dollars of housing equity remains to be borrowed against by current homeowners. We then present cross-sectional evidence suggesting that households who obtain second mortgages after purchasing a home ace less wealthy than other households with similar characteristics. Each dollar of second mortgage borrowing is associated with a seventy-five cent reduction in household net worth. While these results cannot be given a causal interpretation, they are consistent with the view that increased access to second mortgages has reduced personal saving.
Handle: RePEc:nbr:nberwo:2853
Template-Type: ReDIF-Paper 1.0
Title: Determining the Impact of Federal Antidiscrimination Policy on the Economic Status of Blacks: A Study of South Carolina
Author-Name: James J. Heckman
Author-Name: Brook S. Payner
Note: LS
Number: 2854
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2854
File-URL: http://www.nber.org/papers/w2854.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 79, No. 1 (Mar., 1989), pp. 138-177
Abstract: This paper assesses the contribution of federal antidiscrimination policy to the dramatic improvement of black economic status in manufacturing that occurred in South Carolina in the mid 1960's. Using a unique data source on wages and employment by race and sex in South Carolina we evaluate competing explanations. Human capital stories, supply shift stories and tight labor market stories do not account for the black breakthrough. Our study documents a significant contribution of federal antidiscrimination programs.
Handle: RePEc:nbr:nberwo:2854
Template-Type: ReDIF-Paper 1.0
Title: A Cross-Country Study of Growth, Saving, and Government
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 2855
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2855
File-URL: http://www.nber.org/papers/w2855.pdf
File-Format: application/pdf
Publication-Status: published as National Saving and Economic Performance, eds. B. Douglas Bernheimand and John Shoven. Chicago: The University of Chicago Press, 1991. pp269-301.
Publication-Status: published as A Cross-Country Study of Growth, Saving, and Government, Robert J. Barro. in National Saving and Economic Performance, Bernheim and Shoven. 1991
Abstract: Models of endogenous economic growth can generate long-term growth without relying on exogenous changes in technology or population. A general feature of these models is the presence of constant or increasing returns in the factors that can be accumulated. I use some models of this type to study the determination of per capita growth, investment in physical and human capital, and population growth. The determinants of these variables involve aspects of government policy - including public infrastructure services, maintenance of property rights, government consumption, and taxation - and the initial level of per capita income. I examine the predicted relationships by using a cross-country sample that expands on the Summers-Heston set of about 120 countries. Aside from their data on levels of per capita GDP and the breakdown of GDP into components, I have added information about the composition of government expenditures, proxies for economic freedom and property rights, measures of political stability, and so on. This expansion in variables reduced the number of countries to 72. The findings verify some of the predictions about the determination of growth and investment/saving rates. For example, government consumption and investment spending, and proxies for economic freedom show up as suggested by the models. Also, the interplay among population growth, investment in human capital (school enrollment), and the initial level of per capita income confirm theoretical predictions about the tradeoff between the quantity and quality of children. I anticipate that additional results will emerge from my ongoing research in this area.
Handle: RePEc:nbr:nberwo:2855
Template-Type: ReDIF-Paper 1.0
Title: Quantifying International Capital Mobility in the 1980s
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 2856
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2856
File-URL: http://www.nber.org/papers/w2856.pdf
File-Format: application/pdf
Publication-Status: published as Bernheim, B. Douglas and John B. Shoven (eds.) National Saving and Economic Performance. Chicago: The University of Chicago Press, 1991.
Publication-Status: published as Reprinted in On Exchange Rates, J. Frankel, MIT Press, Cambridge, 1993
Publication-Status: published as Reprinted in Dilip Das ed., International Finance, Routledge, London 1993
Publication-Status: published as Quantifying International Capital Mobility in the 1980s, Jeffrey A. Frankel. in National Saving and Economic Performance, Bernheim and Shoven. 1991
Abstract: The Feldstein-Horioka finding, that national saving and investment have been highly correlated in the past, has not been primarily due to econometric problems such as endogenous fiscal policy; it has held up equally well when instrumental variables are used. But the inflow of capital to the United States has been so large in recent years that an updating of the sample period to 1987 produces a coefficient on national saving that is lower than in past studies. This decline in the degree of crowding out of investment can be attributed to the increased degree of financial market integration in the 1980s. Capital controls and other bathers to the movement of capital across national borders remained for such countries as the United Kingdom and Japan as recently as 1979, and France and Italy as recently as 1986. But a new data set of forward exchange rates for 25 countries shows that a continuing worldwide trend of integration of financial markets in the 1980s had all but eliminated short-term interest differentials for major industrialized countries by 1988. It is only the country premium that has been eliminated however, this means that only covered interest differentials are small. Nominal and real exchange rate variability remain, and indeed were larger in the 1980s than in the 1970s. The result is that a currency premium remains, consisting of an exchange risk premium plus expected real currency depreciation. The popular null hypothesis that expected real depreciation is constant at zero is tested, and rejected, with a 119-year sample. (Post-1973 data sets do not allow enough observations to provide a useful test of this null hypothesis.) The existence of expected real depreciation means that, even if interest rates are equalized internationally when expressed in a common currency, large differentials in j interest rates remain. Investors have no incentive to arbitrage away such differentials. Because there is no force tying the domestic real interest rate to the world real interest rate, it follows that there is no reason to expect any country's shortfalls of national saving to be completely financed by borrowing from abroad.
Handle: RePEc:nbr:nberwo:2856
Template-Type: ReDIF-Paper 1.0
Title: Trends in Worker Demand for Union Representation
Author-Name: Henry S. Farber
Note: LS
Number: 2857
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2857
File-URL: http://www.nber.org/papers/w2857.pdf
File-Format: application/pdf
Publication-Status: published as "Trends in Workier Demand for Union Representation" American Economic Review, May 1989.
Abstract: The dramatic decline in the demand for union representation among nonunion workers over the last decade is investigated using data on worker preferences for union representation from four surveys conducted in 1977, 1980, 1982, and 1984. Relatively little of the decline can be accounted for by shifts in labor force structure. However, virtually all of the decline is correlated with an increase in the satisfaction of nonunion workers with their jobs and a decline in nonunion workers' beliefs that unions are able to improve wages and working conditions.
Handle: RePEc:nbr:nberwo:2857
Template-Type: ReDIF-Paper 1.0
Title: Employment, Unemployment and Demand Shifts in Local Labor Markets
Author-Name: Harry J. Holzer
Author-Person: pho162
Note: LS
Number: 2858
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2858
File-URL: http://www.nber.org/papers/w2858.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 73, no. 1 (1991): 25-32. Published as "Structural/Frictional and Demand-Deficient Unemployment in Local Labor Markets", Industrial Relations, Vol. 32, no. 3 (1993): 307-328.
Abstract: This paper analyzes the effects of demand shifts within and between local labor markets on unemployment and employment levels and changes observed in those markets. Between-market demand shifts are measured by the means of sales growth for firms in each market, while within-market shifts are measured by variances in each. The variances are also decomposed into between-industry and within-industry components. Some firm-level evidence on job applicants, training and wage and employment adjustments in growing and declining firms is presented as well. The results show that demand shifts between markets account for large fractions of the observed variation in unemployment and employment rate levels and changes across markets. Within-area shifts cause much smaller and insignificant amounts of unemployment if they are between-industry, while shifts within areas and industries (accounting for the vast majority of demand shifts across firms) have no clear effects. The results therefore suggest that the unemployment effects of demand shifts depend on adjustment costs, which appear to be greatest for shifts between markets. Nonlinearities in estimated effects and growing dispersion of unemployment rates across areas also suggest that demand shifts may have raised aggregate unemployment in the U.S. in recent years.
Handle: RePEc:nbr:nberwo:2858
Template-Type: ReDIF-Paper 1.0
Title: But They Don't Want to Reduce Housing Equity
Author-Name: Steven F. Venti
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG
Number: 2859
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2859
File-URL: http://www.nber.org/papers/w2859.pdf
File-Format: application/pdf
Publication-Status: published as Issues in the Economics of Aging, edited by David A. Wise, pp. 13-29. Chicago: The University of Chicago Press, 1990.
Publication-Status: published as But They Don't Want to Reduce Housing Equity, Steven F. Venti, David A. Wise. in Issues in the Economics of Aging, Wise. 1990
Abstract: The majority of the wealth of most elderly is in the form of housing equity. It is often claimed that many elderly would transfer wealth from housing to finance current consumption expenditure, were it not for the large transaction costs associated with changes in housing equity. This is the rationale for a market in reverse annuity mortgages. This paper considers whether transaction costs, understood to include the psychic costs associated with leaving friends, family surroundings, and the like, prevent the elderly from making choices that would improve their financial circumstances. The analysis considers jointly the probability that an elderly family will move and the housing equity that is chosen when a move occurs. The results are based on the decisions of the Retirement History Survey sample between 1969 and 1919. Relative to the potential gains from a reallocation of wealth between housing equity and other assets, transaction costs are very large. Nonetheless, the effect on the housing equity of the elderly is very small. On balance, were all elderly to move and choose optimum levels of housing equity, the amount of housing equity would be increased slightly. Most elderly are not liquidity constrained. And contrary to standard formulations of the life cycle hypothesis, the typical elderly family has no desire to reduce housing equity. The desired reduction of housing equity is largest among families with low income and high housing wealth, but even in this case the desired reductions are rather small. And these desired reductions are more than offset by the desired increases of other families, especially those with high income and low housing wealth. Thus, consistent with the previous findings of Venti and Wise and of Feinstein and McFadden, limited demand may explain the absence of a market for reverse annuity mortgages.
Handle: RePEc:nbr:nberwo:2859
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Government on the Economic Status of Black Americans
Author-Name: James J. Heckman
Note: LS
Number: 2860
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2860
File-URL: http://www.nber.org/papers/w2860.pdf
File-Format: application/pdf
Publication-Status: published as "Determining the Impact of Federal Antidiscrimination Policy on the Economic Status of Blacks: A Study of South Carolina" The American Economic Review, Vol. 79, No. 1, Mar., 1989
Abstract: This paper reviews recent evidence on black economic progress. It notes that while relative status increased over the period 1965-1981, absolute differentials in real earnings between blacks and whites widened over this period. The paper goes out to summarize recent studies of the impact of government on the economic status of black Americans. Educational policy has a strong effect. The evidence on affirmative action programs is mixed. There is an intrinsic bias in the methods used toward finding no effect of affirmative action programs. Selection bias effects do not account for more than 10-12% of measured wage growth of black males.
Handle: RePEc:nbr:nberwo:2860
Template-Type: ReDIF-Paper 1.0
Title: Choosing Among Alternative Nonexperimental Methods for Estimating the Impact of Social Programs: The Case of Manpower Training
Author-Name: James J. Heckman
Note: LS
Number: 2861
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2861
File-URL: http://www.nber.org/papers/w2861.pdf
File-Format: application/pdf
Publication-Status: published as Heckman, James J. and V. Joseph Hotz. "Choosing Among Alternative Nonexperimental Methods For Estimating The Impact Of Social Programs: The Case Of Manpower Training: Rejoinder," Journal of the American Statistical Association, 1989, v84(408), 878-880.
Abstract: The recent literature on evaluating manpower training programs demonstrates that alternative nonexperimental estimators of the same program produce a array of estimates of program impact. These findings have led to the call for experiments to be used to perform credible program evaluations. Missing in all of the recent pessimistic analyses of nonexperimental methods is any systematic discussion of how to choose among competing estimators. This paper explores the value of simple specification tests in selecting an appropriate nonexperimental estimator. A reanalysis of the National Supported Work Demonstration Data previously analyzed by proponents of social experiments reveals that a simple testing procedure eliminates the range of nonexperimental estimators that are at variance with the experimental estimates of program impact.
Handle: RePEc:nbr:nberwo:2861
Template-Type: ReDIF-Paper 1.0
Title: Unemployment, Inflation, and Wages in the American Depression: Are There Lessons for Europe?
Author-Name: Ben Bernanke
Author-Person: pbe55
Author-Name: Martin Parkinson
Note: EFG
Number: 2862
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2862
File-URL: http://www.nber.org/papers/w2862.pdf
File-Format: application/pdf
Publication-Status: published as "Unemployment, Inflation, and Wages in the American Depression: Are There Lessons for Europe?" American Economic Review, papers and proceed-ings, May 1989, vol. 79, no.2 pp. 210-214, with Martin Parkinson
Abstract: In this paper, we consider whether there are lessons to be drawn from the experience of the American economy during the 1930's for the current European situation. The comparison reveals some important differences: In particular, the persistence of American unemployment in the 1930's reflected to a much greater degree a sequence of large destabilizing shocks, and much less a low-level equilibrium trap, than does modern European unemployment. The self-correcting tendencies of the 1930's U.S. economy were probably much stronger than is generally acknowledged. However, the experience of the Depression era confirms the modern observation that the level of unemployment does not much affect the rate of inflation--an observation that, we argue, is consistent with macro theory. The Depression experience also supports the impression that political factors are important in real wage determination.
Handle: RePEc:nbr:nberwo:2862
Template-Type: ReDIF-Paper 1.0
Title: Integration of the International Capital Markets: The Size of Government and Tax Coordination
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Efraim Sadka
Author-Person: psa492
Note: PE ITI IFM
Number: 2863
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2863
File-URL: http://www.nber.org/papers/w2863.pdf
File-Format: application/pdf
Publication-Status: published as "Integration of International Capital Markets: The Size of Government and Tax Coordination." From Taxation in the Global Economy, edited by Assaf Razin and Joel Slemrod, pp. 331-348. Chicago: The University of Chicago Press, 1990.
Publication-Status: published as Integration of International Capital Markets: The Size of Government and Tax Coordination, Assaf Razin, Efraim Sadka. in Taxation in the Global Economy, Razin and Slemrod. 1990
Abstract: International-capital market integration has become a key policy issue in the prospective integration of Europe of 1992. In this context this paper provides a theoretical analysis of the effects of relaxing restrictions on the international flow of capital on the fiscal branch of government: the optimal provision of public goods, the structure of taxation and income redistribution policies. Concerning issues of interdependent economies the paper analyzes the scope of tax coordination. The major findings are: (a) with no administrative barriers to capital flows the optimal policy is to tax income from investment abroad and from investments at home at the same time; (b) the cost of public funds falls and the supply of public goods rises if restrictions on international capital flows are relaxed: (c) the amount of income redistributions increases with the international capital market liberalization; (d) some minimal degree of tax coordination (such as origin-based or source-based tax schemes) is essential for the existence of an equilibrium in an integrated world economy.
Handle: RePEc:nbr:nberwo:2863
Template-Type: ReDIF-Paper 1.0
Title: Adverse Selection in Credit Markets and Infant Industry Protection
Author-Name: Harry Flam
Author-Name: Robert W. Staiger
Author-Person: pst85
Note: ITI IFM
Number: 2864
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2864
File-URL: http://www.nber.org/papers/w2864.pdf
File-Format: application/pdf
Publication-Status: published as International Trade and Trade Policy, E. Helpman and A. Razin, eds., MIT Press, 1991
Abstract: This paper considers the role for infant industry protection when credit markets suffer from adverse risk selection. We show that asymmetric information about firm-specific risk leads to under-funding of the infant industry in a competitive credit market. A small amount of infant industry protection is shown to be welfare improving, and the optimal infant industry tariff is derived. Finally, an alternative government policy of production subsidies is considered under the assumption that the government shares private knowledge with infant industry firms. We argue that a tariff may dominate production subsidies as an entry promoting devise in this context.
Handle: RePEc:nbr:nberwo:2864
Template-Type: ReDIF-Paper 1.0
Title: Facts and Factors in the Recent Evolution of Business Cycles in the United States
Author-Name: Victor Zarnowitz
Note: EFG
Number: 2865
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2865
File-URL: http://www.nber.org/papers/w2865.pdf
File-Format: application/pdf
Publication-Status: published as Victor Zarnowitz, 1992. "Facts and Factors in the Modern Evolution of U. S. Economic Fluctuations," NBER Chapters, in: Business Cycles: Theory, History, Indicators, and Forecasting, pages 77-124 National Bureau of Economic Research, Inc.
Abstract: A reexamination of data indicates a great diversity of cyclical experience in both the distant and recent history, but also a distinct moderation of the business cycle in the postwar era (shorter and milder contractions). This is consistent with long and widely held views, but contrary to some recent claims. A list of possible sources of the moderation is presented, and several hypotheses are examined. There is evidence that some structural shifts (in employment, not in the consumption-investment mix) had a net stabilizing influence. Institutional changes helped mainly by improving the functioning of the financial system. Automatic fiscal stabilizers played an important role. It is difficult to grade the record of macroeconomic policies because it is very mixed, and the active and passive elements in policy are both important and intermingled. Historical assessments and statistical tests suggest that this is true for both fiscal and monetary actions, which were often mistimed, misestimated, or mismatched. Still, some net stabilization was probably achieved. Also, the moderation of the business cycle itself induced some positive changes in expectations and behavior of private economic agents. Most of these factors worked better in the first than in the second half of the postwar period, when cyclical instability increased along with rises in the levels and variability of inflation and interest rates.
Handle: RePEc:nbr:nberwo:2865
Template-Type: ReDIF-Paper 1.0
Title: Devaluation Crises and the Macroeconomic Consequences of Postponed Adjustment in Developing Countries
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Peter Montiel
Note: ITI IFM
Number: 2866
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2866
File-URL: http://www.nber.org/papers/w2866.pdf
File-Format: application/pdf
Publication-Status: published as Sebastian Edwards & Peter J. Montiel, 1989. "Devaluation Crises and the Macroeconomic Consequences of Postponed Adjustment in Developing Countries," Staff Papers - International Monetary Fund, vol 36(4).
Abstract: This paper develops our analytical model to explore the relationship between the dynamics of macroeconomic adjustment and the timing of the implementation of an adjustment program featuring an official devaluation. The effects of postponing adjustment depend on the source of the original shock, In the case of fiscal expansion, postponement implies a larger eventual official devaluation and greater deviations of macroeconomic variables from their steady-state values. For adverse terms of trade shocks, postponement does not affect the size of the eventual official devaluation, but does magnify the amount of post-devaluation overshooting by key macroeconomic variables.
Handle: RePEc:nbr:nberwo:2866
Template-Type: ReDIF-Paper 1.0
Title: Dealing With Debt: The 1930s and the 1980s
Author-Name: Barry Eichengreen
Author-Person: pei2
Author-Name: Richard Portes
Author-Person: ppo132
Note: ITI IFM
Number: 2867
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2867
File-URL: http://www.nber.org/papers/w2867.pdf
File-Format: application/pdf
Publication-Status: published as Dealing with the Debt Crisis, edited by Ishrat Husain and Ishac Diwan, pp. 69-86. Washington, DC: The World Bank, 1989.
Abstract: This paper analyzes the sovereign defaults of the 1930s and their implications for the debt crisis of the 1980s. It reports nine major findings. There is little evidence that financial markets have grown more sophisticated' over time, or that banks have a comparative advantage over the bond market in processing information. (2) Debt default in the 1930s depended on a combination of factors,. including the magnitude of the external shocks, the level of debt, and: the: economic policy response , as well as on a range, of: noneconomic considerations. (3) Countries which interrupted service recovered more quickly from the Great Depression than countries which resisted default. This contrasts with the experience of the 1980s, when no clearcut relationship exists (4) There is little evidence that countries which defaulted in the 19305 suffered inferior capital market access subsequently. (S} The readjustment of defaulted debts was protracted: the analogy with Chapter 11 corporate bankruptcy proceedings is no more applicable to the 1930s than to the 1980s. (6) Although default led in some cases to a substantial reduction of transfers from debtors to creditors, on balance returns on sovereign loans compared favorably with returns on domestic investments. (7) Creditor-country governments did more in the 'thirties than in the 'eighties to accelerate the settlement process. (3) Global schemes analogous to the Baker Plan were widely proposed but never implemented. (9) In contrast, market-based debt reduction in the form G debt buybacks played a useful role in the resolution of the crisis.
Handle: RePEc:nbr:nberwo:2867
Template-Type: ReDIF-Paper 1.0
Title: Inward Versus Outward Growth Orientation in the Presence of Country Risk
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 2868
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2868
File-URL: http://www.nber.org/papers/w2868.pdf
File-Format: application/pdf
Publication-Status: published as Economica, Vol. 58, pp. 57-77, (February 1991).
Abstract: The purpose of this paper is to model the role of trade dependency in determining the access of a developing economy to the international credit market, and its desirable growth strategy. With full integration of capital markets the choice with respect to the inwardness of a technology is irrelevant: investment will be channeled to the more productive sectors, independently of their trade inwardness, With limited capital market integration a given investment will generate two effects. The first is the standard, direct productivity effect that is associated with the change in future output. The second is the trade dependency externality, generated by the change in future bargaining outcomes due to the change in the trade dependency of the nation. With partial integration, investment that increases trade dependency is desirable. If the credit markets are disjoint due to partial defaults, higher trade dependency is disadvantageous. Thus, higher trade dependency generates a positive externality with partial integration of capital markets, and a negative externality with disjoint credit markets. We show that credit market integration is determined by the size of the indebtedness relative to the trade dependency, as reflected by the repayment burden that is supported by the bargaining outcome. The repayment bargaining outcome is determined by the sectoral composition of the economy and by the effective size of the developing and the developed economies.
Handle: RePEc:nbr:nberwo:2868
Template-Type: ReDIF-Paper 1.0
Title: Dynamic Seigniorage Theory: An Exploration
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: EFG ITI IFM
Number: 2869
Creation-Date: 1989-02
Order-URL: http://www.nber.org/papers/w2869
File-URL: http://www.nber.org/papers/w2869.pdf
File-Format: application/pdf
Publication-Status: published as Obstfeld, Maurice, 1997. "Dynamic Seigniorage Theory," Macroeconomic Dynamics, Cambridge University Press, vol. 1(03), pages 588-614, September.
Abstract: This paper shows that the optimal extraction of seigniorage implies a strong tendency for inflation to fall over time toward its socially optimal level. The point is made using a multi-period model in which (i) the government can finance deficits through bond issue or money creation, (ii) private-sector expectations are rational, and (iii) the government sets the inflation rate each period in a discretionary manner. One way to view the model is as a synthesis of the "tax-smoothing" theory of government deficits, which predicts that the inflation tax follows approximately a martingale, and of models of discretionary policy making, which predict (absent reputation effects) that inflation is likely to exceed its socially optimal level. Both predictions are modified when the two approaches to explaining inflation are merged. Reputation effects play no role in the analysis.
Handle: RePEc:nbr:nberwo:2869
Template-Type: ReDIF-Paper 1.0
Title: The Employer Size-Wage Effect
Author-Name: Charles Brown
Author-Person: pbr341
Author-Name: James L. Medoff
Note: LS
Number: 2870
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2870
File-URL: http://www.nber.org/papers/w2870.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 97, No. 5, pp. 1027-1059, (October 1989)
Abstract: We consider six explanations for the positive relationship between employer size and wages -- large employers (1) hire higher quality workers; (2) offer inferior working conditions; (3) make more use of high wages to forestall unionization; (4) have more ability to pay high wages; (5) face smaller pools of applicants relative to vacancies; (6) are less able to monitor their workers. We find some support for the first of these, but there remains a significant wage premium for those working for large employers.
Handle: RePEc:nbr:nberwo:2870
Template-Type: ReDIF-Paper 1.0
Title: Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 2871
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2871
File-URL: http://www.nber.org/papers/w2871.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. 106, no. 4, pp. 1157-89, November 1991
Abstract: This paper presents new evidence on the reasons for the recent decline in the fraction of unemployed workers who receive unemployment insurance benefits. Using samples of unemployed workers from the March Current Population Survey, we estimate the fraction of unemployed workers who are potentially eligible for benefits in each year and compare this to the fraction who actually receive unemployment compensation. Perhaps surprisingly, we find that the decline in the fraction of insured unemployment is due to a decline in the takeup rate for benefits . Our estimates indicate that takeup rates declined abruptly between 1980 and 1982, leading to a 6 percentage point decline in the fraction of the unemployed who receive benefits. We go on to analyze the determinants of the takeup rate for unemployment benefits, using both aggregated state-level data and micro-data from the Panel Study of Income Dynamics. Changes in the regional distribution of unemployment account for roughly one-half of the decline in average takeup rates. The remainder of the change is largely unexplained.
Handle: RePEc:nbr:nberwo:2871
Template-Type: ReDIF-Paper 1.0
Title: Private Sector Training and its Impact on the Earnings of Young Workers
Author-Name: Lisa M. Lynch
Author-Person: ply3
Note: LS
Number: 2872
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2872
File-URL: http://www.nber.org/papers/w2872.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, March 1992, pp. 299-312.
Abstract: While there have been numerous studies devoted to examining the impact of governmental training programs on workers who? have experienced difficulties in the labor market, there has been remarkably little research on the actual occurrence and consequences of training provided by the private sector in the U.S .. Using data from the new National Longitudinal Survey youth cohort, this paper analyzes how personal characteristics including employment histories, and local demand conditions determine the probability of receiving training and its effect on wages and wage growth of young workers. More specifically, some of the issues addressed here include the relative importance of training and tenure for wage determination and the rate of return to company provided training compared to the rate of return to training received outside the firm and schooling. The portability of company training from employer to employer and the existence of differentials in the returns to training by union status, race and sex are also investigated.
Handle: RePEc:nbr:nberwo:2872
Template-Type: ReDIF-Paper 1.0
Title: International Effects of Tax Reforms
Author-Name: Jacob A. Frenkel
Author-Name: Assaf Razin
Author-Person: pra388
Note: ITI IFM
Number: 2873
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2873
File-URL: http://www.nber.org/papers/w2873.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Journal, Vol. 99, No. 395, pp. 38-58, (Supplement 1989).
Abstract: This paper highlights the significance of open-economy considerations in the analysis of tax reforms. It focuses on domestic and international consequences of revenue-neutral conversions between income and value-added tax systems. The principal conclusion of this investigation is that the direction of changes in the world rate of interest, the domestic tax-adjusted rate of interest, domestic and foreign investment, growth rates of consumption, and other key macroeconomic variables consequent on revenue-neutral tax reforms depend on whether the country adopting the tax reform runs a surplus or a deficit in the current account of its balance of payments. For example, a conversion from an income to a value-added tax system lowers the world rate of interest if the country adopting the reform runs a surplus in the current account of its balance of payments, but raises the world rate of interest if its current account is in a deficit. The paper also examines the implications of such reforms in the presence of direct foreign investment and considers alternative specifications of tax treatments, one based on the source of income, and the other on the country of residence of the taxpayer. It demonstrates the robustness of the key propositions to these alternatives.
Handle: RePEc:nbr:nberwo:2873
Template-Type: ReDIF-Paper 1.0
Title: School District Leave Policies, Teacher Absenteeism, and Student Achievement
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Randy A. Ehrenberg
Author-Name: Daniel I. Rees
Author-Person: pre268
Author-Name: Eric L. Ehrenberg
Note: LS
Number: 2874
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2874
File-URL: http://www.nber.org/papers/w2874.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Human Resources, Vol. 26, No. 1, pp. 72-105, (Winter 1991).
Abstract: In an effort to reduce salary costs, many school districts have begun to offer teachers financial incentives to retire early. Often, however, these districts have limits on the number of cumulated unused sick leave days that teachers may receive cash payments, credits toward future health insurance, or retirement credits for, at retirement. Thus, one might expect that in addition to stimulating early retirement, early retirement incentive programs may interact with sick leave provisions and provide an unintended incentive for increased teacher absenteeism. To the extent that less learning occurs when regular teachers are absent and student motivation to attend school is also reduced, student academic performance may suffer. This surely would be an unintended side effect of these policies. To address these issues, this paper, which is based on an extensive data collection effort by the authors, presents an econometric analyses of variations in teacher and student absenteeism across the over 700 school districts in New York State in 1986-87 and of how such variations influence student test score performance.
Handle: RePEc:nbr:nberwo:2874
Template-Type: ReDIF-Paper 1.0
Title: The Size and Incidence of the Losses from Noise Trading
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: 2875
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2875
File-URL: http://www.nber.org/papers/w2875.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Finance, Vol. XLIV, No. 3, pp. 681-696, (July 1989).
Abstract: Recent empirical research has identified a significant amount of volatility in stock prices that cannot be easily explained by changes in fundamentals; one interpretation is that asset prices respond not only to news but also to irrational "noise trading." We assess the welfare effects and incidence of such noise trading using an overlapping-generations model that gives investors short horizons. We find that the additional risk generated by noise trading can reduce the capital stock and consumption of the economy, and we show that part of that cost may be borne by rational investors. We conclude that the welfare costs of noise trading may be large if the magnitude of noise in aggregate stock prices is as large as suggested by some of the recent empirical literature on the excess volatility of the market.
Handle: RePEc:nbr:nberwo:2875
Template-Type: ReDIF-Paper 1.0
Title: Cost-Reducing and Demand-Creating R&D With Spillovers
Author-Name: Richard C. Levin
Author-Name: Peter C. Reiss
Note: PR
Number: 2876
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2876
File-URL: http://www.nber.org/papers/w2876.pdf
File-Format: application/pdf
Publication-Status: published as Richard C. Levin & Peter C. Reiss. "Cost-Reducing and Demand-Creating R&D with Spillovers," The RAND Journal of Economics, Vol. 19, No. 4 (Winter, 1988), pp. 538-556 (19 pages)
Abstract: This paper analyzes R&D policies when the returns to cost-reducing and demand-creating R&D are imperfectly appropriable and market structure is endogenous. Previous characterizations of appropriability are generalized to permit the possibility that own and rival R&D are imperfect substitutes. We also describe how. equilibrium expenditures on process and product R&D, as well as equilibrium market structure, depend on technological opportunities and spillovers. In contrast to previous work, diminished appropriability does not necessarily reduce R&D expenditures. For example, under some conditions, an increase in the extent of process (product) spillovers will lead to an increase in product (process) R&D. We estimate several variants of the model using manufacturing line of business data and data from a survey of R&D executives.
Handle: RePEc:nbr:nberwo:2876
Template-Type: ReDIF-Paper 1.0
Title: The Production Smoothing Model is Alive and Well
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: EFG
Number: 2877
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2877
File-URL: http://www.nber.org/papers/w2877.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 24, No. 3, pp. 353-370, (1989).
Abstract: Monthly data in physical units for seven industries are used to examine the production smoothing hypothesis. The results strongly support this hypothesis. Significant effects of expected future sales on current production are found for four industries, and the estimated decision equations for all seven industries imply production smoothing behavior. The previous negative results regarding the hypothesis appear to be due to the use of poor data, particularly the shipments and inventory data of the Department of Commerce.
Handle: RePEc:nbr:nberwo:2877
Template-Type: ReDIF-Paper 1.0
Title: Price and Output Adjustment in Japanese Manufacturing
Author-Name: William H. Branson
Author-Name: Richard C. Marston
Note: ITI IFM
Number: 2878
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2878
File-URL: http://www.nber.org/papers/w2878.pdf
File-Format: application/pdf
Publication-Status: published as International Productivity and Competitiveness. ed. Bert Hickman, Oxford: Oxford University Press, 1990.
Abstract: This paper investigates the importance of markup behavior in Japanese manufacturing. According to the evidence presented, Japanese firms have varied the markups of prices over marginal costs in order to limit the effects of exchange rate changes on output. This behavior is quite different from that found in U.S. manufacturing where output and employment have borne the main impact of recent exchange rate changes. The paper examines markups in nine sectors of manufacturing which are major producers of exports. In all nine sectors, Japanese prices prove to be highly sensitive to foreign prices and exchange rates as well as to more traditional demand and supply variables. The paper shows that variable markups rather than high price elasticities account for this price behavior, since output is relatively insensitive to prices or exchange rates.
Handle: RePEc:nbr:nberwo:2878
Template-Type: ReDIF-Paper 1.0
Title: Is the Bank of Japan a Closet Monetarist? Monetary Targeting in Japan, 1978-1988
Author-Name: Takatoshi Ito
Note: ME
Number: 2879
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2879
File-URL: http://www.nber.org/papers/w2879.pdf
File-Format: application/pdf
Abstract: This paper investigates whether the Bank of Japan has practiced a monetarist rule since 1975. The Bank of Japan (BOJ) published a report in 1975, stating that it would pay close attention to money supply (M2), and in 1978 started announcing quarterly the "forecast" (targets) of monetary (M2) growth rate. Since 1975. the monetary growth rate has gradually declined, and inflation has subsided without causing a major fluctuation in output. This seems to be a successful case of the monetarist experiment. Has the EOJ practiced a monetarist rule, i.e., an announcement and maintenance of the K2 growth target? This paper reveals that it has not. The BOJ "forecasts" were quite accommodative in that an unexpected increase in actual money supply would make "forecasts" to allow a further increase in money supply. In other words, a "forecast" did not behave like a "target" under a strict monetarist rule. Testing a monetarist rule with "forecasts" is shown to be more powerful than testing with the actual process, under some weak assumptions. One of the necessary assumptions is that "forecasts" are rational expectations, and the rational expectations hypothesis is not rejected by the data. Thus, the conclusion of this paper is negative to a question posed by its title. Takatoshi
Handle: RePEc:nbr:nberwo:2879
Template-Type: ReDIF-Paper 1.0
Title: Positive Feedback Investment Strategies and Destabilizing Rational Speculation
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: 2880
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2880
File-URL: http://www.nber.org/papers/w2880.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 45, No. 2, (June 1990), pp. 374-97.
Abstract: Analyses of the role of rational speculators in financial markets usually presume that such investors dampen price fluctuations by trading against liquidity or noise traders. This conclusion does not necessarily hold when noise traders follow positive-feedback investment strategies buy when prices rise and sell when prices fall. In such cases, it may pay rational speculators to try to jump on the bandwagon early and to purchase ahead of noise trader demand. If rational speculators' attempts to jump on the bandwagon early trigger positive-feedback investment strategies, then an increase in the number of forward-looking rational speculators can lead to increased volatility of prices about fundamentals.
Handle: RePEc:nbr:nberwo:2880
Template-Type: ReDIF-Paper 1.0
Title: Policy Analysis With a Multicountry Model
Author-Name: John B. Taylor
Author-Person: pta174
Note: EFG ITI IFM
Number: 2881
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2881
File-URL: http://www.nber.org/papers/w2881.pdf
File-Format: application/pdf
Publication-Status: published as Macroeconomic Policies in an Interdependent World, edited by Ralph C. Bryant et al., pp. 122-141. Washington, DC: International Monetary Fund, 1989.
Abstract: This paper summarizes the results of an empirical study of alternative international monetary arrangements using a multicountry, rational expectations, econometric model of the G-7 countries; Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. The model is fit to quarterly data and the effect of different monetary rules on the performance of the economy is determined by stochastic simulations of the estimated model. The results indicate that, with the current international economic structure, internal stability as well as external stability would be greater if Germany, Japan and the United States oriented their monetary policies toward domestic price stability, or perhaps towards domestic nominal GNP stability, rather than towards fixing the exchange rates between them. Empirical measures of demand and supply elasticities and of the average size of the shocks to the demand and supply curves are used in the analysis. Thus the advantage that one international monetary arrangement has for dealing with one type of shock is assessed and measured up against the advantage that another arrangement has for dealing with other types of shocks. It turns out that in this assessment a more flexible exchange rate system between Germany, Japan, and the United States does better than a fixed exchange rate system.
Handle: RePEc:nbr:nberwo:2881
Template-Type: ReDIF-Paper 1.0
Title: Real Business Cycles: A New Keynesian Perspective
Author-Name: N. Gregory Mankiw
Note: EFG ME
Number: 2882
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2882
File-URL: http://www.nber.org/papers/w2882.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 3, No. 3, pp. 79-90, (Summer 1989).
Abstract: This paper is a critique of the latest new classical theory of economic fluctuations. According to this theory, the business cycle is the natural and efficient response of the economy to exogenous changes in the available production technology. This paper discusses several versions of this theory and argues that this line of research is unlikely to yield an empirically plausible explanation of observed economic fluctuations.
Handle: RePEc:nbr:nberwo:2882
Template-Type: ReDIF-Paper 1.0
Title: Empirical Research on Trade Liberalization With Imperfect Competition: A Survey
Author-Name: J. David Richardson
Note: ITI IFM
Number: 2883
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2883
File-URL: http://www.nber.org/papers/w2883.pdf
File-Format: application/pdf
Publication-Status: published as Empirical Research on Trade Liberalisation with Imperfect Competition: A Survey." From OECD Economic Studies, No. 1/2, pp. 7-50, (Spring 1989).
Abstract: This paper attempts a synthetic census of the calibration/counterfactual style of empirical research on the benefits of trade liberalization with imperfect competition and scale economies. Computable-general-equilibrium studies are surveyed, as are a large number of partial-equilibrium studies in the same style. Microeconomic foundations common to almost all of the studies are discussed algebraically, and the corresponding general-equilibrium structure is discussed graphically. The first typical conclusion from the studies surveyed is that calculated gains in national purchasing power are usually two to three times the size of those estimated in traditional frameworks with perfect competition. Only occasionally are welfare losses calculated from trade liberalization, although such losses are quite possible in theory, as a large recent literature has shown. The second typical conclusion is that calculated adjustment pressures from trade liberalization are considerably higher than implied in most commentary, and higher also than estimates from traditional models. Adjustment pressures describe stimuli for workers to shift activities, for firms to grow or die, for industries to expand or contract, and for trading-partner shares to be altered.
Handle: RePEc:nbr:nberwo:2883
Template-Type: ReDIF-Paper 1.0
Title: Measurement Error In Cross-Sectional and Longitudinal Labor Market Surveys: Results From Two Validation Studies
Author-Name: John Bound
Author-Person: pbo406
Author-Name: Charles Brown
Author-Person: pbr341
Author-Name: Greg J. Duncan
Author-Person: pdu397
Author-Name: Willard L. Rodgers
Note: LS
Number: 2884
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2884
File-URL: http://www.nber.org/papers/w2884.pdf
File-Format: application/pdf
Publication-Status: published as J. Hartog, G. Ridder, and J. Teevwes, eds., Panel Data and Labor Market Studies, Elsevier, 1990, pp.1-19
Abstract: This paper reports evidence on the error properties of survey reports of labor market variables such as earnings and work hours. Our primary data source is the PSID Validation Study, a two-wave panel survey of a sample of workers employed by a large firm which also allowed us access to its very detailed records of its workers earnings. etc. The second data source uses individuals' 1977 and 1978 (March Current Population Survey) reports of earnings, matched to Social Security earnings records. In both data sets, individuals: reports of earnings are fairly accurately reported, and the errors are negatively related to true earnings. The latter property reduces the bias due to measurement error when earnings are used as an independent variable, but (unlike the classical-error case) leads to some bias when earnings are the dependent variable. Measurement-error-induced biases when change in earnings is the variable of interest are larger, but not dramatically so. Various measures of hourly earnings were much less reliable than annual earnings. Retrospective reports of unemployment showed considerable under-reporting, even of long spells.
Handle: RePEc:nbr:nberwo:2884
Template-Type: ReDIF-Paper 1.0
Title: The Extent of Measurement Error In Longitudinal Earnings Data: Do Two Wrongs Make A Right?
Author-Name: John Bound
Author-Person: pbo406
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 2885
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2885
File-URL: http://www.nber.org/papers/w2885.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Volume 9, Number 1, January 1991, pp. 1-24.
Abstract: This paper examines the properties and prevalence of measurement error in longitudinal earnings data. The analysis compares Current Population Survey data to administrative Social Security payroll tax records for a sample of heads of households over two years. In contrast. to the typically assumed properties of measurement error, the results indicate that errors are serially correlated over two years and negatively correlated with true earnings (i.e., mean reverting). Moreover, reported earnings are more reliable for females than males. Overall, the ratio of the variance of the signal to the total variance is .82 for men and .92 for women. These ratios fall to .65 and .81 when the data are specified in first-differences. The estimates suggest that longitudinal earnings data may be more reliable than previously believed.
Handle: RePEc:nbr:nberwo:2885
Template-Type: ReDIF-Paper 1.0
Title: Recent Trends in Housing Conditions Among the Urban Poor
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 2886
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2886
File-URL: http://www.nber.org/papers/w2886.pdf
File-Format: application/pdf
Publication-Status: published as Research in Urban Economics. (ed) Mark A Hughes, and Therese J McGuire. JAI Press: Greenwich, CT, 1990.
Abstract: In this paper we examine the trends in housing conditions among the urban poor over the last decade, relate these trends to the economic environments of the cities, and compare the poor to other income groups. We find that there has been a substantial decrease in "housing independence" -- among the poor, the percentage of family heads who live with their parents has risen, and the percentage of family heads who are also household heads has fallen. In addition, the incidence of homeownership among the poor has decreased, and the incidence of multiple-family-unit households has increased. These same trends also show up among higher-income families, although they are typically smaller in magnitude. This paper provides little evidence for the popular hypothesis that changes in housing attributes over the last decade are predominantly related to changes in housing markets. Including a variety of economic variables does little to explain the trends in housing circumstances of different income groups.
Handle: RePEc:nbr:nberwo:2886
Template-Type: ReDIF-Paper 1.0
Title: Developing Country Borrowing and Domestic Wealth
Author-Name: Mark Gertler
Author-Person: pge11
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: ITI IFM
Number: 2887
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2887
File-URL: http://www.nber.org/papers/w2887.pdf
File-Format: application/pdf
Publication-Status: published as "Developing Country Borrowing and Domestic Wealth," Proceedings, Federal Bank of San Francisco, 1989.
Publication-Status: published as "North-South Lending and Endogenous Domestic Capital Market Inefficiencies," Journal of Monetary Economics, Vol. 26, No. 2, October 1990.
Abstract: We show that across developing countries, external debt to private creditors rises more than proportionately with income. We then develop a simple theoretical model consistent with this phenomenon and also consistent with the well-documented relationship between capital market development and growth. Our framework stresses information asymmetries at the level of individual borrowers as the source of frictions in world capital markets. Because of moral hazard problems, marginal products of capital and borrowing-lending spreads are higher in poorer countries. In a two-country version of the model, we demonstrate the possibility of a siphoning effect which exacerbates the costs of transfers. Also because of the siphoning effect, increased wealth in the rich country can stunt investment in the poor country.
Handle: RePEc:nbr:nberwo:2887
Template-Type: ReDIF-Paper 1.0
Title: Real Wages Over The Business Cycle
Author-Name: Robert B. Barsky
Author-Person: pba670
Author-Name: Gary Solon
Author-Person: pso215
Note: EFG
Number: 2888
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2888
File-URL: http://www.nber.org/papers/w2888.pdf
File-Format: application/pdf
Publication-Status: published as With Jeffrey A. Miron, published as "The Seasonal Cycle and the Business Cycle", Journal of Political Economy, Vol. 97, no. 3 (1989): 503-534.
Abstract: This paper is an examination of cyclical real wage behavior in the United States since World War II. Like most previous aggregate studies. ours finds little cyclicalitv in aggregate industry real wage data. On the other hand, our analysis of longitudinal microdata from the Panel Study of Income Dynamics reveals substantial procyclicality. We find that this procyclicality is obscured in industry average wage statistics, and to a lesser extent in economywide averages, because those statistics are constructed in a way that gives greater weight to low-wage workers during expansions. The almost complete absence of evidence for countercyclical real wages suggests that movements along labor demand curves have not played a dominant role in cyclical employment fluctuations over the last 40 years. Instead, the procyclicality of real wages indicates that cyclical employment fluctuations have been generated mainly by shifts in labor demand. The sources of these shifts and of the positive slope of the effective labor supply curve, however, remain open to alternative interpretations.
Handle: RePEc:nbr:nberwo:2888
Template-Type: ReDIF-Paper 1.0
Title: Financial Factors in Economic Development
Author-Name: Rudiger Dornbusch
Author-Name: Alejandro Reynoso
Note: EFG ITI IFM
Number: 2889
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2889
File-URL: http://www.nber.org/papers/w2889.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 79, no.2, May 1989, pp. 204-209.
Abstract: Financial factors have been assigned strategic importance in economic development. But very different factors have been isolated in the respective experiences: in Asia unrepressed financial markets in mobilizing saving and allocating investment have been given prominence. In Latin America the central question is the role of inflationary finance, the scope for deficits to enhance growth and, increasingly, the feedback from high and unstable inflation to poor economic performance. This paper reviews and contrasts the two approaches and concludes that the strong claims for the benefits of financial liberalization are not supported by evidence. Financial factors are important, but probably only when financial instability becomes a dominant force. The scope for inflationary finance is small and the risks are larger than commonly accepted. When hyperinflation takes over and foreign exchange crises disrupt the price system, and shorten the economic horizon to a week or a month, normal economic development is suspended. Moreover, difficult to reverse capital flight puts savings outside the home economy. Attention should focus on these extreme cases and explore deeper the thresholds at which financial factors become dominant and the channels through which this occurs. Superior growth performance, in this perspective, may be more a reflection of adaptability than financial deepening.
Handle: RePEc:nbr:nberwo:2889
Template-Type: ReDIF-Paper 1.0
Title: Conditional Mean-Variance Efficiency of the U.S. Stock Market
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Anthony P. Rodrigues
Note: ME
Number: 2890
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2890
File-URL: http://www.nber.org/papers/w2890.pdf
File-Format: application/pdf
Publication-Status: published as Charles Engel & Jeffrey A. Frankel & Kenneth A. Froot & Anthony P. Rodrigues, 1995. "Tests of conditional mean-variance efficiency of the U.S. stock market," Journal of Empirical Finance, vol 2(1), pages 3-18.
Abstract: We apply the method of constrained asset share estimation (CASE) to test the mean-variance efficiency (MVE) of the stock market. This method allows conditional expected returns to vary in unrestricted ways, given investor preferences. We also allow conditional variances to follow an ARCH process. The data estimate reasonably the coefficient of relative risk aversion, though are unable to reject investor risk neutrality. We reject the restrictions implied by MVE, although changing conditional variances improve statistically upon measured market efficiency. We find that unrestricted asset-share and ARCH models help forecast excess returns. Once MVE is imposed, however, this forecasting ability disappears.
Handle: RePEc:nbr:nberwo:2890
Template-Type: ReDIF-Paper 1.0
Title: The Variability of Velocity in Cash-In-Advance Models
Author-Name: Robert J. Hodrick
Author-Person: pho115
Author-Name: Narayana Kocherlakota
Author-Person: pko25
Author-Name: Deborah Lucas
Author-Person: plu94
Note: ME
Number: 2891
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2891
File-URL: http://www.nber.org/papers/w2891.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol 99, No. 2, Chicago: University of Chicago Press, April 1991, pp.358-384.
Abstract: Early cash-in-advance models have the feature that the cash-in-advance constraint always binds, implying that the velocity of money is constant. Lucas (1984) and Svensson (1985) propose a change in information structure that potentially allows velocity to vary. By calibrating a version of these models using a new solution algorithm, and using U.S. time series data on consumption growth and money growth, we find that in practice the cash-in-advance constraint almost always binds. This result is robust to changes in the forcing process, the inclusion of credit goods along with cash goods, various preference specifications, and changes in the precision of the agents' information. We conclude that there is little practical gain in using these more complicated informational specifications in future applications of a cash-in-advance technology.
Handle: RePEc:nbr:nberwo:2891
Template-Type: ReDIF-Paper 1.0
Title: The American Way of Aging: An Event History Analysis
Author-Name: David T. Ellwood
Author-Name: Thomas J. Kane
Note: AG
Number: 2892
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2892
File-URL: http://www.nber.org/papers/w2892.pdf
File-Format: application/pdf
Publication-Status: published as Issues in the Economics of Aging, Wise, David A., ed., Chicago: The University of Chicago Press, 1990.
Publication-Status: published as Health, Children, and Elderly Living Arrangements: A Multiperiod-Multinomial Probit Model with Unobserved Heterogeneity and Autocorrelated Errors, Axel Borsch-Supan, Vassilis Hajivassiliou, Laurence J. Kotlikoff. in Topics in the Economics of Aging, Wise. 1992
Abstract: The paper presents a methodology for studying the sequence and timing of life events past age 65. After estimating models of marital status, disability, living arrangements and income from the scattered segments of old age captured within the 17 year window of the Panel Study of Income Dynamics (PSID), we simulated up to 35 years of old age, using a sample of those turning 65 between 1980 and 1984" The simulated life expectancies correspond quite well with life-table estimates published by the National Center for Health Statistics. Even in this initial effort, we report some interesting findings: First, the prospects for rich and poor at age 65 were very different, those with high incomes living 4 years longer than those with low incomes. Second, women who were ever institutionalized were hardly identifiable at age 65, having similar income, marital status and disability status as other women at age 65. Third, women are much more vulnerable to changes in marital status, suffering a permanent 20% decline in their standard of living upon widowhood compared to a 10% decline for men. Fourth, poor widows at age 80 were likely to have been widows or poor already when they turned 65.
Handle: RePEc:nbr:nberwo:2892
Template-Type: ReDIF-Paper 1.0
Title: Empirical Implications of Alternative Models of Firm Dynamics
Author-Name: Ariel Pakes
Author-Person: ppa20
Author-Name: Richard Ericson
Note: PR
Number: 2893
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2893
File-URL: http://www.nber.org/papers/w2893.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Theory (1998): 1-46.
Abstract: This paper considers two models for analyzing the dynamics of firm behavior that allow for heterogeneity among firms, idiosyncratic (or firm specific) sources of uncertainty, and discrete outcomes (exit and/or entry). Models with these characteristics are needed for the structural econometric analysis of several economic phenomena, including the behavior of capital markets when there are significant failure probabilities, and the analysis of productivity movements in industries with large amounts of entry and exit. In addition, these models provide a means of correcting for the self-section induced by liquidation decisions in empirical studies of firms responses to alternative policy and environmental changes. It is shown that the two models have different nonparametric implications - implications that depend only on basic behavioral assumptions and mild regularity conditions on the functional forms of interest (one distinction between them corresponds to the distinction between heterogeneity and an ergodic form of state-dependence; a form in which the effect of being in a state in a particular period erodes away as time from that period lapses). The nonparametric implications enable the construction of testing and selection correction procedures that are easy to implement (they do not require the computationally difficult, and functional-form specific, estimation algorithms that have been used to empirically analyze stochastic control models with discrete outcomes in the past). The paper concludes by checking for the implications of the two models on an eight-year panel of Wisconsin firms. We find one model to be consistent with the data for retail trade.
Handle: RePEc:nbr:nberwo:2893
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Volatility and Misalignment: Evaluating Some Proposals for Reform
Author-Name: Jacob A. Frenkel
Author-Name: Morris Goldstein
Note: EFG ITI IFM
Number: 2894
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2894
File-URL: http://www.nber.org/papers/w2894.pdf
File-Format: application/pdf
Publication-Status: published as From Financial Market Volatility, (A Symposium Sponsored By The Federal Reserve Bank of Kansas City), pp. 185-220. Kansas City, MO: The Federal Reserve Bank of Kansas City, 1988.
Publication-Status: published as Jacob A. Frenkel & Morris Goldstein, 1988. "Exchange rate volatility and misalignment: evaluating some proposals for reform," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 185-231.
Abstract: In this paper, we analyze several proposals for reducing the volatility and/or misalignment of key-currency exchange rates. The proposals examined are a system of target zones, the imposition of controls or taxes on international capital flows, and a strengthening of international coordination over economic policies. We also review key characteristics of the behavior of major-currency exchange rates over the period of floating rates and examine the various criteria or standards for drawing inferences about excess volatility and misalignment. In evaluating exchange rate volatility, attention is directed toward the influence of the exchange rate regime, to the behavior of fundamentals, to the volatility of both goods prices and other asset prices, to the costs of exchange rate volatility, and to the nature of shocks facing the economy. Turning to misalignment, we examine the strengths and weaknesses of the purchasing-power-parity approach, of the underlying balance approach, and of the sustainability approach. We argue that inferences about excess exchange rate volatility and misalignment are subject to wide margins of error and that the exchange rate experience of the past 15 years is subject to multiple interpretations.
Handle: RePEc:nbr:nberwo:2894
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Takeovers on the Employment and Wages of Central-Office and Other Personnel
Author-Name: Frank Lichtenberg
Author-Person: pli76
Author-Name: Donald Siegel
Note: LS
Number: 2895
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2895
File-URL: http://www.nber.org/papers/w2895.pdf
File-Format: application/pdf
Publication-Status: published as "The Effect of Ownership Change on the Employment and Wages of Central-Office and Other Personnel," Journal of Law and Economics, Vol. XXXIII, pp. 383-408, (October 1990).
Abstract: This paper presents evidence based on establishment-level Census Bureau data concerning the effects of ownership change on the employment and wages of both central-office workers and manufacturing plant employees. We find that central offices that changed owners between 1977 and 1982 had substantially lower -- about 16% lower -- employment growth during that period than central offices not changing owners. (There was, however, no significant difference in the growth of R&D employment.) In contrast, employment growth in production establishments changing owners was only 5% lower than it was in production establishments not changing owners. (The relative employment decline in production establishments changing owners occurred in the 2 or 3 years before the takeover; after the takeover, employment recovered a bit, but not enough to offset the previous decline.) This implies that the ratio of central-office to plant employees declines about 11% in firms changing owners: about 7.2 administrators per 1000 plant employees are eliminated. These findings are consistent with the view that reduction of administrative overhead is an important motive for changes in ownership. Failure to account for reductions in central-office employment results in a substantial (about 40%) underestimate of the productivity gains associated with ownership change. We also provide evidence concerning the relationship between firm size and administrative-intensity.
Handle: RePEc:nbr:nberwo:2895
Template-Type: ReDIF-Paper 1.0
Title: Effects of Family and Community Background on Men's Economic Status
Author-Name: Mary Corcoran
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Deborah Laren
Author-Name: Gary Solon
Author-Person: pso215
Note: LS
Number: 2896
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2896
File-URL: http://www.nber.org/papers/w2896.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 80, No. 2, pp. 362-66, May 1990.
Abstract: This study uses intergenerational data from the Panel Study of Income Dynamics to investigate the effects of family and community background on men's economic status. It is distinguished from most previous studies by its emphasis on community influences and on influences from poverty and welfare use. Also, our parental characteristics data are more comprehensive and accurate than those of many earlier studies. We find substantial disadvantages in economic status for black men, men from lower-income families, and men from more welfare-dependent families or communities. Otherwise, we do not find much evidence of community influences. This, however, might be due to the grossness of the geographic detail at which our community variables are measured.
Handle: RePEc:nbr:nberwo:2896
Template-Type: ReDIF-Paper 1.0
Title: Social Conflict and Populist Policies in Latin America
Author-Name: Jeffrey D. Sachs
Note: ITI IFM
Number: 2897
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2897
File-URL: http://www.nber.org/papers/w2897.pdf
File-Format: application/pdf
Publication-Status: published as Labor Relations and Economic Performance, R. Brunetta and C. Dell-Aringa (eds) Macmillan Press, 1989
Abstract: The central hypothesis of this paper is that high income inequality in Latin America contributes to intense political pressures for macroeconomic policies to raise the incomes of lower income groups, which in turn contributes to bad policy choices and weak economic performance. The paper looks in detail at one common type of policy failure: the populist policy cycle. This particular type of Latin American policymaking, characterized by overly expansionary macroeconomic policies which lead to high inflation and severe balance of payments crises, has been repeated so often, and with such common characteristics, that it plainly reveals the linkages from social conflict to poor economic performance.
Handle: RePEc:nbr:nberwo:2897
Template-Type: ReDIF-Paper 1.0
Title: Black-White Differences in Wealth and Asset Composition
Author-Name: Francine D. Blau
Author-Person: pbl16
Author-Name: John W. Graham
Note: LS
Number: 2898
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2898
File-URL: http://www.nber.org/papers/w2898.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. CV, No. 421, Issue 2, pp. 321-339, (May 1990).
Abstract: Using data from the 1976 and 1978 National Longitudinal. Surveys of young men and young women, this study examines racial differences in the magnitude and composition of wealth and the reasons for them. On average, young black families hold 18 percent of the wealth of young white families, and hold their wealth in proportionately different forms. Even after controlling for racial differences in income and other demographic factors, as much as three-quarters of the wealth gap remains unexplained. We speculate on the causes for this, concluding that racial differences in intergenerational transfers most likely play an important role.
Handle: RePEc:nbr:nberwo:2898
Template-Type: ReDIF-Paper 1.0
Title: Taxes and Capital Formation: How Important is Human Capital?
Author-Name: James Davies
Author-Person: pda143
Author-Name: John Whalley
Author-Person: pwh8
Note: PE
Number: 2899
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2899
File-URL: http://www.nber.org/papers/w2899.pdf
File-Format: application/pdf
Publication-Status: published as National Saving and Economic Performance, eds. B. Douglas Bernheimand and John Shoven. Chicago: The University of Chicago Press, 1991.pp163-197.
Publication-Status: published as Taxes and Capital Formation: How Important is Human Capital?, James Davies, John Whalley. in National Saving and Economic Performance, Bernheim and Shoven. 1991
Abstract: This paper explores how explicit incorporation of human capital affects dynamic general equilibrium analysis of the effects of taxes on capital formation and welfare in a life-cycle growth model. In contrast to the results of partial equilibrium analysis, we find that estimates of the full dynamic welfare costs of capital income taxes are little affected by incorporating human capital. While the short-run impact effects of replacing income taxes with wage or consumption taxes are significantly affected by endogenizing human capital, these effects are short-lived. In the long-run the rate of return on non-human capital falls to approximately its initial net of tax level, and steady-state human capital investment plans are therefore little affected by the tax changes. Although incorporating human capital thus does not greatly alter results in our numerical simulations, a wide range of extensions and modifications of the model are discussed which could in principle modify this conclusion.
Handle: RePEc:nbr:nberwo:2899
Template-Type: ReDIF-Paper 1.0
Title: Tax Reform and the Market For Tax-Exempt Debt
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 2900
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2900
File-URL: http://www.nber.org/papers/w2900.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, Vol. 19, No. 3, pp. 537-562, (August 1989).
Abstract: This paper provides clear evidence that the yield spread between long-term taxable and tax-exempt bonds responds to changes in expected individual tax rates, a finding that refutes theories of municipal bond pricing that focus exclusively on commercial banks or other financial intermediaries. The results support the conclusion that in the two decades prior to 1986, the municipal bond market was segmented, with different investor clienteles at short and long maturities. The Tax Reform Act of 1986 is likely to affect this market, however, since it has restricted tax benefits from tax-exempt bond investment by commercial banks. Individual investors are increasingly important suppliers of capital to states and localities, and their tax rates are likely to be the primary determinant of the yield spread between taxable and tax-exempt interest rates in the future.
Handle: RePEc:nbr:nberwo:2900
Template-Type: ReDIF-Paper 1.0
Title: The Impact of R&D Investment On Productivity - New Evidence Using Linked R&D-LRD Data
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Author-Name: Donald Siegel
Note: PR
Number: 2901
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2901
File-URL: http://www.nber.org/papers/w2901.pdf
File-Format: application/pdf
Publication-Status: published as Economic Inquiry, Vol. 29 No.2, pp. 203-229, (April 1991).
Abstract: This paper uses confidential Census longitudinal microdata to examine the association between R&D and productivity for the period 1972.1985. These data allow for significant improvements in measurement and model specification, yielding more precise estimates of the returns to R&D. Our results confirm the findings of existing studies: 1) positive returns to R&D investment 2) higher returns to company-financed research 3) a productivity "premium" on basic research These results are robust to our attempts to adjust for "influential" outliers. Also, it appears that the return to company-financed R&D (but not total R&D) is an increasing function of firm size.
Handle: RePEc:nbr:nberwo:2901
Template-Type: ReDIF-Paper 1.0
Title: The Term Structure of Interest Rates and the Effects of Macroeconomic Policy
Author-Name: Stephen J. Turnovsky
Author-Person: ptu5
Note: ME
Number: 2902
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2902
File-URL: http://www.nber.org/papers/w2902.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit, and Banking, Vol. 21, No. 3, pp. 321-347,(August 1989).
Abstract: This paper analyzes the effects of monetary and fiscal policy shocks on the term structure of interest rates. The effects of temporary versus permanent, unanticipated versus anticipated, policy disturbances and the responses of long versus short, and real versus nominal, rates are contrasted. The main results are summarized in a series of propositions. Among them, the finding that an unanticipated permanent fiscal expansion impacts more on long-term rates, may help explain their observed excessive volatility. The effects of structural changes on the relative variances are also discussed, with the effect which operates through the impact on private speculative behavior being emphasized.
Handle: RePEc:nbr:nberwo:2902
Template-Type: ReDIF-Paper 1.0
Title: Testable Implications of Indeterminacies in Models with Rational Expectations
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Robert J. Hodrick
Author-Person: pho115
Note: ITI ME IFM
Number: 2903
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2903
File-URL: http://www.nber.org/papers/w2903.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Economic Perspectives, vol.4, no.1, Winter 1990
Abstract: The possibility that movements in market prices of assets or goods may be caused by self-fulfilling prophecies, called bubbles or sunspots, has long intrigued market observers. If bubbles or sunspots exist, market prices differ from their fundamental values, and markets do not necessarily allocate resources to their best possible uses. Some might argue then that public policies would be needed to alleviate such problems. This paper surveys the current state of the empirically-oriented literature concerning rational dynamic indeterminacies by which we mean a situation of self-fulfilling prophecy within a rational expectations model. The empirical work in this area concentrates primarily on indeterminacies in price levels, exchange rates and equity prices. We first examine a particular type of explosive indeterminacy, usually called a rational bubble, in a familiar model of equity pricing. We then consider empirical work relating to price level and exchange rate indeterminacies, before examining empirical studies of indeterminacies in stock prices. Finally, we take up some interpretive issues. We find that existing bubbles tests do not establish that rational bubbles exist in asset prices.
Handle: RePEc:nbr:nberwo:2903
Template-Type: ReDIF-Paper 1.0
Title: Asymmetries in Policy Between Exportables and Import-Competing Goods
Author-Name: Anne O. Krueger
Note: ITI IFM
Number: 2904
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2904
File-URL: http://www.nber.org/papers/w2904.pdf
File-Format: application/pdf
Publication-Status: published as The Political Economy of International Trade: Essays in Honor of Robert E. Baldwin. edited by Ronald W. Jones and Anne O. Krueger, pp. 161-178. Oxford: Basil Blackwell, 1990.
Abstract: This paper reexamines current understanding of the political economy of protection. To date, work has centered on determinants of the height of protection and its form - tariffs, quantitative restrictions, and voluntary export restraints. It is argued that examining the structure of protection misses one important piece of evidence - why import-competing industries tend to be more highly protected than industries producing exportables. When the question is cast in this light, a number of new insights emerge, including the importance of earlier protective measures in influencing current protectionist pressures. "Identity bias", whereby political decisions can be asymmetric between winners and losers, depending on whose identity is known, is introduced.
Handle: RePEc:nbr:nberwo:2904
Template-Type: ReDIF-Paper 1.0
Title: Pricing to Market in Japanese Manufacturing
Author-Name: Richard C. Marston
Note: ITI IFM
Number: 2905
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2905
File-URL: http://www.nber.org/papers/w2905.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 29, pp. 217-236, (1990).
Abstract: This paper investigates pricing by Japanese manufacturing firms in export and domestic markets. The paper reports equations explaining the margin between export prices in yen and domestic prices for a wide range of final goods including many of the electronic and transport products which have figured so prominently in recent trade discussions. Evidence is presented showing that Japanese firms respond to changes in real exchange rates by "pricing to market", varying their export prices in yen relative to their domestic prices. The empirical specification makes it possible to disentangle planned changes in the margin between export and domestic prices from inadvertent changes in this margin due to unanticipated changes in exchange rates. The degree of pricing to market varies widely across products, but there is strong evidence that pricing to market occurs. The paper also investigates whether pricing to market has increased in scale in the period since 1985 when the yen began a sustained appreciation, but finds that only five of seventeen products experienced a shift in price behavior over that period.
Handle: RePEc:nbr:nberwo:2905
Template-Type: ReDIF-Paper 1.0
Title: Market Value Vs. Financial Accounting Measures of National Saving
Author-Name: David F. Bradford
Note: PE
Number: 2906
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2906
File-URL: http://www.nber.org/papers/w2906.pdf
File-Format: application/pdf
Publication-Status: published as National Saving and Economic Performance, ed. B.D.Bernheim and, J. Shoven. Chicago: The University of Chicago Press, 1991. pp.15-44.
Publication-Status: published as Market Value versus Financial Accounting Measures of National Saving, David F. Bradford. in National Saving and Economic Performance, Bernheim and Shoven. 1991
Abstract: Although National Income and Product Account (NIPA) saving measures, and especially NIPA saving rates, are widely used in both scholarly and journalistic treatments, they are seriously defective as representations of the variables derived from economic analysis, either for measuring economic performance or as elements of the explanation for consumption behavior. The cost-based value of a restricted class of assets recorded in the national income and product accounts is a version of the financial accounting for the tangible assets of a business firm. Economic analysis calls instead for the current asset market value of business enterprises (and their equivalents) as the measure of wealth, and the annual change in that value as the measure of saving. National Balance Sheet data on wealth at asset market value presented in this paper show that NIPA saving measures are not good proxies for market value measures. The picture of recent national saving experience that emerges from market value data is quite different. Various conceptual and data quality issues are discussed.
Handle: RePEc:nbr:nberwo:2906
Template-Type: ReDIF-Paper 1.0
Title: Terms of Trade Disturbances, Real Exchange Rates and Welfare: The Role of Capital Controls and Labor Market Distortions
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Jonathan D. Ostry
Author-Person: pos23
Note: ITI IFM
Number: 2907
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2907
File-URL: http://www.nber.org/papers/w2907.pdf
File-Format: application/pdf
Publication-Status: published as Oxford Economic Papers, Vol. 44, pp. 20-34, (1992).
Abstract: Many arguments that have been advanced in favor of maintaining capital control within the EEC have not paid sufficient attention to the welfare consequences of this type of market intervention. Our paper provides a simple, optimizing framework in which the welfare consequences of capital controls can be assessed. Two main issues are considered. First, how do capital controls affect the adjustment of macroeconomic variables to real disturbances? Second, what is the nature of second best arguments for maintaining capital controls given that certain distortions will remain after the European single market is in place in 1992?
Handle: RePEc:nbr:nberwo:2907
Template-Type: ReDIF-Paper 1.0
Title: Openness, Outward Orientation, Trade Liberalization and Economic Performance in Developing Countries
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 2908
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2908
File-URL: http://www.nber.org/papers/w2908.pdf
File-Format: application/pdf
Publication-Status: published as "Openess, Trade Liberalization, and Growth in Developing Countries", Journal of Economic Literature, 1993, V31(3), 1358-1393
Abstract: This paper deals with the role of trade regimes in determining economic performance and growth in the developing countries. The policy and empirical literatures on trade orientation and economic growth are critically reviewed; it is argued that a key limitation of these works has been the inability to create measures of trade orientation that are: (i) objective; (ii) continuous and (iii) comparable across countries. A growth model that relates trade orientation to the ability to absorb technological progress from the rest of the world is developed for the case of a small country. The model is tested using a new index of trade orientation that is free from the limitations described above. The results obtained using a cross country data set provide strong support to the hypothesis that, with other things given, countries with a less distorted external sector grow faster than those countries with a more distorted external sector. The new theories of economic growth are also discussed, and their usefulness for analyzing the relation between trade orientation and growth in the developing countries is assessed.
Handle: RePEc:nbr:nberwo:2908
Template-Type: ReDIF-Paper 1.0
Title: The International Monetary Fund and the Developing Countries: A Critical Evaluation
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 2909
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2909
File-URL: http://www.nber.org/papers/w2909.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 31, pp. 7-68,(1989).
Abstract: The purpose of this paper is to critically evaluate the IMF's role in the developing countries' adjustment process. In particular, the paper tries to answer the following questions: What model or framework does the IMF use to generate its advice, and is that advice eclectic? Is there evidence that countries that followed the IMF's advice do better than countries that proceed in other ways? Are the policy decisions of the Fund based on technical knowledge or do they reflect the political views of the larger members? Is the IMF position regarding the debt crisis conducive to a realistic solution? What can we expect from the Fund in the future? The paper also includes an evaluation of recent IMF programs, as well as an econometric analysis of the contractionary devaluation issue.
Handle: RePEc:nbr:nberwo:2909
Template-Type: ReDIF-Paper 1.0
Title: Transmission of Volatility Between Stock Markets
Author-Name: Mervyn A. King
Author-Name: Sushil Wadhwani
Author-Person: pwa225
Note: ME
Number: 2910
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2910
File-URL: http://www.nber.org/papers/w2910.pdf
File-Format: application/pdf
Publication-Status: published as Review of Financial Studies, Vol. 3, No. 1, pp. 5-33, 1990.
Abstract: This paper investigates why, in October 1987, almost all stock markets fell together despite widely differing economic circumstances. The idea is that "contagion" between markets occurs as the result of attempts by rational agents to infer information from price changes in other markets. This provides a channel through which a "mistake" in one market can be transmitted to other markets. Hourly stock price data from New York, Tokyo and London during an eight month period around the crash offer support for the contagion model. In addition, the magnitude of the contagion coefficients are found to increase with volatility.
Handle: RePEc:nbr:nberwo:2910
Template-Type: ReDIF-Paper 1.0
Title: Sunk-Cost Hysteresis
Author-Name: Richard Baldwin
Author-Person: pba124
Note: ITI IFM
Number: 2911
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2911
File-URL: http://www.nber.org/papers/w2911.pdf
File-Format: application/pdf
Abstract: Despite its important theoretical, empirical and policy implications, sunk-cost hysteresis has not been characterized for the case of model consistent, or rational expectations (previous studies assume that firms believe the forcing variable is generated by some ad hoc, time invariant process such as an iid or Brownian motion process). This omission is significant since if firms do have forward-looking expectations, the existing characterizations cannot be used for empirical testing, or as a guide in developing appropriate econometric techniques. Furthermore, policy conclusions based on such characterizations may be misleading. This paper demonstrates the possibility and characterizes the nature of sunk-cost hysteresis for a broad class of assumptions on the forcing variable process. Most notably this class includes rational or model consistent expectations. Specifically, we show that the firm's problem with a quite general forcing variable process can be reduced to be formally identical to the iid case. Additionally we analytically show that (i) the hysteresis band tends to widen with greater sunk costs, (ii) the effect of greater volatility on the band width depends upon the specific nature of the process generating the uncertainty, and (iii) greater persistence in the shocks has the effect of making well-entrenched firms more likely to exit and of narrowing the band for marginal firms. Lastly we show that the possibility of sunk-cost hysteresis is robust to a number of modifications of the basic sunk cost model.
Handle: RePEc:nbr:nberwo:2911
Template-Type: ReDIF-Paper 1.0
Title: Understanding Investment Incentives Under Parallel Tax Systems: An Application to the Alternative Minimum Tax
Author-Name: Andrew B. Lyon
Author-Person: ply2
Note: PE
Number: 2912
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2912
File-URL: http://www.nber.org/papers/w2912.pdf
File-Format: application/pdf
Publication-Status: published as "Investment Incentives Under The Alternative Minimum Tax." From National Tax Journal, Vol. XLIII, No. 4, pp. 451-465, (December 1990).
Abstract: The first section of this paper introduces the topic. The next section shows that many parallel tax systems share common features and constructs a general model of the cost of capital based on the Hall-Jorgenson (1967) cost of capital formula. Section 3 presents conditions under which a parallel tax system maintains investment neutrality. In general, the neutrality conditions are sensitive to the assumed arbitrage conditions and source of finance. Section 4 presents findings on the effect of the corporate ANT on investment incentives. It is shown that these investment incentives are sensitive to the length of time the firm is subject to the ANT, the timing of the Mt spell relative to the date the investment is acquired, and the source of financing. Investment incentives for firms experiencing temporary spells on the ANT can be very different from those for firms permanently subject to the ANT. The final section briefly summarizes the paper
Handle: RePEc:nbr:nberwo:2912
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Product Cycles
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI IFM
Number: 2913
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2913
File-URL: http://www.nber.org/papers/w2913.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal, Vol. 101, No. 408, September 1991.
Abstract: We construct a model of the product cycle featuring endogenous innovation and endogenous technology transfer. Competitive entrepreneurs in the North expend resources to bring out new products whenever expected present discounted value of future oligopoly profits exceeds current product development costs. Each Northern oligopolist continuously faces the risk that its product will be copied by a Southern imitator, at which time its profit stream will come to an end. In the South, competitive entrepreneurs may devote resources to learning the production processes that have been developed in the North. There too, costs (of reverse engineering) must be covered by a stream of operating profits. We study the determinants of the long-run rate of growth of the world economy, and the long-run rate of technological diffusion. We also provide an analysis of the effects of exogenous events and of public policy on relative wage rates in the two regions.
Handle: RePEc:nbr:nberwo:2913
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: ME ITI IFM
Number: 2914
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2914
File-URL: http://www.nber.org/papers/w2914.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. CVI, No. 427, Iss. 4, pp. 1191-121 7, (November 1991).
Abstract: We examine the connection between exchange rates and foreign direct investment that arises when globally integrated capital markets are subject to informational imperfections. These imperfections cause external financing to be more expensive than internal financing, so that changes in wealth translate into changes in the demand for direct investment. By systematically lowering the relative wealth of domestic agents, a depreciation of the domestic currency can lead to foreign acquisitions of certain domestic assets. we develop a simple model of this phenomenon and test for its relevance in determining international capital flows.
Handle: RePEc:nbr:nberwo:2914
Template-Type: ReDIF-Paper 1.0
Title: Public Sector Bargaining and the Local Budgetary Process
Author-Name: Joseph Gyourko
Author-Person: pgy3
Author-Name: Joseph Tracy
Author-Person: ptr23
Note: LS
Number: 2915
Creation-Date: 1989-03
Order-URL: http://www.nber.org/papers/w2915
File-URL: http://www.nber.org/papers/w2915.pdf
File-Format: application/pdf
Publication-Status: published as Research in Labor Economics, Vol. 12, 1991, pp. 117-136
Abstract: This paper investigates how the fiscal environment and the budgetary process affect wage and employment determination in the local public sector. The structure of the local tax system is found to be influential with significantly higher wages occurring in cities with access to local sales and/or income taxes. State-imposed property tax limits are found to be associated with lower wages (but not overall payrolls per capita). We find evidence that skill enhancement may be an important policy tool. Local governments appear to successfully use it to mitigate the wage premia associated with strong state collective bargaining legislation. We also find that controlling for the human capital of teachers substantially reduces the well-known positive correlation between teacher wages and community income.
Handle: RePEc:nbr:nberwo:2915
Template-Type: ReDIF-Paper 1.0
Title: Strategic Trade Policy When Domestic Firms Compete Against Vertically Integrated Rivals
Author-Name: Dani Rodrik
Author-Person: pro60
Author-Name: Chang-Ho Yoon
Note: ITI IFM
Number: 2916
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2916
File-URL: http://www.nber.org/papers/w2916.pdf
File-Format: application/pdf
Publication-Status: published as "Strategic Trade Policy with Potential for Import Substitution," Journal of Economic Development, Vol. 20, #1, 1995.
Abstract: This paper models the international competition between a domestic firm and its vertically integrated foreign rival. The domestic firm has the choice of developing its own production capability for an intermediate input, or of importing it from the foreign firm at a price set by the latter. In this setting, and under reasonable cost assumptions, the foreign firm will always choose to supply the domestic firm as long as it cannot monopolize the final-good market by withholding supply. A tariff placed on the imports of the input by the home government will be borne entirely by the foreign firm, and will be welfare increasing. When the home government chooses to subsidize the domestic firm's fixed development costs for the input, the optimal subsidy will exceed the total fixed costs required, but will not have to be disbursed in equilibrium. A tariff on the final good will enhance the home firm's profits not only by increasing the costs of its rival, but also by reducing its own input costs.
Handle: RePEc:nbr:nberwo:2916
Template-Type: ReDIF-Paper 1.0
Title: Pensions as Retirement Income Insurance
Author-Name: Zvi Bodie
Author-Person: pbo569
Note: ME
Number: 2917
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2917
File-URL: http://www.nber.org/papers/w2917.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Literature, March 1990, Vol. 28, No. 1.
Abstract: This paper develops the view that employer-sponsored pension plans are best understood as retirement income insurance for employees and from that perspective addresses a number of questions regarding the reasons for their existence, their design, and their funding and investment policies. The most important of these questions are: - Why do employers provide pension plans for their employees and why is participation usually mandatory? - Why is the defined benefit form of pension plan the dominant one rather than defined contribution? - Why are the payout options under most plans limited to life annuities? - Why are most plans integrated with Social Security? - Why don't corporate pension plans follow the extreme funding and asset allocation policies that seem to be optimal from the perspective of shareholder wealth maximization? - Why do employers often make ad hoc increases in pension benefits not strictly required under the formula in defined benefit plans? - Why don't private pensions offer inflation insurance?
Handle: RePEc:nbr:nberwo:2917
Template-Type: ReDIF-Paper 1.0
Title: The Linkage Between Speculative Attack and Target Zone Models of Exchange Rates
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Peter M. Garber
Author-Person: pga124
Note: ITI IFM
Number: 2918
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2918
File-URL: http://www.nber.org/papers/w2918.pdf
File-Format: application/pdf
Publication-Status: published as Exchange Rate Targets and Currency Bands, eds. P. Krugman and M. Miller, Cambridge University Press, October 1991.
Publication-Status: published as Flood, Robert P & Garber, Peter M, 1991. "The Linkage between Speculative Attack and Target Zone Models of Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1367-72, November.
Abstract: In this paper we generalize the target zone exchange rate as model formalized by Krugman (1988b) to include finite-sized interventions in defense of the zone. The main contributions of these pages consist of linking the recent developments in the theory of target zones to the mirror-image theory of speculative attacks on asset price fixing regimes and in using aspects of that linkage to give an intuitive interpretation to the smooth pasting" condition usually invoked as a terminal condition.
Handle: RePEc:nbr:nberwo:2918
Template-Type: ReDIF-Paper 1.0
Title: Government Spending and Budget Deficits in the Industrial Economies
Author-Name: Nouriel Roubini
Author-Person: pro145
Author-Name: Jeffrey Sachs
Note: ITI IFM
Number: 2919
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2919
File-URL: http://www.nber.org/papers/w2919.pdf
File-Format: application/pdf
Publication-Status: published as Economic Policy, No. 8, April 1989
Abstract: In this paper, we try to interpret several important trends in the size of governments and government deficits in the OECD economies : the rapid increase in the public spending to GDP ratio in the 1970s; the sharp rise in budget deficits and in debt-GNP ratios after 1973; and the early signs of a slowdown or reversal in the rise of the spending ratios in the 1980s. We show that the rise in size of the government was importantly associated with the slowdown in output growth after 1973, as well as with the gradual adjustment of spending ratios to long-run values. These long-run values appear to depend on the political and institutional characteristics of the various economies (the ideological orientation of the government, the degree of wage indexation, and the average number of parties in the governing coalitions). As for budget deficits, we argue that much can be explained by normal cyclical factors (the slowdown in growth and the rise in unemployment after 1973), but that in addition, the size of the budget deficits has been related to political as well as economic characteristics of the countries. Deficit reduction requires political consensus, at least among the parties belonging to the governing coalition. We note that such consensus is harder to achieve in multi-party coalition governments and that the failure to reach a consensus on budget cutting can help to explain why countries with multi-party coalition governments have experienced particularly large increases in the debt-GNP ratio.
Handle: RePEc:nbr:nberwo:2919
Template-Type: ReDIF-Paper 1.0
Title: Vertical Foreclosure and International Trade Policy
Author-Name: Barbara J. Spencer
Author-Person: psp2
Author-Name: Ronald W. Jones
Note: ITI IFM
Number: 2920
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2920
File-URL: http://www.nber.org/papers/w2920.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 58, No. 1, pp. 153-170, (1991).
Abstract: We examine conditions under which a low cost vertically integrated manufacturer has an incentive to export an intermediate product to its higher cost (vertically integrated) rival rather than to vertically foreclose, fully cutting off supplies. The nature of supply conditions in the importing country, the size of an import tariff on the final good and optimal policy by the exporting country are all shown to be important for this decision. The exporting country may gain by taxing exports of the final (Cournot) product even though, under Cournot competition, an export subsidy is optimal in the absence of a market for intermediates. In this case, optimal policy also requires an export tax on intermediates, but the higher tax on final goods serves to divert sales to the more profitable market for intermediates increasing the extent of vertical supply. It is optimal to tax the export of both goods or to subsidize the export of both goods. It is never optimal to tax one and subsidize the other.
Handle: RePEc:nbr:nberwo:2920
Template-Type: ReDIF-Paper 1.0
Title: The Local Decision to Tax: Evidence from Large U.S. Cities
Author-Name: Robert P. Inman
Note: PE
Number: 2921
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2921
File-URL: http://www.nber.org/papers/w2921.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, Vol. 19, No. 3, pp. 455-491, (August 1989).
Abstract: The structure of local taxation is an important determinant of the fiscal performance of decentralized public economies. In contrast to our understanding of local government spending, however, we know surprisingly little about how cities and states set taxes. This study specifies and estimates a model of the institutional, political, and economic determinants of the local decision to tax. Redistributive politics is an important determinant of local tax policy, at least for this sample of 41 large U.S. cities during the period 1961-1986. The results cast serious doubt on the validity of the "representative" or average taxpayer approach to behavioral modeling of fiscal policy for large, income diverse governments. The results allow us to predict the effects on local financing of removing federal tax deductibility of local taxes, an issue of current importance in the United States.
Handle: RePEc:nbr:nberwo:2921
Template-Type: ReDIF-Paper 1.0
Title: Patents: Recent Trends and Puzzles
Author-Name: Zvi Griliches
Note: PR
Number: 2922
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2922
File-URL: http://www.nber.org/papers/w2922.pdf
File-Format: application/pdf
Publication-Status: published as Brookings Papers on Economic Activity, Microeconomics 1989, edited by Martin Neil Baily and Clifford Winston, pp. 291-319. Washington, DC: The Brookings Institution, 1989.
Abstract: This paper reviews the historical data on patenting in the United States with special reference to the last 20 years and their potential relation, if any, to the recent productivity slowdown. Two Points are made: Patents are not a "constant-yardstick" indicator of either inventive input or output. Moreover, they are "produced" by a governmental agency which goes through its own budgetary and inefficiency cycles. The paper shows that the appearance of an absolute decline in patenting in the 1970's is an artifact of such a cycle. This leaves us still with the longer run puzzle of a slower growth in patenting, especially by U.S. residents, relative to R&D expenditures. It is conjectured that this reflects more the changing character of patents and R&D than an indication of diminishing returns to R&D and an exhaustion of technological opportunities.
Handle: RePEc:nbr:nberwo:2922
Template-Type: ReDIF-Paper 1.0
Title: The Internationalization of Production
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 2923
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2923
File-URL: http://www.nber.org/papers/w2923.pdf
File-Format: application/pdf
Abstract: The degree of internationalizaton of the enterprise or business sectors of many countries, as measured by the ratio of direct investment abroad to domestic wealth or assets, or of assets or employment abroad to that at home, has been growing over the last twenty years or more. The exception to this trend is the United States, in which the extent of internationalization, after growing until the 1970s, has stagnated or decreased somewhat. The level of internationalization of U.S. firms in the 1970s and 1980s was above that of Germany and especially above those of Japan and Korea. Canada was close to the U.S. and UK firms were by far the most internationalized. The differences among the country levels and trends seem to reflect country size and divergences between the competitiveness of countries and of their companies, including those that result from exchange-rate movements.
Handle: RePEc:nbr:nberwo:2923
Template-Type: ReDIF-Paper 1.0
Title: Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: N. Gregory Mankiw
Note: EFG
Number: 2924
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2924
File-URL: http://www.nber.org/papers/w2924.pdf
File-Format: application/pdf
Publication-Status: published as Blanchard, Olivier Jean and Stanley Fischer (eds.) NBER Macroeconomics Annual 1989, Volume 4. Cambridge, MA: MIT Press, 1989.
Publication-Status: published as Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence, John Y. Campbell, N. Gregory Mankiw. in NBER Macroeconomics Annual 1989, Volume 4, Blanchard and Fischer. 1989
Abstract: This paper proposes that the time-series data on consumption, income, and interest rates are best viewed as generated not by a single representative consumer but by two groups of consumers. Half the consumers are forward-looking and consume their permanent income, but are extremely reluctant to substitute consumption temporarily. Half the consumers follow the "rule of thumb" of consuming their current income. The paper documents three empirical regularities that, it argues, are best explained by this medal. First, expected changes in income are associated with expected changes in consumption. Second, expected real interest rates are not associated with expected changes in consumption. Third, periods in which consumption is high relative to income are typically followed by high growth in income. The paper concludes by briefly discussing the implications of these findings for economic policy and economic research.
Handle: RePEc:nbr:nberwo:2924
Template-Type: ReDIF-Paper 1.0
Title: The Stock Market and Investment
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 2925
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2925
File-URL: http://www.nber.org/papers/w2925.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Financial Studies, Vol. 3, No. 1, pp. 115-131, (1990).
Abstract: Changes in real stock-market prices have a lot of explanatory value of the growth rate of U.S. aggregate business investment, especially for long samples that begin in 1891 or 1921. Moreover, for the period since 1921 where data on a q-type variable are available, the stock market dramatically outperforms q. The change in real stock prices also retains its predictive value in the presence of a cash-flow variable, such as after-tax corporate profits. Basically similar results apply to Canadian investment, except that the U.S. stock market turns out to have move predictive power than the Canadian market. I discuss some possible explanations for this puzzling finding, but none of the explanations seem all that convincing.
Handle: RePEc:nbr:nberwo:2925
Template-Type: ReDIF-Paper 1.0
Title: Confidence Crises and Public Debt Management
Author-Name: Francesco Giavazzi
Author-Person: pgi18
Author-Name: Marco Pagano
Author-Person: ppa56
Note: ITI IFM
Number: 2926
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2926
File-URL: http://www.nber.org/papers/w2926.pdf
File-Format: application/pdf
Publication-Status: published as Dornbusch, Rudiger and Mario Draghi (eds.) Public debt management: Theory and history. Cambridge; New York and Melbourne: Cambridge University Press, 1990.
Abstract: Under free capital mobility, confidence crises can result in devaluations even when fixed exchange rates are viable, if fiscal authorities can obtain temporary money financing. During a crisis, domestic interest rates increase reflecting the expected devaluation. Rather than selling debt at punitive rates, fiscal authorities will turn to temporary money financing, leading to equilibria with positive probability of devaluation. These equilibria can be ruled out if the amount of debt maturing during the crisis is sufficiently small- a condition that can be met by reducing the stock of public debt, lengthening its average maturity and/or smoothing the time distribution of maturing issues.
Handle: RePEc:nbr:nberwo:2926
Template-Type: ReDIF-Paper 1.0
Title: International Spillovers of Taxation
Author-Name: Jacob A. Frenkel
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Steve Symansky
Note: ITI PE IFM
Number: 2927
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2927
File-URL: http://www.nber.org/papers/w2927.pdf
File-Format: application/pdf
Publication-Status: published as Taxation in the Global Economy, edited by Assaf Razin and Joel Slemrod, pp. 211-254. Chicago: The University of Chicago Press, 1990.
Publication-Status: published as International Spillovers of Taxation, Jacob Frenkel, Assaf Razin, Steve Symansky. in Taxation in the Global Economy, Razin and Slemrod. 1990
Abstract: This paper deals with the international effects of taxation. Tax policies have profound effects on the temporal composition and on the intertemporal evolution of the macro economy. The analysis highlights key issues pertinent for the understanding of international effects of domestic tax policies and of international tax harmonization. The analytical framework adopts the saving-investment balance approach to the analysis of international economic interdependence and includes a detailed specification of public and private sector behavior focusing on the roles played by taxes on income, consumption, and international borrowing. We present stylized facts on the average consumption and income tax rates for the seven major industrial countries. They reveal large international diversity of tax rates and tax structures. The analytical framework is used to analyze the consequences of revenue-neutral conversions between income and consumption (VAT) tax systems. We demonstrate analytically that the effects of such changes in the structure of taxes depend critically on international differences in saving and investment propensities which in turn govern the time profile of the current account of the balance of payments. The key results are also illustrated by means of dynamic simulations. We then examine the international effects of budget deficits and public-debt management and demonstrate analytically as well as by means of dynamic simulations that these effects depend critically on whether the government manages its deficit through alterations in income or consumption (VAT) taxes. Finally, motivated by proposals for tax harmonization associated with the single market in Europe of 1992, we consider the effects of international tax harmonization. The main results, demonstrate that, in analogy with the effects of tax conversions, the effect of harmonization depends critically on the inter-country differences in saving and investment propensities. These differences are shown to yield conflicts of interests in the tax harmonization program.
Handle: RePEc:nbr:nberwo:2927
Template-Type: ReDIF-Paper 1.0
Title: The Demand for Lottery Products
Author-Name: Charles T. Clotfelter
Author-Person: pcl34
Author-Name: Philip J. Cook
Author-Person: pco30
Note: PE
Number: 2928
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2928
File-URL: http://www.nber.org/papers/w2928.pdf
File-Format: application/pdf
Publication-Status: Published as "Public Services, Private Substitutes, and the Demand for Protection Against Crime", American Economic Review, Vol. 67, no. 5 (1977): 867-877.
Abstract: Lotteries constitute one of the fastest-growing categories of consumer expenditure in the United States. Not only have an increasing number of states legalized state lotteries, but the per capita expenditures on lotteries in lottery states have increased at an annual rate of 13 percent after inflation between 1975 and 1988. This article examines the demand for lottery products. A majority of the adult public in lottery states play in any one year, but relatively few of these players account for most of the action". Socioeconomic patterns of play, measured from both sales data and household surveys, offer some surprises -- for example, that the Engle curve of lottery expenditures decline with income. There is some evidence that lottery sales increase with the payout rate, although it is not clear that it would be profitable for the states to increase payout rates. The addition of a new game, such as lotto, does not undercut sales of existing games, and the oft-heard claim that interest (and sales) will "inevitably" decline is contradicted by the data. The organizational form of the lottery is evolving in response to the quest for higher revenues: in particular, smaller states are forming multistate game. This article is a chapter from Selling Hope: State Lotteries in America, an NBER monograph to be published by Harvard University Press in November, 1989.
Handle: RePEc:nbr:nberwo:2928
Template-Type: ReDIF-Paper 1.0
Title: Simulating the Effects of Some Simple Coordinated versus Uncoordinated Policy
Author-Name: Jacob A. Frenkel
Author-Name: Morris Goldstein
Author-Name: Paul R. Masson
Author-Person: pma135
Note: ITI IFM
Number: 2929
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2929
File-URL: http://www.nber.org/papers/w2929.pdf
File-Format: application/pdf
Publication-Status: published as Bryant, Ralph C., et al. (eds.) Macroeconomic policies in an interdependent world. Washington, D.C.: International Monetary Fund; Washington, D.C.: Brookings Institution; London: Centre for Economic Policy Research, 1989.
Abstract: Effects of different policy rules are simulated: uncoordinated targeting of the money supply or nominal income, use of monetary policy to achieve coordinated targets for nominal or real exchange rates, and the use of monetary and fiscal policies to hit targets for internal and external balance. The following conclusions emerge: rules which performed best for some shocks performed poorly for others; monetary policy was ineffective in limiting movements in real exchange rates; unconstrained use of fiscal policy was quite powerful in influencing real variables; and dynamic instability was a potentially serious problem. Robustness to different specifications and to constraints on instruments remains to be examined.
Handle: RePEc:nbr:nberwo:2929
Template-Type: ReDIF-Paper 1.0
Title: Perishable Investment and Hysteresis in Capital Formation
Author-Name: Bernard Dumas
Author-Person: pdu519
Note: ITI IFM
Number: 2930
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2930
File-URL: http://www.nber.org/papers/w2930.pdf
File-Format: application/pdf
Abstract: Entry into a market seems to necessitate some investment into "marketing capital" (or distribution capital: advertising, dealerships etc ... ). This form of investment has the property that, if it is unused for some time, it quickly becomes worthless. When entry into a market requires marketing investment, firms which are currently out of this market tend to delay entry until price vs cost conditions have become extremely favorable. Conversely, firms which are in the market tend to delay exit until they can no longer bear large operating losses. This is because they know that, if they do exit, and if price vs cost conditions later become favorable again, they will have to incur afresh the investment in marketing capital. The purpose of the present paper is to produce a general-equilibrium model of capital formation in an economy subject to random shocks, when marketing capital (with the above properties) is used in distribution, in addition to the "normal" capital used in production. We exhibit an analytical solution to the dynamic program representing the welfare optimum problem, along with the shadow prices corresponding to this program. These are also the prices which would support the general equilibrium of a decentralized market economy. Our results pertain to the effect of entry costs, risk, risk aversion and productivity on the balance between marketing and productive capital, to the nature of growth paths in this economy and to the level of prices (such as the price of shares in the stock market, or the price of final goods) as well as the extent to which productivity shocks are passed through into these prices.
Handle: RePEc:nbr:nberwo:2930
Template-Type: ReDIF-Paper 1.0
Title: Coming Home to America: Dividend Repatriations by U.S. Multinationals
Author-Name: James R. Hines, Jr.
Author-Person: phi111
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Note: PE
Number: 2931
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2931
File-URL: http://www.nber.org/papers/w2931.pdf
File-Format: application/pdf
Publication-Status: published as Taxation in the Global Economy, edited by Assaf Razin and Joel Slemrod, pp. 161-200. Chicago: The University of Chicago Press, 1990.
Publication-Status: published as Coming Home to America: Dividend Repatriations by US Multinationals, James R. Hines, Jr., R. Glenn Hubbard. in Taxation in the Global Economy, Razin and Slemrod. 1990
Abstract: This paper analyzes the financial flows from foreign subsidiaries of American multinational corporations to their parent corporations in the U.S. These repatriations are important not only to U.S. investors, who thereby have access to those funds, but also to the U.S. government, which generally does not tax foreign earnings of controlled foreign corporations until they are repatriated. The paper reviews the current tax system as applied to multinational firms, and considers the incentives it creates for various intra-firm financial transactions (in particular, the form of repatriations). These incentives appear to be inconsistent with historical repatriation patterns from aggregate time-series data on the overseas operations of U.S. multinationals. To resolve this inconsistency, we explore the determinants of distributions by foreign subsidiaries to their U.S. parent corporations, using new micro data on 12,041 controlled foreign corporations (and their 453 U.S. parents) collected from tax returns for 1984. This source exposes variations in distribution patterns not detectable in aggregate data. In particular, the data suggest that most subsidiaries paid no dividends to their parents in 1984, and that the U.S. government collected very little revenue on their foreign income while distorting their internal financial transactions.
Handle: RePEc:nbr:nberwo:2931
Template-Type: ReDIF-Paper 1.0
Title: Economic Capacity Utilization and Productivity Measurement for Multi-product firms with multiple quasi-fixed inputs
Author-Name: Ernst R. Berndt
Author-Name: Melvyn A. Fuss
Note: PR
Number: 2932
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2932
File-URL: http://www.nber.org/papers/w2932.pdf
File-Format: application/pdf
Abstract: In this paper we develop measures of economic capacity output and economic capacity utilization for firms producing multiple outputs and having one or .ore quasi-fixed inputs. Although we produce an impossibility theorem showing that based only on the assumption of cost minimization, the concept of capacity output is undefined whenever the number of outputs I exceeds the number of fixed inputs M, we are able to provide alternative constructive procedures for defining capacity output whenever I [is less than] M. We also propose a number of additional primal and dual measures of utilization of the variable and fixed inputs, including a multi-fixed input analog to Tobin's q. We relate these alternative utilization measures to one another, and show that unambiguous inequality relationships among them (relative to unity) can typically be specified a priori only under rather restrictive assumptions. We show that unless restrictive assumptions are made. the multi-fixed input analogs to Tobin's q have little informational content regarding incentives for net investment of any specific fixed input. Finally, we demonstrate the usefulness of the alternative utilization measures by showing how they can be incorporated to adjust traditional measures of multi factor productivity growth for variations in short-run utilization.
Handle: RePEc:nbr:nberwo:2932
Template-Type: ReDIF-Paper 1.0
Title: Technological Characteristics of Industries and the Competitiveness of the U.S. and its Multinational Firms
Author-Name: Irving B. Kravis
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI IFM
Number: 2933
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2933
File-URL: http://www.nber.org/papers/w2933.pdf
File-Format: application/pdf
Publication-Status: published as "Sources of Competitiveness of the U.S. and its Multinational Firms." The Review of Economics and Statistics, Vol. LXXIV, No. 2 (May 1992).
Abstract: The share of U.S. multinational firms in world exports of manufactures has remained almost constant at about 17 per cent for the last 20 years while that of the U.S. as a country has declined substantially. The composition of world manufactured exports shifted toward high-technology or R&D-intensive products during these years and away from low-technology products. The comparative advantage of the U.S., and even more that of U.S. multinationals, were in high-tech products throughout the period, as was that of Japan. However, the U.S. and its multinationals shifted even further toward such products during the period than did the world as a whole, and the Asian NIC's exports moved still faster in this direction. With respect to short-run fluctuations, we find that the export shares of U.S. multinationals have been less sensitive to exchange rate fluctuations than those of the U.S. And shares in high-tech exports have been less sensitive than those in low-tech exports. High R&D intensity was a factor raising the competitiveness of U.S. industries and particularly that of U.S. multinationals in those industries. High advertising intensity raised the competitiveness of U.S multinationals but not usually that of their industries. Higher growth in R&D-intensity also led to increase in multinationals' shares of world exports between 1977 and 1982.
Handle: RePEc:nbr:nberwo:2933
Template-Type: ReDIF-Paper 1.0
Title: Simple Rules, Discretion and Monetary Policy
Author-Name: Robert Flood
Author-Person: pfl25
Author-Name: Peter Isard
Note: ITI IFM
Number: 2934
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2934
File-URL: http://www.nber.org/papers/w2934.pdf
File-Format: application/pdf
Abstract: In this paper we explore the possibilities arising under a policy in which a partially state contingent money-supply rule is mixed with discretion. In addition to demonstrating that such mixed strategies can dominate both complete discretion and rigid adherence to the partially state contingent rule, we investigate the appropriate setting of parameters in a partially state contingent policy when it is acknowledged that the rule will not be followed on all occasions--i.e., that sometimes the monetary authority will resort to discretion.
Handle: RePEc:nbr:nberwo:2934
Template-Type: ReDIF-Paper 1.0
Title: The Pension Cost of Changing Jobs
Author-Name: Steven G. Allen
Author-Person: pal6
Author-Name: Robert L. Clark
Author-Name: Ann A. McDermed
Note: LS
Number: 2935
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2935
File-URL: http://www.nber.org/papers/w2935.pdf
File-Format: application/pdf
Publication-Status: published as Research on Aging, vol.10, no.4, pp459-471, December 1988
Abstract: Workers covered by defined benefit pension plans receive lower benefits at retirement if they leave their current job before reaching retirement age. This study estimates the magnitude of this pension loss for workers in the May 1983 supplement of the Current Population Survey, using pension formula estimates from the 1983 Employee Benefit Survey. The pension loss is generally greatest between the ages of 35 and 54 and represents roughly half of a year's earnings for that age group. The loss tends to be quite high in the declining mining and manufacturing sectors. This probably resulted in lower voluntary attrition at a time of massive layoffs and plant closings.
Handle: RePEc:nbr:nberwo:2935
Template-Type: ReDIF-Paper 1.0
Title: Bounds on the Variances of Specification Errors in Models with Expectations
Author-Name: Steven N. Durlauf
Author-Person: pdu117
Author-Name: Robert E. Hall
Note: EFG
Number: 2936
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2936
File-URL: http://www.nber.org/papers/w2936.pdf
File-Format: application/pdf
Abstract: Under rather general conditions, observed covariances place a useful lower bound on the variance of the misspecification or noise III models based on expectations. Such models are widely used for securities prices, exchange rates, consumption, and output. For a correctly specified model, the lower bound will be zero. We construct an optimal bound on model noise that captures the complete set of testable restrictions on an expectations based model. Many specification tests for asset prices are easily interpreted as estimates of this lower bound. As a result, the power of different tests may be ranked according to the information restrictions employed in constructing noise estimates. Our results show that specification tests which use the history of lagged dependent variables are usually better able to uncover model noise than based on information sets that exclude those variables.
Handle: RePEc:nbr:nberwo:2936
Template-Type: ReDIF-Paper 1.0
Title: The Competitive Externalities and the Optimal Seignorage
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 2937
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2937
File-URL: http://www.nber.org/papers/w2937.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, Vol. 24, No. 1, pp. 61-71, (February 1992).
Abstract: The purpose of this study is to analyze the behavior of the inflation tax in an economy where, due to coordination failure, the inflation rate is not determined by a unique policy maker but by several competing decision makers. Each decision maker can effectively print more paper money via the central bank, which operates only as the printing agency of nominal balances. This market structure generates a competitive externality. A key result is that the optimal' inflation rate depends positively on the competitive externality. We provide two examples of scenarios where these externalities are relevant. First, the case in which the central bank is a powerless agent whose only responsibility is to print money upon demand by the ministers. The second example is a common currency area, where several countries operate in a monetary union. Alternatively, this may be the case of a country composed of several states or provinces, where the centralized government system is weak and local governments can use seigniorage to their advantage. The effect of competitive externalities is to increase the inflation rate, to an extent that puts the economy on the wrong side of the inflation tax Laffer curve.
Handle: RePEc:nbr:nberwo:2937
Template-Type: ReDIF-Paper 1.0
Title: Toward a Theory of Rigidities
Author-Name: Bruce C. Greenwald
Author-Name: Joseph E. Stiglitz
Note: EFG
Number: 2938
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2938
File-URL: http://www.nber.org/papers/w2938.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 79, No. 2, pp. 364-369, (May 1989).
Abstract: This paper presents a theory of rigidity, or more properly inertia, in the responses of economic variables to changing environments. The theory rests on three fundamental assumptions: (1) that firms are risk averse, (2) that firms are uncertain of the impacts of changing decision variables and (3) that this uncertainty increases with the size of deviations in decision variables from appropriately defined past level. Under these circumstances an optimal portfolio of incremental decision variable adjustments exists which (a) takes variance minimizing adoptions to environmental change as a point of departure and then (b) is weighted in favor of changes in variables whose effects are less uncertain. In considering price and quantity adjustments, this implies that price and wage adjustments should largely incorporate expected inflation and, from that point, should be small relative to quantity adjustments, since in most situations the uncertainties associated with the consequences of quantity adjustment should be smaller than those associated with price adjustments.
Handle: RePEc:nbr:nberwo:2938
Template-Type: ReDIF-Paper 1.0
Title: Signalling, Wage Controls and Monetary Disinflation Policy
Author-Name: Torsten Persson
Author-Person: ppe28
Author-Name: Sweder van Wijnbergen
Author-Person: pva412
Note: EFG ITI IFM
Number: 2939
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2939
File-URL: http://www.nber.org/papers/w2939.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal, Vol. 103 (1993): 79-97.
Abstract: Wage and price controls have a long and somewhat disreputable history, presumably because of their frequent use in many countries as short run substitutes for measure~ with more lasting effects on the inflation rate. But, in 1985 and 1986, Argentina, Brazil, and Israel used extensive wage-price controls as part of more comprehensive disinflation programs, .often labeled "heterodox" stabilization programs. To date, the Israeli stabilization seems to have succeeded, while the Argentinean and Brazilian stabi1izations have clearly ended in failure. This experience raises many questions. One view is that controlling one nominal variable, namely the money supply, is enough to bring down inflation provided that sound fiscal policies are also adopted. Therefore, wage and price controls should be avoided, because of their microeconomic costs. It is clear that controls do have microeconomic costs, but can they also have macroeconomic benefits? Under which circumstances do controls help in bringing down inflation, and when do they just suppress it temporarily? What is the required supporting role of fiscal and monetary policy while they are in place? These are the issues addressed in this paper.
Handle: RePEc:nbr:nberwo:2939
Template-Type: ReDIF-Paper 1.0
Title: Capital Controls and the Real Exchange Rate
Author-Name: Sweder van Wijnbergen
Author-Person: pva412
Note: ITI IFM
Number: 2940
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2940
File-URL: http://www.nber.org/papers/w2940.pdf
File-Format: application/pdf
Publication-Status: published as Economica, Vol. 57, no. 225 (1990): 15-28.
Abstract: Using an intertemporal, two-country general equilibrium model, I demonstrate that international asymmetries in expenditure patterns determine the real exchange rate effects of capital controls. Capital import taxes lower world interest rates, but raise home interest rates. These changes in interest rates bring about a change in the composition of world expenditure, with a shift of home expenditure from the present ('today') to the future ('tomorrow'), and a shift of foreign aggregate expenditure from tomorrow to today. If the pattern of expenditure across commodities is the same at home and abroad, the change in the composition of world expenditure has no effects on the (excess) demand for any particular commodity. Therefore, with identical expenditure patterns at home and abroad, the imposition of capital controls has no effect on the real exchange rate. However, when consumers have a preference for domestically produced goods, the shift in composition of world expenditure caused by interest rate changes implies a decline in demand today for home goods. In that case, capital controls lower the real exchange rate. Of course, in period two the reverse happens. This result is mitigated when the country imposing capital controls is a large debtor.
Handle: RePEc:nbr:nberwo:2940
Template-Type: ReDIF-Paper 1.0
Title: Markup Behavior in Durable and Nondurable Manufacturing: A production Theory Approach
Author-Name: Catherine J. Morrison
Note: PR
Number: 2941
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2941
File-URL: http://www.nber.org/papers/w2941.pdf
File-Format: application/pdf
Publication-Status: published as Morrison, C. J. "The Cyclical Nature Of Markups In Canadian Manufacturing: A Production Theory Approach," Jouranl of Applied Econometrics, 1994, v9(3), 269-282.
Abstract: In this paper I provide a production theory-based framework for measuring markups of price over marginal coat, and the effects of cost and demand characteristics on these markups. Price to marginal coat ratios are measured for various Canadian manufacturing industries, and the impacts of capacity utilization, scale economies, changing prices of variable inputs, import competition, unemployment and other cost and demand determinants are evaluated using adjusted markup indexes and elasticities of the markup ratios. The measured price margins are within a reasonable range and tend to be countercyclical. Moreover, these measures suggest that profitability stemming from the potential to increase price over marginal cost appears primarily to arise from cost characteristics determining scale economies.
Handle: RePEc:nbr:nberwo:2941
Template-Type: ReDIF-Paper 1.0
Title: How Strong are Bequest Motives? Evidence Based on Estimates of the Demand for Life Insurance and Annuities
Author-Name: B. Douglas Bernheim
Author-Person: pbe81
Note: PE
Number: 2942
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2942
File-URL: http://www.nber.org/papers/w2942.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 99, No. 5, pp. 899-927, (October) 1991.
Abstract: This paper presents new empirical evidence in support of the view that a significant fraction of total saving is motivated solely by the desire to leave bequests. Specifically, I find that Social Security annuity benefits significantly raise life insurance holdings and depress private annuity holdings among elderly individuals. These patterns indicate that the typical household would choose to maintain a positive fraction of its resources in bequeathable forms, even if insurance markets were perfect. Evidence on the relationship between insurance purchases and total resources reinforces this conclusion.
Handle: RePEc:nbr:nberwo:2942
Template-Type: ReDIF-Paper 1.0
Title: Adjustment and Income Distribution: A Counterfactual Analysis
Author-Name: Francois Bourguignon
Author-Person: pbo225
Author-Name: William H. Branson
Author-Name: Jaime de Melo
Note: ITI IFM
Number: 2943
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2943
File-URL: http://www.nber.org/papers/w2943.pdf
File-Format: application/pdf
Publication-Status: published as Bourguignon, F., W. H. Branson and J. De Melo. "Adjustment And Income Distribution: A Micro-Macro Model For Counter-Factual Analysis," Journal of Development Economics, 1992, v38(1), 17-40.
Abstract: This paper presents a structural macro simulation model to quantify the effects of alternative stabilization packages on the distribution of income and wealth. The model combines the explicit microeconomic optimizing behavior characteristic of computable general equilibrium models with asset portfolio behavior of macroeconomic models in Tobin's tradition. In this model there are four main mechanisms by which policy changes affect the distribution of income and wealth. First changes in factor rewards affect directly household income distribution. Second, household real incomes are affected by changes in their respective cost of living indexes. Third, household real incomes are affected by changes in real returns on financial assets since household incomes include income from financial holdings. Fourth, household wealth distribution is affected by capital gains and losses. Simulations with' the model are carried out for a representative economy subject to the interest rate and terms-of-trade shocks of the early 1980s. The simulations suggest a large adverse impact on the distribution of income of a sharp contractionary package. The resulting distributional shifts are likely to endanger the sustainability of the package even though the distribution of income becomes more equal when normal policies are resumed. By contrast, the targeted expenditure cut programs advocated by the critics of contractionary packages result in a much less unequal distribution of income during the adjustment package, even though the distributional improvements of the targeted package are mostly reversed in the post-adjustment period. The simulations support the view that stabilization packages which do not have specific components targeted towards the poor will have a noticeable adverse effect on the distribution of income, which is likely to result in some form of permanent damage for those below the poverty line.
Handle: RePEc:nbr:nberwo:2943
Template-Type: ReDIF-Paper 1.0
Title: Relative Performance Evaluation for Chief Executive Officers
Author-Name: Robert Gibbons
Author-Person: pgi283
Author-Name: Kevin J. Murphy
Author-Person: pmu108
Note: ITI IFM
Number: 2944
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2944
File-URL: http://www.nber.org/papers/w2944.pdf
File-Format: application/pdf
Publication-Status: published as Robert Gibbons & Kevin J. Murphy, 1990. "Relative Performance Evaluation for Chief Executive Officers," ILR Review, vol 43(3), pages 30-S-51-S.
Abstract: Measured individual performance often depends on random factors which also affect the performances of other workers in the same firm, industry, or market. In these cases, relative performance evaluation (RPE) can provide incentives while partially insulating workers from the common uncertainty. Basing pay on relative performance, however, generates incentives to sabotage the measured performance of co-workers, to collude with co-workers and shirk, and to apply for jobs with inept co-workers. RPE contracts also are less desirable when the output of co-workers is expensive to measure or in the presence of production externalities, as in the case of team production. The purpose of this paper is to review the benefits and costs of RPE and to test for the presence of RPE in one occupation where the benefits plausibly exceed the costs: chief executive officers (CEOs). In contrast to previous research, our empirical evidence strongly supports the RPE hypothesis-CEO pay revisions and retention probabilities are positively and significantly related to firm performance, but are negatively and significantly related to industry and market performance, ceteris paribus. Our results also suggest that CEO performance is more likely to be evaluated relative to aggregate market movements than relative to industry movements.
Handle: RePEc:nbr:nberwo:2944
Template-Type: ReDIF-Paper 1.0
Title: Financial Market Imperfections and Productivity Growth
Author-Name: Bruce C. Greenwald
Author-Name: Joseph E. Stiglitz
Note: ME
Number: 2945
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2945
File-URL: http://www.nber.org/papers/w2945.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Behavior and Organization, Vol. 13, pp. 321-345, (1990) .
Abstract: This paper examines the impact of financial market imperfections on long-term productivity growth. It focuses on failures in markets for the sale of equity securities and hence on the failure of markets which help firms diversify the risks of real investment. The paper examines separately situations in which productivity growth is driven by learning-by-doing and where it results from the cumulative impact of explicit investments in technology by firms, In general, a multiplicity of steady-state growth paths exists with different growth rates along each path. The particular path followed by any single economy (and hence the growth rate of that economy) will depend significantly on policy interventions which mitigate effects of financial markets.
Handle: RePEc:nbr:nberwo:2945
Template-Type: ReDIF-Paper 1.0
Title: Mean Reversion and Consumption Smoothing
Author-Name: Fischer Black
Note: ME
Number: 2946
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2946
File-URL: http://www.nber.org/papers/w2946.pdf
File-Format: application/pdf
Publication-Status: published as Review of Financial Studies, Vol. 3, no. 1 (1990): 107-114.
Abstract: Using a simple conventional model with additive separable utility and constant elasticity, we can explain mean reversion and consumption smoothing. The model uses the price of risk and wealth as state variables, but has only one stochastic variable. The price of risk rises temporarily as wealth falls. We also distinguish between risk aversion and the consumption elasticity of marginal utility. We can use the model to match estimates of the average values of consumption volatility, wealth volatility, mean reversion, the growth rate of consumption, the real interest rate, and the market risk premium.
Handle: RePEc:nbr:nberwo:2946
Template-Type: ReDIF-Paper 1.0
Title: Equilibrium Exchange Rate Hedging
Author-Name: Fischer Black
Note: ME
Number: 2947
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2947
File-URL: http://www.nber.org/papers/w2947.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 45, no. 3 (1990): 899-908.
Abstract: In a one-period model where each investor consumes a single good, and where borrowing and lending are private and real, there is a universal constant that tells how much each investor hedges his foreign investments. The constant depends only on average risk tolerance across investors. The same constant applies to every real foreign investment held by every investor. Foreign investors are those with different consumption goods, not necessarily those who live in different countries. In equilibrium, the price of the world market portfolio will adjust so that the constant will be related to an average of world market risk premia, an average of world market volatilities, and an average of exchange rate volatilities, where we take the averages over all investors. The constant will not be related to exchange rate means or covariances. In the limiting case when exchange risk approaches zero, the constant will be equal to one minus the ratio of the variance of the world market return to its mean. Jensen's inequality, or "Siegel's paradox," makes investors want significant amounts of exchange rate risk in their portfolios. It also makes investors prefer a world with more exchange rate risk to a similar world with less exchange rate risk.
Handle: RePEc:nbr:nberwo:2947
Template-Type: ReDIF-Paper 1.0
Title: Wage Indexation and Time-Consistent Monetary Policy
Author-Name: Laurence Ball
Author-Person: pba605
Author-Name: Stephen G. Cecchetti
Author-Person: pce4
Note: EFG ME
Number: 2948
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2948
File-URL: http://www.nber.org/papers/w2948.pdf
File-Format: application/pdf
Publication-Status: published as "Wage Indexation and Discretionary Monetary Policy," American Economic Review, December 1991, pp. 1310-1319
Abstract: This paper investigates the effects of wage indexation on the time-consistent level of inflation. Departing from previous work on time-consistent policy, we study a structural model of the economy. Indexation reduces the cost of inflation, which is inflationary, and steepens the Phillips curve, which is anti-inflationary. In most cases, the net effect is to raise inflation but also to raise welfare: the loss from higher inflation is outweighed by the gain from greater protection against inflation.
Handle: RePEc:nbr:nberwo:2948
Template-Type: ReDIF-Paper 1.0
Title: Long-run Income and Interest Elasticities of Money Demand in the United States
Author-Name: Dennis Hoffman
Author-Person: pho707
Author-Name: Robert H. Rasche
Author-Person: pra180
Note: ME
Number: 2949
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2949
File-URL: http://www.nber.org/papers/w2949.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, November 1991.
Abstract: This study investigates the stability of long-run log-linear demand functions for narrowly defined monetary aggregates (M1, Monetary Base) in the U.S. during the post World War II period. The hypotheses that the individual time series which appear in such equations (real M1, real Monetary Base, real Personal Income and short-term and long-term nominal interest rates) all have unit roots cannot be rejected. The primary conclusion of this study is that with proper attention to the time series properties of the available data, there exists strong evidence in support of a stable equilibrium demand function for real balances in the post-World War II U.S. economy. The hypothesis of a unitary equilibrium real income elasticity (a velocity function) cannot be rejected. Further, the estimates of equilibrium interest elasticities are approximately -.5 to -.6 for real M1 and -.4 to -.5 for real monetary base. The estimated interest elasticities are significantly different statistically depending on whether long- term or short-term interest rates are used, but the observed differences in these estimates are not of economic significance.
Handle: RePEc:nbr:nberwo:2949
Template-Type: ReDIF-Paper 1.0
Title: Real Exchange Rates in the Developing Countries: Concepts and Measure- ment
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 2950
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2950
File-URL: http://www.nber.org/papers/w2950.pdf
File-Format: application/pdf
Publication-Status: published as and Welfare: The Role of Capital Controls and Labor Market Distortions, DEP."Tariffs, Capital Controls, and Equilibrium Real Exchange Rates", CANJE, Vol. 22, no. 1 (1989): 79-92.
Publication-Status: published as With Jonathan D. Ostry, "Anticipated Protectionist Policies, Real Exchange Rates, and the Current Account: The Case of Rigid Wages", JIMF, Vol. 9,no. 2 (1990). With Jonathan D. Ostry, "Terms of Trade Disturbances, Real Exchange Rates,
Abstract: This paper deals with three important issues related to real exchange rates. First, it discusses the analytical concept of real exchange rate (RER) placing particular emphasis on providing an operational definition for the equilibrium real exchange rate. Of course, once this concept is defined we can begin to discuss in a meaningful way what we mean by real exchange rate misalignment, or deviations of the actual RER from its equilibrium value. Second, this paper deals with problems associated with measuring real exchange rates. Several proposals are analyzed and the more serious problems encountered when attempting to compute RER's in the developing countries are discussed. And third, I analyze the actual behavior of RER's in a number of developing countries. Here, issues related to the behavior of alternative indexes and to the statistical properties of real exchange rates are emphasized. Additionally, I study the real consequences of increased real exchange rate volatility.
Handle: RePEc:nbr:nberwo:2950
Template-Type: ReDIF-Paper 1.0
Title: The Sources and Nature of Long-term Memory in the Business Cycle
Author-Name: Joseph G. Haubrich
Author-Person: pha107
Author-Name: Andrew W. Lo
Author-Person: plo171
Note: ME
Number: 2951
Creation-Date: 1989-04
Order-URL: http://www.nber.org/papers/w2951
File-URL: http://www.nber.org/papers/w2951.pdf
File-Format: application/pdf
Publication-Status: published as Haubrich, Joseph G. and Andrew W. Lo. "The Sources And Nature Of Long-Term Memory In Aggregate Output," FRB Cleveland - Economic Review, 2001, v37(2,Second-Qtr), 15-30.
Abstract: This paper examines the stochastic properties of aggregate macroeconomic time series from the standpoint of fractionally integrated models, and focuses on the persistence of economic shocks. We develop a simple macroeconomic model that exhibits long-term dependence, a consequence of aggregation in the presence of real business cycles. We derive the relation between properties of fractionally integrated macroeconomic time series and those of microeconomic data, and discuss how fiscal policy may alter their stochastic behavior. To implement these results empirically, we employ a test for fractionally integrated time series based on the Hurst-Mandelbrot rescaled range. This test is robust to short-term dependence, and is applied to quarterly and annual real GNP to determine the sources and nature of long-term dependence in the business cycle.
Handle: RePEc:nbr:nberwo:2951
Template-Type: ReDIF-Paper 1.0
Title: Experimental Assessment of the Effect of Vocational Training on Youthful Property Offenders
Author-Name: Pamela K. Lattimore
Author-Name: Ann Dryden Witte
Author-Name: Joanna R. Baker
Note: LS
Number: 2952
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2952
File-URL: http://www.nber.org/papers/w2952.pdf
File-Format: application/pdf
Publication-Status: published as Evaluation Review, Vol. 14, No. 2, pp. 115-133, (April 1990).
Abstract: In this paper we report results that suggest that carefully integrated and implemented vocational training and re-entry programs for youthful property offenders can reduce the rate at which such individuals are arrested after release. This result is important since most evaluations of programs for such offenders show no significant effects. The question has been "Why have programs rarely been shown to have significant effects on the behavior of offenders?". Our results suggest that the major reasons may be that programs evaluated to date have been weak and implementation poor. Even with substantial backing from correctional management only 16 percent of the experimental group participated in all aspects of the vocational Delivery System (VDS). Members of the experimental group were most likely to participate in early aspects of the VDS (e.g., a three-week evaluation of vocational interests and aptitudes) than in later elements (e.g., work with the Employment Security Commission to find a job). Even with relatively weak implementation, the experimental group subjects were significantly less likely to be arrested that control group subjects.
Handle: RePEc:nbr:nberwo:2952
Template-Type: ReDIF-Paper 1.0
Title: Birth, Death and Taxes
Author-Name: Andrew B. Abel
Author-Person: pab10
Note: EFG
Number: 2953
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2953
File-URL: http://www.nber.org/papers/w2953.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol 39, pp. 1-15, (1989).
Abstract: This paper analyzes the effects of lump-sum tax policy in an overlapping generations model in which consumers have uncertain longevity. It extends previous analyses by considering the case in which private insurance arrangements are actuarially unfair. In addition, it considers the polar case of actuarially fair insurance and the polar case of no insurance. A general condition for debt neutrality is derived. This condition depends explicitly on the degree of actuarial unfairness in insurance and on the extent to which parents care about the utility of their children.
Handle: RePEc:nbr:nberwo:2953
Template-Type: ReDIF-Paper 1.0
Title: Stock Volatility and the Crash of '87
Author-Name: G. William Schwert
Author-Person: psc116
Note: ME
Number: 2954
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2954
File-URL: http://www.nber.org/papers/w2954.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Financial Studies, Vol. 3, No. 1, pp. 77-102, 1990.
Abstract: This paper analyzes the behavior of stock return volatility using daily data from 1885 through 1987. The October 1987 stock market crash was unusual in many ways relative to prior history. In particular, stock volatility jumped dramatically during and after the crash, but it returned to lower. more normal levels quickly. I use data on implied volatilities from call option prices and estimates of volatility from futures contracts on stock indexes to confirm this result.
Handle: RePEc:nbr:nberwo:2954
Template-Type: ReDIF-Paper 1.0
Title: Alternative Models For Conditional Stock Volatility
Author-Name: Adrian R. Pagan
Author-Person: ppa222
Author-Name: G. William Schwert
Author-Person: psc116
Note: ME
Number: 2955
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2955
File-URL: http://www.nber.org/papers/w2955.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Econometrics, Vol. 45, pp. 267-290, (1990).
Abstract: This paper compares several statistical models for monthly stock return volatility. The focus is on U.S. data from 1834-19:5 because the post-1926 data have been analyzed in more detail by others. Also, the Great Depression had levels of stock volatility that are inconsistent with stationary models for conditional heteroskedasticity, We show the importance of nonlinearities in stock return behavior that are not captured by conventional ARCH or GARCH models. We also show the nonstationariry of stock volatility, even over the 1834-1925 period.
Handle: RePEc:nbr:nberwo:2955
Template-Type: ReDIF-Paper 1.0
Title: Heteroskedasticity in Stock Returns
Author-Name: G. William Schwert
Author-Person: psc116
Author-Name: Paul J. Seguin
Note: ME
Number: 2956
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2956
File-URL: http://www.nber.org/papers/w2956.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Finance, Vol. XLV, No. 4, pp. 1129-1155, (September 1990).
Abstract: We use predictions of aggregate stock return variances from daily data to estimate time varying monthly variances for size-ranked portfolios. We propose and estimate a single factor model of heteroskedasticity for portfolio returns. This model implies time-varying betas. Implications of heteroskedasticity and time-varying betas for tests of the capital asset pricing model (CAPM) are then documented. Accounting for heteroskedasticity increases the evidence that risk-adjusted returns are related to firm size. We also estimate a constant correlation model. Portfolio volatilities predicted by this model are similar to those predicted by more complex multivariate generalized-autoregressive- conditional- heteroskedasticity (GARCH) procedures.
Handle: RePEc:nbr:nberwo:2956
Template-Type: ReDIF-Paper 1.0
Title: Business Cycles, Financial Crises, and Stock Volatility
Author-Name: G. William Schwert
Author-Person: psc116
Note: ME
Number: 2957
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2957
File-URL: http://www.nber.org/papers/w2957.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 31, pp. 83-125, (1989).
Abstract: This paper shows that stock volatility increases during recessions and financial crises from 1834-1987. The evidence reinforces the notion that stock prices are an important business cycle indicator. Using two different statistical models for stock volatility, I show that volatility increases after major financial crises. Moreover. stock volatility decreases and stock prices rise before the Fed increases margin requirements. Thus, there is little reason to believe that public policies can control stock volatility. The evidence supports the observation by Black [1976] that stock volatility increases after stock prices fall.
Handle: RePEc:nbr:nberwo:2957
Template-Type: ReDIF-Paper 1.0
Title: Foreign Investment and Technology Transfer: A Simple Model
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Jian-Ye Wang
Note: ITI IFM
Number: 2958
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2958
File-URL: http://www.nber.org/papers/w2958.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 36, pp. 137-155, (1992).
Abstract: This paper develops a model in which international technology transfer through foreign direct investment emerges as an endogenized equilibrium phenomenon, resulting from the strategic interaction between subsidiaries of multinational corporations and host country firms. The model explicitly recognizes two types of costs -- the costs to the multinational of transferring technology to its subsidiaries and the learning costs of domestic firms -- and treats technology transfer in a game theoretic context. The model points to the importance of the learning efforts of host-country firms in increasing the rate at which MNCs transfer technology. The paper also explores some of the reasons why learning investment in host country firms may be suboptimal.
Handle: RePEc:nbr:nberwo:2958
Template-Type: ReDIF-Paper 1.0
Title: Tariffs with Private Information and Reputation
Author-Name: Richard A. Jensen
Author-Name: Marie Thursby
Author-Person: pth283
Note: ITI IFM
Number: 2959
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2959
File-URL: http://www.nber.org/papers/w2959.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 29, pp. 43-67, (1990).
Abstract: When governments choose trade policy, rarely do they have complete information, At the time decisions are made, policy makers have only estimates of market responses, as well as the responses of foreign governments. In many realistic situations, even the policy objectives of other governments may not be known. For example, the balance of constitutional powers in the United States is often cited as a source of confusion as to objectives of U.S. trade policy. In this paper we examine the Bayesian Nash equilibria of several noncooperative tariff games with incomplete information, In the models examined, the home country has private information about whether its government is a low or high tariff type. If the foreign government is uncertain about this type in a one-shot game, its Nash equilibrium tariff will be lower (higher) than if it knew the home government were a low (high) tariff type. In two multistage games, misleading behavior by the home government is shown to be an equilibrium strategy for sufficiently high discount factors. Whether the uncertainty is persistent or can be resolved is shown to be important for welfare results in the multistage setting. In the models examined, tariff rules do not necessarily dominate discretionary policy.
Handle: RePEc:nbr:nberwo:2959
Template-Type: ReDIF-Paper 1.0
Title: An Econometric Analysis of Nonsynchronous Trading
Author-Name: Andrew W. Lo
Author-Person: plo171
Author-Name: A. Craig MacKinlay
Note: ME
Number: 2960
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2960
File-URL: http://www.nber.org/papers/w2960.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Econometrics, Vol. 45, pp. 181-211, (1990).
Abstract: We develop a stochastic model of nonsynchronous asset prices based on sampling with random censoring. In addition to generalizing existing models of non-trading our framework allows the explicit calculation of the effects of infrequent trading on the time series properties of asset returns. These are empirically testable implications for the variances, autocorrelations, and cross-autocorrelations of returns to individual stocks as well as to portfolios. We construct estimators to quantify the magnitude of non-trading effects in commonly used stock returns data bases and show the extent to which this phenomenon is responsible for the recent rejections of the random walk hypothesis.
Handle: RePEc:nbr:nberwo:2960
Template-Type: ReDIF-Paper 1.0
Title: Markets and Development
Author-Name: Joseph E. Stiglitz
Note: PE
Number: 2961
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2961
File-URL: http://www.nber.org/papers/w2961.pdf
File-Format: application/pdf
Publication-Status: published as "Markets, Market Failures, and Development" From The American Economic Review, Vol. 79, No. 2, pp. 197-203, (May 1989).
Abstract: This paper explores the causes and consequences of the more important market failures which impede the development of LOCs, and explains why the non-market institutions which often ameliorate the effects of market failures in developed countries are less effective- in doing so in LOCs. This paper focuses, in particular, on those market failures which arise from imperfect information (as in the capital market) or which are almost inevitably associated with the learning which must occur if the less developed countries are successfully to make the transition to being more developed. learning, Among the consequences of learning-by-doing, of localized and of learning-to-learn are imperfections of competition, multiple equilibria, hysteresis, and the optimality of non-myopic policies. These market failures are markedly different from those that were the center of attention in earlier literature, which led to arguments for government planning. Government interventions need to recognize the source of market failures; informational problems affect the government no less than the private sector. In some cases, interventions should be directed at making markets work more effectively; in other cases, the government may take a role in establishing non-market institutions to ameliorate the effects of market failure.
Handle: RePEc:nbr:nberwo:2961
Template-Type: ReDIF-Paper 1.0
Title: The Long-Run Impact on Federal Tax Revenues and Capital Allocation of A Cut in the Capital Gains Tax Rate
Author-Name: Patric H. Hendershott
Author-Name: Yunhi Won
Note: PE
Number: 2962
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2962
File-URL: http://www.nber.org/papers/w2962.pdf
File-Format: application/pdf
Publication-Status: published as Patric H. Hendershott & Yunhi Won, 1991. "The Long-Run Impact on Federal Tax Revenues and Capital Allocation of a Cut in the Capital Gains Tax Rate," Public Finance Quarterly, vol 19(1), pages 3-21.
Abstract: Model simulations are run to obtain a range of realistic estimates of the long-run revenue impact of a capital-gains tax-rate cut to a maximum of 15 percent. The basic vehicle for the simulations is a slightly modified version of the Galper-Lucice-Toder (GLT) general equilibrium model. The key behavioral assumptions affecting the estimates are: (1) the portfolio and tangible capital reallocations implicit in the structure of the GLT model, (2) corporate payouts responses based on recent empirical estimates, and (3) illustrative noncorporate recharacterizations of regular income as capital gains. The essential message of this paper is that the strong emphasis in the literation on the realization response to a capital gains tax rate cut has been appropriate. The payout/recharacterization and portfolio redistribution/reallocation effects do not appear to be large. Moreover, the portfolio responses, within the context of the GLT model, act to raise tax revenues (substitution of taxable business capital for tax free household and state and local capital), not lower them as has been conjectured. Thus these responses offset the payout/recharacterization effects, leaving the realization response as basically the total response. Future research could, of course, modify this finding.
Handle: RePEc:nbr:nberwo:2962
Template-Type: ReDIF-Paper 1.0
Title: Crumbling Pillar? Declining Union Density in Japan
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Marcus E. Rebick
Author-Person: pre111
Note: LS
Number: 2963
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2963
File-URL: http://www.nber.org/papers/w2963.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B. & Rebick, Marcus E., 1989. "Crumbling pillar? Declining union density in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 3(4), pages 578-605, December.
Abstract: This paper seeks to understand the recent decline of union density in Japan from 35% in 1975 to 28% in 1987. The decline in density is analyzed in terms of the changing proportion of workers in high and low unionization groups and the changes in density within those groups. Then using a stockflow relationship we look at how the organizing rate of new unions affects the overall density. A regression model assesses our interpretation of changes in Japanese density. Our principal findings are: (1) Structural shifts in the composition of employment and of the demographics of the work force account for only a modest proportion of the drop in Japanese density. As in the United States, most changes in density occur within industries and among defined demographic groups of workers. (2) Much of the decline in density is associated with the inability of Japanese unions to organize new establishments. We attribute this in part to lowered worker interest and stiffened management opposition to unionism following the oil shock, buttressed by unfavorable changes in the political and legal environment for collective bargaining and for union organization. and by other management actions, such as creating additional pseudomanagerial posts for older male workers.
Handle: RePEc:nbr:nberwo:2963
Template-Type: ReDIF-Paper 1.0
Title: Non-Neutral Taxation and the Efficiency Gains of the 1986 Tax Reform Act - - A New Look
Author-Name: Jane G. Gravelle
Author-Person: pgr185
Note: PE
Number: 2964
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2964
File-URL: http://www.nber.org/papers/w2964.pdf
File-Format: application/pdf
Publication-Status: published as Gravelle, Jane G. "Differential Taxation Of Capital Income: Another Look At The 1986 Tax Reform Act," National Tax Journal 42, 4 (1989): 441-463.
Abstract: The Tax Reform Act of 1986 considerably altered the differentials between taxes on corporate and noncorporate capital. Conventional wisdom, relying on various incarnations of the Harberger model, suggests rather small efficiency effects from these changes in corporate tax wedges. But the Harberger models appear to understate greatly the efficiency effects of changes in the corporate tax wedge because they do not admit production of the same good by both corporate and noncorporate firms. A new model which allows corporate and noncorporate firms to coexist within the same industry suggests a significant efficiency gain from the Tax Reform Act. The model predicts that the new law reduced excess burden by at least $31 billion and eliminated about half of the total distortion from non-neutral taxation. Most of this gain occurs because the Tax Reform Act, while keeping the aggregate effective tax rate constant, considerably narrowed these differentials in industries where there is substantial noncorporate production.
Handle: RePEc:nbr:nberwo:2964
Template-Type: ReDIF-Paper 1.0
Title: Trade Liberalization in General Equilibrium: Intertemporal and Inter-Industry Effects
Author-Name: Lawrence H. Goulder
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 2965
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2965
File-URL: http://www.nber.org/papers/w2965.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, June 1992
Abstract: This paper uses a dynamic computable general equilibrium model to simulate the effects of unilateral reductions by the U.S. in tariffs and "voluntary" export restraints (VER's). We consider 50 percent cuts in tariffs and in ad valorem VER equivalents, separately and in combination. The model features intertemporal optimization by households and firms, explicit adjustment dynamics, an integrated treatment of the current and capital accounts of the balance of payments, and industry disaggregation. Central findings include: (1) VER's are considerably more significant than tariffs in terms of the magnitude of the macroeconomic effects induced by their reduction; (2) while VER reductions enhance domestic welfare, unilateral tariff cuts reduce domestic welfare (as a consequence of U.S. monopsony power and associated adverse terms of trade effects); (3) international capital movements critically regulate the responses of the U.S. and foreign economies to these trade initiatives and produce significant differences between short and long-run effects; and (4) effects differ substantially across industries. Together, these findings indicate that simulation analyses that disregard international capital movements, adjustment dynamics, and industry differences may generate seriously misleading results.
Handle: RePEc:nbr:nberwo:2965
Template-Type: ReDIF-Paper 1.0
Title: Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz
Author-Name: Christina D. Romer
Author-Person: pro407
Author-Name: David H. Romer
Author-Person: pro406
Note: EFG ME
Number: 2966
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2966
File-URL: http://www.nber.org/papers/w2966.pdf
File-Format: application/pdf
Publication-Status: published as Olivier Jean Blanchard and Stanley Fischer (eds.) NBER Macroeconomics Annual 1989. Cambridge, MA: MIT Press, 1989.
Publication-Status: published as Romer, Christina D. and David H. Romer. "Monetary Policy Matters," Journal of Monetary Economics, 1994, v34(1), 75-88.
Publication-Status: published as Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz, Christina D. Romer, David H. Romer. in NBER Macroeconomics Annual 1989, Volume 4, Blanchard and Fischer. 1989
Abstract: This paper uses the historical record to isolate episodes in which there were large monetary disturbances not caused by output fluctuations. It then tests whether these monetary changes have important real effects. The central part of the paper is a study of postwar U.S. monetary history. We identify six episodes in which the Federal Reserve in effect decided to attempt to create a recession to reduce inflation. We find that a shift to anti-inflationary policy led, on average, to a rise in the unemployment rate of two percentage points, and that this effect is highly statistically significant and robust to a variety of changes in specification. We reach three other major conclusions. First, the real effects of these monetary disturbances are highly persistent. Second, the six shocks that we identify account for a considerable fraction of postwar economic fluctuations. And third, evidence from the interwar era also suggests that monetary disturbances have large real effects.
Handle: RePEc:nbr:nberwo:2966
Template-Type: ReDIF-Paper 1.0
Title: Labor Market Dynamics When Unemployment Is A Worker Discipline Device
Author-Name: Miles S. Kimball
Author-Person: pki97
Note: EFG LS
Number: 2967
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2967
File-URL: http://www.nber.org/papers/w2967.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, 84 (4), September 1994, pp. 1045-1059
Abstract: Efficiency wage models of the effort elicitation type have important implications for labor market dynamics. These models have a wide array of discontinuous sunspot equilibria driven by extraneous variables, in addition to well-behaved equilibria characterized by continuous, slowly adjusting patterns of employment. Many aspects of actual labor markets can be replicated by these models. For example, the longer-run movements they predict in employment allow macroeconomic evidence for a large labor supply elasticity to be reconciled with panel data evidence for a small labor supply elasticity. Many testable, but as yet untested predictions about labor market dynamics can also be generated.
Handle: RePEc:nbr:nberwo:2967
Template-Type: ReDIF-Paper 1.0
Title: Layoffs and Lemons
Author-Name: Robert Gibbons
Author-Person: pgi283
Author-Name: Lawrence Katz
Author-Person: pka266
Note: LS
Number: 2968
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2968
File-URL: http://www.nber.org/papers/w2968.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 9, No. 4, pp. 351-380, (October 1991).
Abstract: In this paper we provide theoretical and empirical analyses of an asymmetric-information model of layoffs in which the current employer is better informed about its workers' abilities than prospective employers are. The key feature of the model is that when firms have discretion with respect to whom to lay off, the market infers that laid-off workers are of low ability. Since no such negative inference should be attached o workers displaced in a plant closing, our model predicts that the postdisplacement wages of otherwise observationally equivalent workers will be higher for those displaced by plant closings than for those displaced by layoffs. An extension of our model predicts that the average postdisplacement unemployment spell of otherwise observationally equivalent workers will be shorter for those displaced by plant closings than for those displaced by layoffs. In our empirical work, we use data from the Displaced Workers Supplements in the January 1984 and 1986 Current Population Surveys. We find that the evidence (with respect to both re-employment wages and postdisplacement unemployment duration) is consistent with the idea that laid off workers are viewed less favorably by the market than are those losing jobs in plant closings. Our findings are much stronger for workers laid off from jobs where employers have discretion over whom to lay off.
Handle: RePEc:nbr:nberwo:2968
Template-Type: ReDIF-Paper 1.0
Title: High Tech Firms in Israeli Industry
Author-Name: Arie Bregman
Author-Name: Melvyn Fuss
Author-Name: Haim Regev
Note: PR
Number: 2969
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2969
File-URL: http://www.nber.org/papers/w2969.pdf
File-Format: application/pdf
Publication-Status: published as "High Tech and Productivity: Evidence from Israeli Industrial Firms," European Economic Review, Vol. 35, pp. 1199-1221, (1991).
Abstract: The main purpose of this study is to characterize and analyze high technology industrial firms in Israel. We are able to advance beyond previous empirical studies of high technology because we have access to a unique individual firm data set, a sample of 670 establishments in Israel for the year 1982. Not only do we have basic production data at the individual firm level, but also each firm's capital stock revalued to 1982 dollars. A technology index is constructed from three technological indicators -- substantial R&D investment, a high proportion of the work force consisting of engineers and technicians, and a high proportion of the capital stock being of recent vintages. This technology index is used to classify firms. The largest concentration of High Tech firms are found in electronics and transport equipment industries, and the lowest in textiles and clothing. High Tech firms appear to be more productive, pay higher wages, and earn higher rates of return. Part of the higher wages to workers in High Tech firms accrue in the form of rents whereby workers in these firms exappropriate a portion of monopoly profits, a phenomenon which does not appear to be the case for Low Tech firms.
Handle: RePEc:nbr:nberwo:2969
Template-Type: ReDIF-Paper 1.0
Title: Growth and Welfare in A Small Open Economy
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI IFM
Number: 2970
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2970
File-URL: http://www.nber.org/papers/w2970.pdf
File-Format: application/pdf
Publication-Status: published as International Trade and Trade Policy. eds., E. Helpman and A. Razin, Cambridge, MA: MIT Press, 1991.
Abstract: We construct a model of growth based on endogenous technological change in a small, open economy. Entrepreneurs develop new intermediate products whenever the present value of potential profits exceeds the cost of R&D. Diversity of intermediates contributes to total factor productivity in the production of final goods. The economy produces two such final goods, and trades these at exogenously given world prices. We study the welfare implications of R&D subsidies and commercial policy. There exists an optimal subsidy to R&D that speeds growth relative to the market-determined rate. The optimal subsidy achieves the first-best rate of growth, but not the first-best level of welfare. Small tariffs and export subsidies also affect both growth and welfare. Growth may increase or decrease, depending upon which sector is promoted by the trade policy. But an increase in the growth rate is neither necessary nor sufficient for a trade policy to improve welfare. Finally, we compare tariffs and quotas, when the latter give rise to rent-seeking behavior. The diversion of resources from innovative activities to rent seeking can have dire implications for growth and welfare.
Handle: RePEc:nbr:nberwo:2970
Template-Type: ReDIF-Paper 1.0
Title: History Vs. Expectations
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 2971
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2971
File-URL: http://www.nber.org/papers/w2971.pdf
File-Format: application/pdf
Publication-Status: published as Krugman, Paul. "History Versus Expectations," Quarterly Journal of Economics, 1991, v106(2), 651-667.
Abstract: In models with external economies, there are often two or more long run equilibria. Which equilibrium is chosen? Much of the literature presumes that "history" sets initial conditions which determine the outcome, but an alternative view stresses the role of "expectations", i.e. of self-fulfilling prophecy. This paper uses a simple trade model with both external economies and adjustment costs to show how the parameters of the economy determine the relative importance of history and expectations in determining equilibrium.
Handle: RePEc:nbr:nberwo:2971
Template-Type: ReDIF-Paper 1.0
Title: Is Bilateralism Bad?
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI IFM
Number: 2972
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2972
File-URL: http://www.nber.org/papers/w2972.pdf
File-Format: application/pdf
Abstract: In the 1980s the process of trade liberalization through multilateral negotiation seems to have run aground. In its place there have been a number of bilateral and regional moves toward liberalization. Some have been concerned that these local deals may, by undermining the multilateral process, actually reduce world trade and welfare. This paper develops a simple model of the effects of regional trading blocs, and shows that consolidation of the world into a smaller number of such blocs may indeed reduce welfare, even when each bloc acts to maximize the welfare of its members. Indeed, for all plausible parameter values world welfare is minimized when there are three trading blocs. More complex versions of the model offer softer results, but the main thrust is still to validate concern over the effects of bilateral and regional trade deals.
Handle: RePEc:nbr:nberwo:2972
Template-Type: ReDIF-Paper 1.0
Title: Research and Development As An Investment
Author-Name: Bronwyn Hall
Author-Person: pha54
Author-Name: Fumio Hayashi
Author-Person: pha83
Note: PR
Number: 2973
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2973
File-URL: http://www.nber.org/papers/w2973.pdf
File-Format: application/pdf
Abstract: About 20 percent of the gross investment expenditures of U.S. manufacturing firms is expenditures on research and development. Like investment in physical capital, R&D also responds to news about future prospects of the firm, such as profitability, technological opportunities, or changes in factor prices. Using data from a panel of large U.S. manufacturing firms that was developed within the Productivity Program of the NBER, we investigate the differential responses of these two types of investment to changes in the value of the firm's assets as perceived by financial markets and the interaction of these responses. In order to study this topic empirically, we develop a stochastic dynamic programming model of a firm with two types of capital (physical and knowledge capital) which are used to produce profits. A feature of the model is the distinction between the accumulation of the two kinds of capital: expenditures on the physical capital stock are incurred one or more years before the capital actually becomes productive, whereas R&D capital is produced jointly as a function of current expenditure and the past technological position of the firm. Two individual firm specific shocks are considered: one to the overall profitability of the firm, and one to the "productivity" of R&D. In the empirical estimates, we find that these two shocks account for about 20 percent of the total variance in net investment, 15 percent of the variance in the firm-level R&D to capital ratio, but only about 5 percent of the annual rates of return. The profitability shock is well described by a moving average process of order three, while the technology shock process is more nearly permanent: first order autoregressive with parameter near unity.
Handle: RePEc:nbr:nberwo:2973
Template-Type: ReDIF-Paper 1.0
Title: Patents, Appropriate Technology, and North-South Trade
Author-Name: Ishac Diwan
Author-Name: Dani Rodrik
Author-Person: pro60
Note: ITI IFM
Number: 2974
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2974
File-URL: http://www.nber.org/papers/w2974.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, February 1991.
Abstract: We consider the differential incentives of the North and the South to provide patent protection to innovating firms in the North. The two regions are assumed to have a different distribution of preferences over the range of exploitable technologies. Due to the scarcity of R&D resources, the two regions are in potential competition with each other to encourage the development of technologies most suited to their needs. This provides a motive for the South to provide patent protection even when it constitutes a small share of the world market and hence has strong free riding incentives otherwise. A benevolent global planner will set equal rates of patent protection only when it weights the welfare of the two regions equally. We find that the comparative statics of the Nash equilibrium exhibit considerable ambiguity. Numerical simulations in the benchmark case yield the following results: (i) when the technological preferences of the two countries become more similar, the level of patent protection provided by the South is reduced; (ii) when the relative market size of the South is increased, the South enhances its patent protection. In both cases, the level of Northern patents is relatively insensitive.
Handle: RePEc:nbr:nberwo:2974
Template-Type: ReDIF-Paper 1.0
Title: Dividends, Capital Gains, and the Corporate Veil: Evidence from Britain, Canada, and the United States
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 2975
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2975
File-URL: http://www.nber.org/papers/w2975.pdf
File-Format: application/pdf
Publication-Status: published as Bernheim, B. Douglas and John B. Shoven (eds.) National Saving and Economic Performance. Chicago: The University of Chicago Press, 1991.
Publication-Status: published as Dividends, Capital Gains, and the Corporate Veil: Evidence from Britain, Canada, and the United States, James M. Poterba. in National Saving and Economic Performance, Bernheim and Shoven. 1991
Abstract: This paper investigates the effects of increased cash dividend payout, and of "forced realizations~ of capital gains in corporate control transactions, on the level of aggregate consumption. The results support the proposition that investors respond differently to cash receipts from firms and to accruing capital gains. Consistent but weak evidence for the United States, Great Britain, and Canada suggests that higher dividend tax rates lower consumption. This is consistent with such tax rates increasing corporate saving, while households fail to completely pierce the corporate veil and therefore reduce their consumption. Time series evidence from the U.S. and the U.K. also suggests that "forced realizations" of capital gains in takeovers may spur consumption, indicating a relatively unexplored link between corporate financial decisions and aggregate consumption.
Handle: RePEc:nbr:nberwo:2975
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Implications of Production Bunching
Author-Name: Russell Cooper
Author-Name: John C. Haltiwanger
Author-Person: pha231
Note: EFG
Number: 2976
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2976
File-URL: http://www.nber.org/papers/w2976.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics 30, pp. 107-127 (1992).
Abstract: The literature on inventory holdings stresses their role in smoothing production when costs are convex. Existing empirical evidence suggests that output is more variable than consumption so that production smoothing is not apparently present. One way of explaining this finding is to allow for nonconvex technologies. In this paper, we investigate some macroeconomic implications of the proposition that at least some firms in the economy produce with non-convex technologies. We begin our analysis by studying a simple Robinson Crusoe economy with a single, storable good which is produced from a non-convex technology. The single agent can produce a finite amount of output simply by incurring a fixed production cost. We demonstrate that the efficient solution to this problem will entail periods of production followed by periods of inactivity: i.e. production will be bunched rather than smoothed. More importantly, inventories will be used to smooth consumption relative to this production path. Still, as long as the agent discounts the future or inventories depreciate over time, consumption will not be totally smooth. Instead, consumption will be highest in periods of production. Thus the non-convex technology will induce fluctuations in both production and consumption. Using this analysis as a starting point, we then consider the implications of a non -convex technology in one sector of the economy for the behavior of other sectors through intersectoral technological linkages for both centralized and decentralized economies. For the centralized setting, the extent to which non- convexities spillover to other sectors depends on the degree to which intermediate and final goods can be inventoried and the nature of the technological interaction between factors. For the decentralized economy, the production of inputs which are strategic complements (substitutes) will be synchronized (staggered). Thus the presence of strategic complementarities (as in imperfectly competitive markets) will imply that non-convexities will have aggregate implications.
Handle: RePEc:nbr:nberwo:2976
Template-Type: ReDIF-Paper 1.0
Title: When are Contrarian Profits Due to Stock Market Overreaction?
Author-Name: Andrew W. Lo
Author-Person: plo171
Author-Name: A. Craig MacKinlay
Note: ME
Number: 2977
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2977
File-URL: http://www.nber.org/papers/w2977.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Financial Studies, Vol. 3, No. 2, pp. 175-205, (1990).
Abstract: The profitability of contrarian investment strategies need not be the result of stock market overreaction. Even if returns on individual securities are temporally independent, portfolio strategies that attempt to exploit return reversals may still earn positive expected profits. This is due to the effects of cross-autocovariances from which contrarian strategies inadvertently benefit. We provide an informal taxonomy of return-generating processes that yield positive [and negative] expected profits under a particular contrarian portfolio strategy, and use this taxonomy to reconcile the empirical findings of weak negative autocorrelation for returns on individual stocks with the strong positive autocorrelation of portfolio returns. We present empirical evidence against overreaction as the primary source of contrarian profits, and show the presence of important lead-lag relations across securities.
Handle: RePEc:nbr:nberwo:2977
Template-Type: ReDIF-Paper 1.0
Title: Measuring Nontariff Trade Policies
Author-Name: Robert E. Baldwin
Note: ITI IFM
Number: 2978
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2978
File-URL: http://www.nber.org/papers/w2978.pdf
File-Format: application/pdf
Publication-Status: published as Trade Theory and Economic Reform, de Melo, Jaime and Andre Sapir, eds., Oxford: Basil Blockwell, 1991.
Abstract: This paper surveys and critiques various methods of measuring nontariff trade measures (NTMs) for the purpose of determining which seem most promising for facilitating the process of reducing the trade-distorting effects of such policies through multilateral negotiations. Four measurement methods are analyzed: price-impact measures, quantity-impact measures, frequency-type measures, and welfare measures. The general conclusion is that, despite a host of difficulties, theoretical and empirical analysis has progressed sufficiently far to enable reasonable measures of nontariff policies to be made that are useful for assessing relative sectoral protection across countries and monitoring changes in protection and subsidization levels over time. Tariff and subsidy equivalents, preferably determined by directly comparing distorted and non-distorted prices, are the most useful forms of measurement, since they focus on the price-distorting effects of NTMs and are also concepts with which public and private officials are already familiar. However, the various other types of measures can be valuable in supplementing the information obtained from tariff and subsidy equivalents.
Handle: RePEc:nbr:nberwo:2978
Template-Type: ReDIF-Paper 1.0
Title: Incentives, Information, and Organizational Design
Author-Name: Joseph E. Stiglitz
Number: 2979
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2979
File-URL: http://www.nber.org/papers/w2979.pdf
File-Format: application/pdf
Publication-Status: published as Empirica, Vol. 16, No. 1, pp. 3-29, (1989).
Abstract: This paper explores the interaction between incentives, information, and organizational design. It argues that the virtues of the market economy do not lie so much in the vision of competition and decentralization embodied in the Arrow-Debreu model, or the Lange-Lerner-Taylor analysis of market socialism, as they do in those more recent models analyzing competition as contests (Nalebuff-Stiglitz, Lazear-Rosen) and decentralization as a structure of decision making, in environments in which imperfect information is dispersed among numerous individuals (humans are fallible) and accordingly, some method of aggregation has to be found. While the traditional model exaggerates the virtues of the market (whenever markets are incomplete and information is imperfect, market allocations are almost never constrained Pareto efficient), it also understates its virtues: its ability to solve the problems of selection, incentives, and information gathering and aggregation which are the care problems in organizational design. The paper shows how this alternative perspective provides insights into the role that time plays in resource allocation- -for example, patent (R & D) races as well races to be the first to enter a market. We are able to provide an explanation, for instance, for why in times of economic crisis (such as wars) most economies abandon reliance on market mechanisms.
Handle: RePEc:nbr:nberwo:2979
Template-Type: ReDIF-Paper 1.0
Title: The Scope for Collusive Behavior Among Debtor Countries
Author-Name: Raquel Fernandez
Author-Person: pfe17
Author-Name: Jacob Glazer
Author-Person: pgl69
Note: ITI IFM
Number: 2980
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2980
File-URL: http://www.nber.org/papers/w2980.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, Vol. 32 (1990): 297-313.
Abstract: We study the question of whether there exist strategies whereby countries are able to sustain a cartel or collusive behavior when bargaining with a bank over the amount of debt to be repaid. We show that despite the existence of economies to scale in bargaining--if commitment were possible the countries would benefit from joint bargaining--a debtors' cartel will not emerge in equilibrium (in the absence of credible commitment mechanisms). A unique subgame-perfect equilibrium exists in which the bank is effectively able to isolate each country and extract from each the same payoff that it would obtain in the absence of economies to scale. Consequently, a country would be better off if another country declared default. We also show that if two countries of unequal size are bargaining with a bank, in equilibrium a decrease in the size of the smaller country implies a greater payoff to the large country although the payoff to the small country is invariant.
Handle: RePEc:nbr:nberwo:2980
Template-Type: ReDIF-Paper 1.0
Title: Sovereign-Debt Renegotiations Revisted
Author-Name: Raquel Fernandez
Author-Person: pfe17
Author-Name: Robert W. Rosenthal
Note: ITI IFM
Number: 2981
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2981
File-URL: http://www.nber.org/papers/w2981.pdf
File-Format: application/pdf
Publication-Status: published as "Strategic Models of Sovereign-Debt Negotiations" Review of Economic Studies, Vol. 57, pp. 331-349, (1990).
Abstract: The sovereign-debt literature has often implicitly assumed that all the power in the bargaining game between debtor and creditor lies with the latter. An earlier paper provided a game-theoretic basis for this contention. in that all the subgame-perfect equilibria of the game modeled have an extreme form in which the game's surplus is captured by the creditor. Two related games are analyzed here. Equilibria in which the debtor captures some of the surplus are shown to exist in one of them but not the other, and the roles of various assumptions in all three games is examined.
Handle: RePEc:nbr:nberwo:2981
Template-Type: ReDIF-Paper 1.0
Title: New Classicals and Keynesians, or the Good Guys and the Bad Guys
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 2982
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2982
File-URL: http://www.nber.org/papers/w2982.pdf
File-Format: application/pdf
Publication-Status: published as Robert J. Barro, 1989. "New Classicals and Keynesians, or the Good Guys and the Bad Guys," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 125(III), pages 263-273, September.
Abstract: Old- style Keynesian models relied on sticky prices or wages to explain unemployment and to argue for demand-side macroeconomic policies. This approach relied increasingly on a Phillips-curve view of the world, and therefore lost considerable prestige with the events of the 1970s. The new classical macroeconomics began at about that time, and focused initially on the apparent real effects of monetary disturbances. Despite initial successes, this analysis ultimately was unsatisfactory as an explanation for an important role of money in business fluctuations. Nevertheless, the approach achieved important methodological advances, such as rational expectations and new methods of policy evaluation. Subsequent research by new classicals has deemphasized monetary shocks, and focused instead on real business cycle models and theories of endogenous economic growth. These areas appear promising at this time. Another development is the so-called new Keynesian economics, which includes long-term contracts, menu costs, efficiency wages and insider-outsider theories, and macroeconomic models with imperfect competition. Although some of these ideas may prove helpful as elements in real business cycle models, my main conclusion is that the new Keynesian economics has not been successful in rehabilitating the Keynesian approach.
Handle: RePEc:nbr:nberwo:2982
Template-Type: ReDIF-Paper 1.0
Title: Changes in the Structure of Wages During the 1980's: An Evaluation of Alternative Explanations
Author-Name: John Bound
Author-Person: pbo406
Author-Name: George E. Johnson
Note: LS
Number: 2983
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2983
File-URL: http://www.nber.org/papers/w2983.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, 82:_371-92, June 1992
Abstract: Between 1979 and 1987 there were three significant changes in the wage structure in the United States. the pecuniary returns to schooling increased by about a third; the wages of older relative to younger workers with relatively low education increased to some extent; and the wages of women relative to men rose by almost ten percent. It is important for policy purposes to know why these changes occurred and whether they are temporary or permanent. The paper investigates several alternative explanations of these wage structure phenomena, including the most popular ones that their principal causes were shifts in the structure of product demand, skilled-labor saving technological change, and changes in the incidence and level of rents received by lower skilled workers. our reading of the evidence suggests that the major cause of the dramatic movements in the wage structure during the 1980's may have been some combination of changes in both production technology and the average relative nonobserved quality of different labor groups.
Handle: RePEc:nbr:nberwo:2983
Template-Type: ReDIF-Paper 1.0
Title: Long-term Memory in Stock Market Prices
Author-Name: Andrew W. Lo
Author-Person: plo171
Note: ME
Number: 2984
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2984
File-URL: http://www.nber.org/papers/w2984.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 59, No. 5, pp.1279-1314, September 1991.
Abstract: A test for long-run memory that is robust to short-range dependence is developed. It is a simple extension of Mandelbrot's "range over standard deviation" or R/S statistic, for which the relevant asymptotic sampling theory is derived via functional central limit theory. This test is applied to daily, weekly, monthly, and annual stock returns indexes over several different time periods. Contrary to previous findings, there is no evidence of long-range dependence in any of the indexes over any sample period or sub-period once short-term autocorrelations are taken into account. Illustrative Monte Carlo experiments indicate that the modified R/S test has power against at least two specific models of long-run memory, suggesting that stochastic models of short-range dependence may adequately capture the time series behavior of stock returns.
Handle: RePEc:nbr:nberwo:2984
Template-Type: ReDIF-Paper 1.0
Title: Indexes of United States Stock Prices From 1802 to 1987
Author-Name: G. William Schwert
Author-Person: psc116
Note: ME
Number: 2985
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2985
File-URL: http://www.nber.org/papers/w2985.pdf
File-Format: application/pdf
Publication-Status: published as "Indexes of U.S. Stock Prices from 1802 to 1987." From Journal of Business , Vol. 63, No. 3, pp. 399-426, (July 1990).
Abstract: Monthly stock returns from Smith and Cole [1935], Macaulay [1938] and Cowles [1939] are compared and contrasted with the returns to the CRSP value and equal-weighted portfolios of New York Stock Exchange (NYSE) stocks. Daily stock returns from Dow Jones [1972] and Standard & Poor's [1986] are compared and contrasted with the returns to the CRSP value and equal-weighted portfolios of NYSE and American Stock Exchange (AMEX) stocks. Effects of dividends, nonsynchronous trading and time-averaging are analyzed. Splicing together the best indexes gives monthly data from 1802-1987 (2,227) observations) and daily data from 1885-1987 (28,884 observations.)
Handle: RePEc:nbr:nberwo:2985
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Populism in Latin America
Author-Name: Rudiger Dornbusch
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 2986
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2986
File-URL: http://www.nber.org/papers/w2986.pdf
File-Format: application/pdf
Publication-Status: published as "Macroeconomic Populism." From Journal of Development Economics, Vol. 32,pp. 247-277, (1990).
Abstract: Macroeconomic populism is an approach to economics that emphasizes growth and income distribution and deemphasizes the risks of inflation and deficit finance, external constraints and the reaction of economic agents to aggressive non-market policies. The purpose of our paper is to show that policy experiences in different countries and periods share common features, from the initial conditions, the motivation for policies, the argument that the country's conditions are different, to the ultimate collapse. Our purpose in setting out these experiences, those of Chile under Allende and of Peru under Garcia, is not a righteous assertion of conservative economics, but rather a warning that populist policies do ultimately fail; and when they fail it is always at a frightening cost to the very groups who were supposed to be favored. Our central thesis is that the macroeconomics of various experiences is very much the same, even if the politics differed greatly.
Handle: RePEc:nbr:nberwo:2986
Template-Type: ReDIF-Paper 1.0
Title: Why Do Multinational Firms Seek Out Joint Ventures?
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Mario Zejan
Note: ITI IFM
Number: 2987
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2987
File-URL: http://www.nber.org/papers/w2987.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Development, Vol. 3, No. 1, pp. 53-63, (1991).
Abstract: This paper uses a model of dichotomous choice to distinguish the characteristics of Swedish multinational firms that seek out joint ventures from those that do not. The findings suggest that firms with little experience of foreign production and highly diversified product lines are the most likely to share equity. In general, it is found that multinational firms that have the most to offer the developing countries are reluctant to enter into joint venture agreements. Therefore, imposing joint-venture status on multinationals may prevent the inflow of advanced technologies.
Handle: RePEc:nbr:nberwo:2987
Template-Type: ReDIF-Paper 1.0
Title: Sleep and the Allocation of Time
Author-Name: Jeff E. Biddle
Author-Person: pbi98
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 2988
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2988
File-URL: http://www.nber.org/papers/w2988.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 98, No. 5, Part 1, October 1990,pp. 922-943.
Abstract: Sleep must be considered subject to choice and affected by the same economic variables that affect other uses of time. Using aggregated data for 12 countries, a cross-section of microeconomic data, and a panel of households, we demonstrate that increases in time spent in the labor market reduce sleep time. Each additional hour of market work reduces sleep by roughly 10 minutes (and waking nonmarket time by 50 minutes). The total time available for work and leisure is thus itself subject to choice. Interestingly too, otherwise identical women sleep significantly less than men (even though the average Woman sleeps slightly more). We develop a theory of the demand for sleep that differs from standard models by its assumption that sleep affects wages through its impact on labor-market productivity. Estimates of a system of demand equations demonstrate that higher wage rates reduce sleep time among men, an effect that is entirely offset by their positive effect on waking nonmarket time. Among Women the wage effect on waking nonmarket time is negative and small, but the effect on sleep is negative and quite large. These results, and the model they are based on, allow a more s subtle interpretation of standard results in the labor supply literature.
Handle: RePEc:nbr:nberwo:2988
Template-Type: ReDIF-Paper 1.0
Title: Municipal Construction Spending: An Empirical Examination
Author-Name: Douglas Holtz-Eakin
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 2989
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2989
File-URL: http://www.nber.org/papers/w2989.pdf
File-Format: application/pdf
Publication-Status: published as Economics and Politics, Vol. 5, No. 1, pp. 61-84 (March 1993).
Abstract: Despite widespread concern and discussion, no consensus exists concerning the causes of the "infrastructure crisis." We investigate several models of the determination of local public capital expenditures. Using Euler equation methods, we find that the hypothesis that construction spending is determined by unconstrained, forward looking municipal planning cannot be rejected. consistent with this result, we find that the stochastic structure of own revenue and grant flows is an important feature of the determination of construction spending. Only unanticipated changes in a community's resources alter its demand for structures. An unanticipated increase in resources of one dollar increases current construction spending by about 5.5 cents.
Handle: RePEc:nbr:nberwo:2989
Template-Type: ReDIF-Paper 1.0
Title: Did ACRS Really Cause Stock Prices to Fall?
Author-Name: Andrew B. Lyon
Author-Person: ply2
Note: PE
Number: 2990
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2990
File-URL: http://www.nber.org/papers/w2990.pdf
File-Format: application/pdf
Abstract: This paper tests the hypothesis that the introduction of the Accelerated Cost Recovery System in 1981 caused a reduction in stock prices by reducing the value of existing capital. A second hypothesis that these depreciation changes benefited firms by increasing the return from new investment is also examined. Stock returns during the period surrounding enactment of this legislation are evaluated with data on capital stock and investment for over 800 firms. The empirical results suggest that neither hypothesis is an important determinant of cross-sectional differences in returns during this period. Differences in stock returns are in the direction predicted by the second hypothesis, but the relationship is not statistically significant. A test of the joint effects of both hypotheses operating simultaneously is supported by the data, but this relationship is also not statistically significant.
Handle: RePEc:nbr:nberwo:2990
Template-Type: ReDIF-Paper 1.0
Title: Why do World War II Veterans Earn More Than Nonveterans?
Author-Name: Alan B. Krueger
Author-Person: pkr63
Author-Name: Joshua D. Angrist
Author-Person: pan29
Note: LS
Number: 2991
Creation-Date: 1989-05
Order-URL: http://www.nber.org/papers/w2991
File-URL: http://www.nber.org/papers/w2991.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, 12, January 1994, pp. 74-97
Abstract: Veterans of World War II are widely believed to earn more than nonveterans of the same age. Theoretical justifications for the World War II veteran premium include the subsidization of education and training, and preference for veterans in hiring. In this paper, we propose and test an alternative view: that the observed World War II veteran premium reflects the fact that men with higher earnings potential were more likely to have been selected into the Armed Forces. An empirical strategy is developed that allows estimation of the effects of veteran status while controlling for correlation with unobserved earnings potential. The estimation is based on the fact that from 1942 to 1947 priority for conscription was determined in chronological order of birth. Information on individuals' dates of birth may therefore be used to construct instruments for veteran status. Empirical results from the 1960, 1970, and 1980 Censuses, along with two other micro data sets, support a conclusion that World War II veterans earn no more than comparable nonveterans, and may well earn less. These results suggest that 015 estimates of the World War II veteran premium are severely biased by nonrandom selection into military service, and that the civilian labor market experiences of veterans of World War II were not very different from the experiences of Vietnam-era veterans.
Handle: RePEc:nbr:nberwo:2991
Template-Type: ReDIF-Paper 1.0
Title: The Sources of Fluctuations in Aggregate Inventories and GNP
Author-Name: Kenneth D. West
Author-Person: pwe16
Note: EFG
Number: 2992
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w2992
File-URL: http://www.nber.org/papers/w2992.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. CV, No. 423, pp. 939-971, (November 1990).
Abstract: A simple real linear-quadratic inventory model is used to determine how cost and demand shocks interacted to cause fluctuations in aggregate GNP and inventories in the U.S., 1947-1986. Cost shocks appear to be the predominant source of fluctuations in inventories, and are largely responsible for the well known fact that GNP is more variable than final sales. Cost and demand shocks are of roughly equal importance for GNP. These estimates are, however, imprecise. With a different, but plausible, value for a certain target inventory-sales ratio, cost shocks are less important than demand shocks for GNP fluctuations.
Handle: RePEc:nbr:nberwo:2992
Template-Type: ReDIF-Paper 1.0
Title: Unraveling the Productivity Growth Slowdown in the U.S., Canada and Japan: The Effects of Subequilibrium, Scale Economies and Markup
Author-Name: Catherine J. Morrison
Note: PR
Number: 2993
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w2993
File-URL: http://www.nber.org/papers/w2993.pdf
File-Format: application/pdf
Publication-Status: published as "Unraveling the Productivity Growth Slowdown in the United States, Canada and Japan: The Effects of
Abstract: Measures of productivity growth typically include in the Productivity "residual" the impacts of subequilibrium from fixity of factors, costs of adjustment, returns to scale and markups. This paper proposes a general two part framework for adjusting the residual measure to take these impacts into account. Errors computing the weights on output and quasi-fixed input growth in traditional measures are first corrected for both primal- and Cost-side measures. Then the deviation of revenues from costs is used to decompose the full primal measure to identify the differential influences of technical change, utilization fluctuations, scale economies and price margins. Use of the framework is illustrated empirically for the U.S.,, Japanese and Canadian manufacturing sectors, using an econometric model that allows explicit incorporation and measurement of these influences. The adjusted measures show that a significant amount of cyclical and secular change in measured productivity growth can be attributed to production characteristics other than technical change, particularly scale economies.
Handle: RePEc:nbr:nberwo:2993
Template-Type: ReDIF-Paper 1.0
Title: Corporate Savings and Shareholder Consumption
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Kevin Hassett
Author-Person: pha378
Note: ME
Number: 2994
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w2994
File-URL: http://www.nber.org/papers/w2994.pdf
File-Format: application/pdf
Publication-Status: published as Bernheim, B. Douglas and John B. Shoven (eds.) National Saving and Economic Performance. Chicago: The University of Chicago Press, 1991.
Publication-Status: published as Corporate Savings and Shareholder Consumption, Alan J. Auerbach, Kevin Hassett. in National Saving and Economic Performance, Bernheim and Shoven. 1991
Abstract: This paper reexamines the implications of changing corporate savings, testing for the presence of a "corporate veil". We argue that previous tests for such s veil have lacked proper focus, identifying influences of corporate saving on private saving that are entirely consistent with a complete piercing of the corporate veil. We formulate two tests. Results based on the first find that wealth-neutral changes In corporate dividend policy do not significantly affect aggregate consumption, suggesting that no corporate veil exists, The second test finds the aggregate consumption response to changes in corporate wealth is close to zero, consistent with the presence of a veil but also with heterogeneity in the population with respect to consumption behavior.
Handle: RePEc:nbr:nberwo:2994
Template-Type: ReDIF-Paper 1.0
Title: Tying, Foreclosure, and Exclusion
Author-Name: Michael D. Whinston
Author-Person: pwh46
Note: PR
Number: 2995
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w2995
File-URL: http://www.nber.org/papers/w2995.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 80, No. 4, pp. 837-859, September 1990.
Abstract: Tied sales have a long history of scrutiny under the antitrust laws of the United States. The primary basis for the condemnation of this practice has been the court's belief in what has come to be known as the "leverage theory" of tying: that is, that tying provides a mechanism whereby a firm with monopoly power in one market can use the leverage provided by this power to foreclose sales in, and thereby monopolize, a second market. In recent years, however, the leverage theory has come under heavy attack. In this paper, I reconsider the leverage hypothesis. I argue that, in an important sense, the models used by the critics of the leverage theory which all assume that the tied good market has a competitive, constant returns-to-scale structure- are incapable of addressing the central concern of the leverage theory, that tying can be profitably used to change the market structure of the tied good market. I then demonstrate that when the tied good market has an oligopolistic structure, tying can indeed serve as a mechanism for leveraging market power through the foreclosure of tied market rivals sales. The mechanism through which this foreclosure occurs, its profitability for the monopolist, and its welfare implications are discussed in detail.
Handle: RePEc:nbr:nberwo:2995
Template-Type: ReDIF-Paper 1.0
Title: Optimal Taxation with Costly Enforcement and Evasion
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 2996
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w2996
File-URL: http://www.nber.org/papers/w2996.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 43, pp. 221-236, (1990).
Abstract: This paper analyzes the relationship between optimal taxation -- where the literature considers raising revenue with minimum distortion -- and optimal tax enforcement where much of the literature emphasizes raising revenue at the least cost. A central question concerns the extent to which revenue should be raised through higher tax rates, which distort behavior, or greater enforcement, which distorts behavior because it raises marginal effective tax rates and also entails direct resource costs. It is demonstrated that, under each of several assumptions about evasion and enforcement, some expenditure on enforcement is optimal despite its resource cost, its distortionary effect, and the availability of other revenue sources having no enforcement costs. Rules for optimal tax rates and enforcement expenditures are derived, which also indicate the marginal cost of government funds and optimal enforcement priorities for a tax collection agency
Handle: RePEc:nbr:nberwo:2996
Template-Type: ReDIF-Paper 1.0
Title: Self-Reported vs. Objective Measures of Health in Retirement Models
Author-Name: John Bound
Author-Person: pbo406
Note: AG
Number: 2997
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w2997
File-URL: http://www.nber.org/papers/w2997.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resourcesm 26: 106-38 Winter 1991
Abstract: Labor supply estimates are sensitive to the measures of health used. When self reported measures are used health seems to playa larger role and economic factors a smaller one than when more objective measures are used" While most authors have interpreted these results as an indication of the biases inherent in using self-reported measures, there are reasons to be suspicious of estimates based on more objective measures as well. In this paper I construct a statistical model incorporating both self-reported and objective measures of health. I use the model to show the potential biases involved in using either measure of health or in using one to instrument the other- When outside information on the validity of self-reported measures of health are incorporated into the model estimates suggest that the self-reported measures of health perform better than many have believed.
Handle: RePEc:nbr:nberwo:2997
Template-Type: ReDIF-Paper 1.0
Title: Stochastic Process Switching: Some Simple Solutions
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 2998
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w2998
File-URL: http://www.nber.org/papers/w2998.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 59, No. 1, pp. 241-250, (January 1991).
Publication-Status: published as Exchange Rate Targets and Currency Bands, eds. P. Krugman and M. Miller, Cambridge University Press, October 1991.
Abstract: When changes in the economic policy regime occur stochastically, asset prices will reflect the possibility of such shifts. In this paper we apply techniques of regulated Brownian motion to obtain closed-form analytic price solutions when policy reaction functions are subject to prospective changes. We focus on the case in which the authorities promise to peg a currency's exchange rate once it reaches a predetermined future level. We also show how an open-ended commitment to exchange-rate targeting may lead to multiple equilibria.
Handle: RePEc:nbr:nberwo:2998
Template-Type: ReDIF-Paper 1.0
Title: Policy Uncertainty and Private Investment in Developing Countries
Author-Name: Dani Rodrik
Author-Person: pro60
Note: ITI IFM
Number: 2999
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w2999
File-URL: http://www.nber.org/papers/w2999.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, November 1991.
Abstract: A resurgence in private investment is a necessary ingredient of a sustainable recovery in heavily-indebted developing countries. Policy reforms in these countries involve a serious dilemma, especially when they include structural and microeconomic features. On the one hand, entrepreneurs, workers, and farmers must respond to the signals generated by the reform for the new policies to be successful. On the other hand, rational behavior by the private sector calls for withholding investment until much of the residual uncertainty regarding the eventual success of the reform is eliminated. This paper shows that even moderate amounts of policy uncertainty can act as a hefty tax on investment, and that otherwise sensible reforms may prove damaging if they induce doubts as to their permanence. A simple model is developed to link policy uncertainty to the private investment response.
Handle: RePEc:nbr:nberwo:2999
Template-Type: ReDIF-Paper 1.0
Title: Do Managerial Objectives Drive Bad Acquisitions?
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: 3000
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3000
File-URL: http://www.nber.org/papers/w3000.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, March 1990.
Abstract: This paper documents for a sample of 327 US acquisitions between 1975 and 1987 three forces that systematically reduce the announcement day return of bidding firms. The returns to bidding shareholders are lower when their firm diversifies, when it buys a rapidly growing target , and when the performance of its managers has been poor before the acquisition. These results are consistent with the proposition that managerial rather than shareholders' objectives drive bad acquisitions.
Handle: RePEc:nbr:nberwo:3000
Template-Type: ReDIF-Paper 1.0
Title: Data-Snooping Biases in Tests of Financial Asset Pricing Models
Author-Name: Andrew W. Lo
Author-Person: plo171
Author-Name: A. Craig MacKinlay
Note: ME
Number: 3001
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3001
File-URL: http://www.nber.org/papers/w3001.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Financial Studies, Vol. 3, No. 3, pp. 431-467, (1990).
Abstract: We investigate the extent to which tests of financial asset pricing models may be biased by using properties of the data to construct the test statistics. Specifically, we focus on tests using returns to portfolios of common stock where portfolios are constructed by sorting on some empirically motivated characteristic of the securities such as market value of equity. We present both analytical calculations and Monte Carlo simulations that show the effects of this type of data-snooping to be substantial. Even when the sorting characteristic is only marginally correlated with individual security statistics, 5 percent tests based on sorted portfolio returns may reject with probability one under the null hypothesis. This bias is shown to worsen as the number of securities increases given a fixed number of portfolios, and as the number of portfolios decreases given a fixed number of securities. We provide an empirical example that illustrates the practical relevance of these biases.
Handle: RePEc:nbr:nberwo:3001
Template-Type: ReDIF-Paper 1.0
Title: The Impact of a Ban on Legalized Abortion on Adolescent Childbearing in New York City
Author-Name: Theodore J. Joyce
Author-Person: pjo112
Author-Name: Naci H. Mocan
Author-Person: pmo270
Note: EH
Number: 3002
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3002
File-URL: http://www.nber.org/papers/w3002.pdf
File-Format: application/pdf
Publication-Status: published as "The Impact of Legalized Abortion on Adolescent Childbearing in New York City." From American Journal of Public Health, Vol. 80, No. 3, pp. 273-278 , (March 1990).
Abstract: This paper attempts to forecast the change in adolescent childbearing among New York City residents following a ban on legalized abortion. With monthly data on the number of births to white and black adolescents from January, 1963 to December, 1987 we used an interrupted time-series analysis to estimate the change in adolescent childbearing that followed the liberalization of the New York State abortion law in 1970. We found the level of births to black adolescents living in New York City fell 18.7 percent between 1970 and 1971, or approximately 142 fewer births per month (p<.001). The level of white births fell 14.1 percent or approximately 111 fewer births per month (p<.001). The absolute value of the percentage changes in births between 1970 and 1971 were applied to the forecasted number of monthly births in 1988 and 1989. If legal abortion had been inaccessible to New York City adolescents beginning January 1, 1988, there would have been 2143 black and 1067 white unintended births to teenagers in the first two years of a ban. The results suggest that a prohibition on legalized abortion would have a substantial increase in adolescent childbearing across the U.S. although the magnitude of the change will vary according to local conditions.
Handle: RePEc:nbr:nberwo:3002
Template-Type: ReDIF-Paper 1.0
Title: The Euromarkets after 1992
Author-Name: Richard M. Levich
Note: ITI IFM
Number: 3003
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3003
File-URL: http://www.nber.org/papers/w3003.pdf
File-Format: application/pdf
Publication-Status: published as Dermine, Jean (ed.) European Banking in the 1990s. Oxford: Basil Blackwell Ltd., 1990.
Abstract: Over the last three decades, differential national regulation in conjunction with increasing capital mobility has given rise to tremendous growth in the Eurocurrency markets. In this paper, we analyze whether the announced plans of the European Commuission to remove barriers to capital flows (in July 1990) and to harmonize other financial regulations (by the end of 1992) will have a major effect on the Euromarkets. The analysis in this paper revolves around the concept of the Net Reguatory Burden (NRB). Three variables will play a crucial role for the developnent of the Euronarkets after 1992. These are (1) reserve requirements on bank deposits, (2) taxation of residents and non-residents on interest income, dividends and capital gains, and (3) disclosure of interest and dividends to tax authorities. Presently there is considerable variation in these factors across Europe. Competitive pressures should lead to a convergence of regulation, but national sovereignty leaves open the possibility for sone divergence of the NRB across European countries, and in comparison with other financial centers such as Switzerland. These differences in NRB will play a key role in determining the location and size of Euromarkets after 1992.
Handle: RePEc:nbr:nberwo:3003
Template-Type: ReDIF-Paper 1.0
Title: Building Blocks of Market Clearing Business Cycle Models
Author-Name: Kevin M. Murphy
Author-Person: pmu108
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert W. Vishny
Author-Person: pvi218
Note: EFG
Number: 3004
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3004
File-URL: http://www.nber.org/papers/w3004.pdf
File-Format: application/pdf
Publication-Status: published as Blanchard, Olivier Jean and Stanley Fischer (eds.) NBER Macroeconomics Annual 1989. Cambridge, MA: MIT Press, 1989.
Publication-Status: published as Building Blocks of Market Clearing Business Cycle Models, Kevin M. Murphy, Andrei Shleifer, Robert W. Vishny. in NBER Macroeconomics Annual 1989, Volume 4, Blanchard and Fischer. 1989
Abstract: We compare "real business cycle" and increasing returns models of economic fluctuations. In these models, business cycles are driven by productivity changes resulting either from technology shocks or from crucial building blocks that give both types of models hope of fitting the data. These building blocks include durability of goods, specialized labor, imperfect credit and elastic labor supply. We also present new evidence on co-movement of both outputs sand labor inputs across sectors and on the increasing returns model is easier to reconcile with the data than the real business cycle model.
Handle: RePEc:nbr:nberwo:3004
Template-Type: ReDIF-Paper 1.0
Title: Legal Advice about Acts Already Commited
Author-Name: Louis Kaplow
Author-Person: pka44
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 3005
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3005
File-URL: http://www.nber.org/papers/w3005.pdf
File-Format: application/pdf
Publication-Status: published as International Review of Law and Economics, Vol. 10, No. 2, pp. 149-159, (1990).
Abstract: Much legal advice is provided after individuals have committed acts -- when they come before a tribunal -- rather than at the time they decide how to act. This paper considers the effects and social desirability of such legal advice. It is emphasized that 1egl advice tends to reduce expected sanctions, which may encourage acts subject to sanctions. There is, however, no a priort basis for believing that this is socially undesirable, because, among other reasons, it may be possible to raise the level of sanctions to offset their dilution due to legal advice. In addition, legal advice has no general tendency to improve the effectiveness of the legal system through its influence on the information presented to tribunals.
Handle: RePEc:nbr:nberwo:3005
Template-Type: ReDIF-Paper 1.0
Title: Government Relief for Risk Associated with Government Action
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 3006
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3006
File-URL: http://www.nber.org/papers/w3006.pdf
File-Format: application/pdf
Publication-Status: published as Scandanavian Journal of Economics, Vol. 94, No. 4, pp. 525-541 (1992).
Publication-Status: published as Kaplow, Louis, 1992. " Government Relief for Risk Associated with Government Action," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(4), pages 525-41.
Abstract: A significant source of risk arises from uncertainty concerning future government policy. Government action - - tax reform, deregulation, judicial decisions, budgetary shifts - - produces gains and losses for those who invested under preexisting rules. The effects of government relief - - compensation, grandfathering, phase-ins - - on ex ante incentives and risk bearing are examined in a model in which private insurance is taken into account. It is demonstrated that government relief is inefficient, even when private insurance is subject to moral hazard, because relief shields individuals from some of the effects of their actions.
Handle: RePEc:nbr:nberwo:3006
Template-Type: ReDIF-Paper 1.0
Title: Incentives and Government Relief for Risk
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 3007
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3007
File-URL: http://www.nber.org/papers/w3007.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Risk and Uncertainty, Vol. 4, No. 2, pp. 167-175, (1991).
Abstract: Government relief is offered for a wide range of risks - - natural disaster, economic dislocation, sickness and injury. This paper explores the effect of such relief on incentives and the allocation of risk in a model with private insurance. It is shown that government relief is inefficient, even when its level is less than the private insurance coverage that individuals would otherwise have purchased and even when private insurance coverage is incomplete due to problems of moral hazard.
Handle: RePEc:nbr:nberwo:3007
Template-Type: ReDIF-Paper 1.0
Title: The Optimal Probability and Magnitude of Fines for Acts that Definitely are Undesirable
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 3008
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3008
File-URL: http://www.nber.org/papers/w3008.pdf
File-Format: application/pdf
Publication-Status: published as International Review of Law and Economics, Vol. 12, No. 1, pp. 3-11, (1992) .
Abstract: Even when society would wish to deter all acts of some type, such as tax evasion and many common crimes, the benefits from deterrence often will be insufficient to justify the expenditures on enforcement that would be required to deter everyone. If some individuals are not deterred, however, they will bear risk when fines are employed as a sanction. As a result, it may be optimal to reduce total risk-bearing costs by reducing the number of individuals who bear any risk. This can be accomplished by increasing enforcement above the level that would be justified considering only the benefits of deterrence and the direct costs of enforcement. Another possibility is that it may be optimal reduce the risk borne by those who act, by employing fines below the maximum feasible level. This latter result constitutes an instance in which the well-known implication of Becker's analysis that it is optimal to employ extreme sanctions for all offenses is invalid.
Handle: RePEc:nbr:nberwo:3008
Template-Type: ReDIF-Paper 1.0
Title: Inflation Insurance
Author-Name: Zvi Bodie
Author-Person: pbo569
Note: ME
Number: 3009
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3009
File-URL: http://www.nber.org/papers/w3009.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Risk and Insurance, December 1990.
Abstract: A contract to insure $1 against inflation is equivalent to a European call option on the consumer price index. When there is no deductible this call option is equivalent to a forward contract on the CPI. Its price is the difference between the prices of a zero coupon real bond and a zero coupon nominal bond, both free of default risk. Provided that the risk-free real rate of interest is positive, the price of such an inflation insurance policy first rises and then falls with time to maturity. It is a decreasing function of the real interest rate and an increasing function of both the expected rate of inflation and the real risk premium on nominal bonds. When a deductible is introduced, the insurance policy can no longer be priced like a CPI forward contract. The option feature has its greatest value when the deductible is close to the forward rate of inflation, defined as the difference between the risk-free nominal and real interest rates. Such inflation insurance contracts are priced using the model developed by Black-Merton-Scholes. Pricing an inflation insurance policy with a cap requires only a minor modification of the model. The approach presented in this paper permits fairly precise quantification of the cost of implementing proposals to index pension benefits for inflation. It also gives us a way of estimating the savings to the Social Security system that would result from introducing a deductible.
Handle: RePEc:nbr:nberwo:3009
Template-Type: ReDIF-Paper 1.0
Title: Reforming Conforming Loan Limits: The Impact on Thrift Earnings and Taxpayer Outlays
Author-Name: Patric H. Hendershott
Author-Name: James D. Shilling
Note: ME
Number: 3010
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3010
File-URL: http://www.nber.org/papers/w3010.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Services Research, December 1989, pp.311-331.
Abstract: In recent years, the conforming loan limit hes risen rapidly (62 percent between 1985 and 1989 versus a 10 percent rise in the price of a constant-quality new house) and has assumed significant importance to homebuyers and portfolio lenders. Fannie Mae and Freddie Mac have become the price setters for conforming FRMs, and the yield being set appears to be 30 basis points below what it would otherwise be. The lower yield raises the old issue of overinvestment in housing, but its most important effect is on thrifts who now earn 30 basis points less on FRM investments under the conforming limit end who have difficulty originating ARMs. Moreover, given other thrift problems, taxpayers will apparently end up directly funding the interest income lost owing to low yields on conforming FRMs. In this paper we calculate the impact on thrift interest income of two redefinitions of conforming loans: making all refinancings nonconforming and lowering the loan limit to the loan ceiling for FMA/VA loans (which was, in fact, the conforming limit prior to 1975) . Each of these redefinitions makes sense from a public policy perspective. Thrifts would have earned nearly $700 million more in 1987 had both redefinitions been in place at the start of 1986. This would have amounted to a 23 percent increase in the industry net operating income (income excluding profits of losses from the sale of assets) and a corresponding increase in return to equity. By the early 1990s, the income gain from these changes, had they been put in place in early 1986, would likely be over a billion dollars -- certainly a noticeable saving for taxpayers.
Handle: RePEc:nbr:nberwo:3010
Template-Type: ReDIF-Paper 1.0
Title: The Lender of Last Resort: Some Historical Insights
Author-Name: Michael D. Bordo
Author-Person: pbo243
Note: ME
Number: 3011
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3011
File-URL: http://www.nber.org/papers/w3011.pdf
File-Format: application/pdf
Publication-Status: published as "The Lender of Last Resort: Alternative Views and Historical Experience." Economic Review (Federal Reserve Bank of Richmond), Vol. 76/1, pp. 18-29, (January/February 1990).
Publication-Status: published as Michael D. Bordo, 1989. "The lender of last resort: some historical insights," Proceedings, Federal Reserve Bank of Chicago, pages 177-197.
Abstract: This paper discusses the role for a lender of last resort (LLR) in preventing banking panics (section I) , then briefly considers classical and more recent concepts of the LLR (section II). Section III examines historical evidence for the U.S. and other countries on the incidence of banking panics and LLR actions, and the record of alternative LLR arrangements in the U.S., Scotland and Canada, as well as the historical record on ailouts. Section IV offers some lessons from history.
Handle: RePEc:nbr:nberwo:3011
Template-Type: ReDIF-Paper 1.0
Title: Bonuses, Overtime, and Employment: Korea vs. Japan
Author-Name: Takatoshi Ito
Author-Name: Kyoungsik Kang
Note: LS
Number: 3012
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3012
File-URL: http://www.nber.org/papers/w3012.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the Japanese and International Economies, Vol.3, No. 4, pp. 424- 450, (1989).
Abstract: This paper examined the bonus and wage behavior in Korea. We found that both bonuses and wages in Korea respond to economic conditions much more than their counterparts in Japan. This finding may reflect the fact that the Korean labor market is much closer to a spot market rather than a long-term contract (lifetime employment) market. Hence the bonus/wage ratio is apparently insensitive to economic conditions in Korea, unlike in Japan (Freemand and Weitzinan). When "overtime" component of the wage is separately examined, it responds to economic conditions less than bonuses but more than base wages.
Handle: RePEc:nbr:nberwo:3012
Template-Type: ReDIF-Paper 1.0
Title: Multinational Corporations, Transfer Prices, and Taxes: Evidence from the U.S. Petroleum Industry
Author-Name: Jean-Thomas Bernard
Author-Name: Robert J. Weiner
Note: PE
Number: 3013
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3013
File-URL: http://www.nber.org/papers/w3013.pdf
File-Format: application/pdf
Publication-Status: published as Taxation in the Global Economy, ed. by Assaf Razin and Joel Slemrod, University of Chicago Press, 1990.
Publication-Status: published as Bernard, Jean-Thomas and Robert J. Weiner. "Transfer Prices And The Excess Cost Of Canadian Oil Imports: New Evidence On Bertrand Versus Rugman," Canadian Joural of Economics, 1992, v25(1), 22-40.
Publication-Status: published as Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison , Joel B. Slemrod. in Taxation in the Global Economy, Razin and Slemrod. 1990
Abstract: Economic research on transfer-pricing behavior by multinational corporadons has emphasized theoretical modeling and institutional description. This paper presents the fiit systematic empirical analysis of transfer prices, using data from the petroleum industry. On the basis of oil imported into the United States over the period 1973 - 1984, we test two propositions: i) Are prices set by integrated companies for their internal transfers different from those prevailing in arm 's-length (i.e., inter-company) trade, when other variables, such as oil quality, are controlled for? ii) Do average effective corporate income tar rates explain observed patterns of transfer pricing? Regression analysis leads to the following conclusions: i) Transfer and arm's-length prices differ significantly for oil origznating in some countries but not all. When multiplied by the relevant import volumes, these differences are relatively smalL The revenue transferred through deviations from arm's-length prices represents two percent or less of the value of the crude oil imported by multinational companies each year. ii) The observed differences between arm's-length and transfer prices are not easily explained by average effective tax rates in exporting countries. Our results provide little support for the claim that multinational petroleum companies set their transfer prices to evade taxes. We offer several hypotheses to explain our findings.
Handle: RePEc:nbr:nberwo:3013
Template-Type: ReDIF-Paper 1.0
Title: Increasing Returns, Durables and Economic Fluctuations
Author-Name: Kevin M. Murphy
Author-Person: pmu108
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert W. Vishny
Author-Person: pvi218
Note: EFG
Number: 3014
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3014
File-URL: http://www.nber.org/papers/w3014.pdf
File-Format: application/pdf
Abstract: We describe an economy where a durable good is produced with an increasing returns to scale technology. Equilibria in this economy take the form of business cycles in which consumption fluctuates too much and is too low on average. A 2-sector version of this economy with imperfect credit and immobile labor also exhibits aggregate business cycles, in which outputs and labor inputs in different sectors move together. The model is consistent with a broad range of evidence on economic fluctuations.
Handle: RePEc:nbr:nberwo:3014
Template-Type: ReDIF-Paper 1.0
Title: Risk Neutrality and the Two-Tier Foreign Exchange Market: Evidence from Belgium
Author-Name: Robert Flood
Author-Person: pfl25
Author-Name: Nancy Marion
Author-Person: pma1464
Note: ITI IFM
Number: 3015
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3015
File-URL: http://www.nber.org/papers/w3015.pdf
File-Format: application/pdf
Abstract: Most of the literature on two-tier exchange markets is built around models in which domestic policy can exert a powerful influence on the spread between the current account exchange rate and the capital account exchange rate. We show that if optimizing agents are risk neutral, domestic policy has no significant influence on the spread. Our work with Belgian data suggests that a nsk neutral specification for Belgian residents acting in the two-tier market is hard to reject, and we also find evidence that domestic variables do not affect the Belgian spread.
Handle: RePEc:nbr:nberwo:3015
Template-Type: ReDIF-Paper 1.0
Title: Strategic Use of Antidumping Law to Enforce Tacit International Collusion
Author-Name: Robert W. Staiger
Author-Person: pst85
Author-Name: Frank A. Wolak
Note: ITI IFM
Number: 3016
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3016
File-URL: http://www.nber.org/papers/w3016.pdf
File-Format: application/pdf
Abstract: We consider the impact of domestic antidumping law in a two-country partial equilibrium model where domestic and foreign firms tacitly collude in the domestic market. Firms engage in an infinitely repeated game, with each period composed of a two-stage game. In the first stage each firm chooses capacity before stochastic domestic demand is realized. In the second stage, after demand is realized, each firm then sets price. We show that the introduction of domestic antidumping law typically leads to the filing of antidumping suits by the domestic industry in low demand states. and to more successful collusion and greater market share for domestic firms during periods of low demand as a result. This occurs in spite of the fact that antidumping duties are never actually imposed. That is, the entire effect of antidumptng law comes in the form of a threat to punish foreign firms with a duty if they should "misbehave." Such a threat is made credible by filing a suit and, because it is credible, never has to be implemented. We conclude that the trade-restricting effects of antidumping law may have little to do with whether duties are actually imposed.
Handle: RePEc:nbr:nberwo:3016
Template-Type: ReDIF-Paper 1.0
Title: Arbitrage and the Savings Behavior of State Governments
Author-Name: Gilbert E. Metcalf
Note: PE
Number: 3017
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3017
File-URL: http://www.nber.org/papers/w3017.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Economics and Statistics, Vol. LXXII, No. 3, pp. 390-396, (August 1990).
Abstract: The federal tax code creates strong incentives for tax arbitrage activity on the part of state governments. This arbitrage activity is illegal and previous research has typically assumed that the constraint against arbitrage activity is binding. This paper explicitly tests this proposition by considering whether financial asset holdings increase as the yield spread between taxable and tax exempt securities rises. Using a data set on 40 state governments over a 7 year period, I find that there is a significant response to changes in the yield spread. One implication of these results is that the Tax Reform Act of 1986 which made even greater efforts to curb arbitrage activity is likely to be ineffective.
Handle: RePEc:nbr:nberwo:3017
Template-Type: ReDIF-Paper 1.0
Title: Issues and Results from Research on the Elderly I: Economic Status (Part I of III Parts)
Author-Name: Michael D. Hurd
Author-Person: phu137
Note: AG
Number: 3018
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3018
File-URL: http://www.nber.org/papers/w3018.pdf
File-Format: application/pdf
Publication-Status: published as "Research on the Elderly: Economic Status, Retirement, and Consumption and Saving." From Journal of Economic Literature, Vol. XXVIII, No. 2, pp. 565-637, (June 1990).
Abstract: This is the first part of a three-part paper on research on the elderly. The objective of the paper is to present issues and research results in three areas: economic status, retirement, and consumption and saving. This part covers background material on demographic change, living arrangements, income growth and labor force participation, and research on economic Status. The major areas of research on economic status are: adjustments to observed income to bring it closer to a welfare measure with the objective of understanding whether the elderly are better off than the nonelderly; the distribution of income among the elderly and in particular the extent and causes of the high poverty level of elderly widows; wealth holdings, especially sources of wealth and the importance of public programs.
Handle: RePEc:nbr:nberwo:3018
Template-Type: ReDIF-Paper 1.0
Title: Strategic Investment in a Debt Bargaining Framework
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Eduardo R. Borensztein
Note: ITI IFM
Number: 3019
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3019
File-URL: http://www.nber.org/papers/w3019.pdf
File-Format: application/pdf
Publication-Status: published as Joshua Aizenman & Eduardo Borensztein, 1993. "Strategic investment in a debt-bargaining framework," The Journal of International Trade & Economic Development, vol 2(1), pages 43-63.
Abstract: This paper analyzes the strategic role of investment from a debtor country's perspective. The framework is one in which, if the debtor country is unable to meet debt obligations, a bargaining regime determines the amount of debt repayment. In the context of a two-country real trade model, debt repayment is equal to the trade surplus of the debtor. The outcome of the bargaining game will therefore be dependent (among other things) on the level of production in the debtor country. In this framework, the paper shows that productive investment may increase or decrease the bargaining power of the debtor country. This ambiguity appears to be fairly robust.
Handle: RePEc:nbr:nberwo:3019
Template-Type: ReDIF-Paper 1.0
Title: Market Work, Wages, and Men's Health
Author-Name: Robert Haveman
Author-Person: pha310
Author-Name: Mark R. Stone
Author-Name: Barbara Wolfe
Author-Person: pwo47
Note: EH LS
Number: 3020
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3020
File-URL: http://www.nber.org/papers/w3020.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, vol. 13 (1994) pp. 163-182
Abstract: In this paper, we investigate the complex interrelationships among worktime, wages and health identified in the Grossman model of the demand for health. We specify a 3-equation simultaneous model designed to capture the tune dependent character of these interrelationships, and estimate the model using 8 years of panel data on 882 males aged 22 to 71. The model is estimated using Hansen's generalized methods of moments imposing a weak set of conditions on the error term covariance structure. Using our data, we estimate simpler models with more restrictive assumptions commonly found in the literature, and find substantial differences between these estimates and those from the simultaneous model. For example, the positive relationship between worktime and health found in other studies disappears when the relevant simultaneities are accounted for. Our simultaneous estimates also suggest that worktime spent in environmentally adverse conditions are inversely related to health status, while job related physical exercise retards health deterioration.
Handle: RePEc:nbr:nberwo:3020
Template-Type: ReDIF-Paper 1.0
Title: Changes in the Structure of Wages: The U.S. versus Japan
Author-Name: Lawrence F. Katz
Author-Person: pka266
Author-Name: Ana L. Revenga
Note: LS
Number: 3021
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3021
File-URL: http://www.nber.org/papers/w3021.pdf
File-Format: application/pdf
Publication-Status: published as "Changes in the Structure of Wages: The United States vs Japan." From Journal of the Japanese and International Economies, Vol. 3, No. 4, pp. 522-553, (1989).
Abstract: This paper examines changes in wage differentials by educational attainment and experience in the US. and Japan since the early 1970s. While educational earnings differentials have expanded dramatically in the U.S. in the 1980s, the college wage premium has increased only slightly in Japan. In contrast to the large expansion in experience differentials for high school males in the U.S., the wages of male new entrants have risen relative to more experienced workers for both high school and college graduates in Japan from 1979 to 1987. Macroeconomic factors (increased openness, trade deficits, and labor market slack) and changes in institutional structures (the decline in unionization) are likely to have amplified each other in contributing to an unprecedented decline in real and relative earnings of young less-skilled - males in the U.S. in the 1980s. We further find that a sharp deceleration in the rate of growth of college graduates as a fraction of the labor force in the U.S. helps account for the much larger increase in the college wage premium in the U.S. than in Japan in the 1980s.
Handle: RePEc:nbr:nberwo:3021
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Leveraged Buyouts on Productivity and Related Aspects of Firm Behavior
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Author-Name: Donald Siegel
Note: PR
Number: 3022
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3022
File-URL: http://www.nber.org/papers/w3022.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 27, No. 1, pp. 165-194, (September 1990).
Abstract: We investigate the economic effects of leveraged buyouts (LBOs) using large longitudinal establishment and firm-level Census Bureau data sets linked to a list of LBOs compiled from public data sources. About 5 percent, or 1100, of the manufacturing plants in the sample were involved in LBOs during 1981-86. We find that plants involved in LBOs had significantly higher rates of total factor productivity (TFP) growth than other plants in the same industry. The productivity impact of LBOs is much larger than our previous estimates of the productivity impact of ownership changes in general. Management buyouts appear to have a particularly strong positive effect on TFP. Labor and capital employed tend to decline (relative to the industry average) after the buyout, but at a slower rate than they did before the buyout. The ratio of nonproduction to production labor cost declines sharply, and production worker wage rates increase, following LBOs. LBOs are production-labor-using, nonproduction-labor- saving, organizational innovations. Plants involved in management buyouts (but not in other LBOs) are less likely to subsequently close than other plants. The average R&D-intensity of firms involved in LBOs increased at least as much from 1978 to 1986 as did the average R&D-intensity of all firms responding to the NSF/Census survey of industrial R&D.
Handle: RePEc:nbr:nberwo:3022
Template-Type: ReDIF-Paper 1.0
Title: Trade and Protection in Vertically Related Markets
Author-Name: Barbara J. Spencer
Author-Person: psp2
Author-Name: Ronald W. Jones
Note: ITI IFM
Number: 3023
Creation-Date: 1989-06
Order-URL: http://www.nber.org/papers/w3023
File-URL: http://www.nber.org/papers/w3023.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 32, pp.31-55, 1992
Abstract: A domestic firm is partially dependent on a foreign vertically integrated supplier for a key intermediate product when both firms are Cournot competitors in the market for the final product. The foreign supplier generally charges its domestic rival a price for the input that exceeds the independent monopoly level and vertical foreclosure may occur. Domestic policies applied to the vertically related products can increase domestic welfare by reducing the price and increasing the availability of imported supplies of the input. Vertical integration in the foreign supplier has significant implications for all three domestic policies considered: a tariff or subsidy on imports of both products and a domestic production subsidy. The foreign vertically integrated firm tends to reduce its price for the input in response to an import tariff on the final product, whereas a simple monopoly supplier would respond by increasing its export price. Also domestic cost conditions for the production of the input can critically affect the desirability of a tax as apposed to a subsidy on intermediate imports.
Handle: RePEc:nbr:nberwo:3023
Template-Type: ReDIF-Paper 1.0
Title: Collateral, Rationing, and Government Intervention in Credit Markets
Author-Name: William G. Gale
Author-Person: pga40
Note: ME
Number: 3024
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3024
File-URL: http://www.nber.org/papers/w3024.pdf
File-Format: application/pdf
Publication-Status: published as Collateral, Rationing, and Government Intervention in Credit Markets, William G. Gale. in Asymmetric Information, Corporate Finance, and Investment, Hubbard. 1990
Abstract: This paper analyzes the effects of government intervention in credit markets when lenders use collateral, interest, and the probability of granting a loan as potential screening devices. Equilibria with and without rationing are examined. The principal theme is that credit policies operate through their effect on the incentive compatibility constraint, which inhibits high-risk borrowers from mimicking the behavior of low-risk borrowers. Any policy that loosens (tightens) the constraint raises (reduces) efficiency. Most government credit programs explicitly attempt to fund investors that cannot obtain private financing. In the model presented here, these subsidies increase the extent of rationing and reduce efficiency. In contrast, policies that subsidize the nonrationed borrowers, or all borrowers, are efficiency enhancing, and reduce the extent of rationing.
Handle: RePEc:nbr:nberwo:3024
Template-Type: ReDIF-Paper 1.0
Title: How Elastic is the Government's Demand for Weapons?
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Note: PR
Number: 3025
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3025
File-URL: http://www.nber.org/papers/w3025.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 40, pp. 57-78, (1989).
Abstract: We attempt to make inferences about the elasticity of the government's demand for specific weapons by analyzing the statistical relationship between quantity and cost revisions across the population of major weapon systems, using data contained in the Pentagon's Selected Acquisition Reports. The cost revisions are due in part to the arrival of technological information generated in the course of research and development. When we standardize the data by program base year, we find that the elasticity of demand is .55, and is significantly different from both zero and unity. Thus, the governments demand for specific weapons is inelastic, but not perfectly inelastic. The estimates also imply that weapons acquisition is characterized by increasing returns: the mean and median values of the elasticity of total cost with respect to quantity are .78 and .72, respectively.
Handle: RePEc:nbr:nberwo:3025
Template-Type: ReDIF-Paper 1.0
Title: Formal Employee Training Programs and Their Impact on Labor Produc- tivity: Evidence from a Human Resources Survey
Author-Name: Ann P. Bartel
Note: LS
Number: 3026
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3026
File-URL: http://www.nber.org/papers/w3026.pdf
File-Format: application/pdf
Publication-Status: published as Market Failure in Training? New Economic Analysis and Evidence on Trainingof Adult Employees, ed. David Stern and Jozef Ritzen, Springer-Verlag 1991
Publication-Status: published as Bartel, Ann P. "Productivity Gains From The Implementation Of Employee Training Programs," Industrial Relations, 1994, v33(4), 411-425.
Abstract: Although economic models of training decisions are framed in terms of a company's calculation of the costs and benefits of such training, empirical work has never been able to test this model directly on company behavior. This paper utilizes a unique database to analyze the determinants of the variation in formal training across businesses and the impact of such training on labor productivity. Major findings are that large businesses, those introducing new technology end those who rely on internal promotions to fill vacancies are more likely to have formal training programs. Formal training is found to have a positive effect on labor productivity.
Handle: RePEc:nbr:nberwo:3026
Template-Type: ReDIF-Paper 1.0
Title: Commodity Trade and International Risk Sharing: How Much Do Financial Markets Matter?
Author-Name: Harold L. Cole
Author-Person: pco70
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ITI IFM
Number: 3027
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3027
File-URL: http://www.nber.org/papers/w3027.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 28, pp. 3-24, (1991).
Abstract: This paper evaluates the gains from international risk sharing in some simple general-equilibrium models with output uncertainty. Under empirically plausible calibration, the Incremental loss from a ban on international portfolio diversification is estimated to be quite small--0.15 percent of output per year is a representative figure. Even the theoretical gains from asset trade may disappear under alternative sets of assumptions on preferences and technology. The paper argues that the small magnitude of potential trade gains, when coupled with small costs of cross-border financial transactions, may explain the apparently inconsistent findings of empirical studies on the degree of international capital mobility.
Handle: RePEc:nbr:nberwo:3027
Template-Type: ReDIF-Paper 1.0
Title: Intertemporal Dependence, Impatience, and Dynamics
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: EFG
Number: 3028
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3028
File-URL: http://www.nber.org/papers/w3028.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 26, pp. 45-75, (1990).
Abstract: This paper develops simple geometric methods for analyzing dynamic behavior in models with intertemporally dependent consumer tastes. Since the preferences studied do not assume time-additivity, they allow the marginal utility of consumption on a given date to vary with consumption on other dates. Intertemporal dependence is induced by the presence of a variable individual rate of time preference. The optimal consumption responses to transitory and anticipated changes in incomes and interest rates are easily derived and are similar in important ways to the responses implied by the standard model with constant time preference. Intuitive explanations of the first-order conditions describing optimal paths are provided.
Handle: RePEc:nbr:nberwo:3028
Template-Type: ReDIF-Paper 1.0
Title: The Employers' cost of Workers' Compensation Insurance: Magnitudes, Determinants, and Public Policy
Author-Name: Alan B. Krueger
Author-Person: pkr63
Author-Name: John F. Burton, Jr.
Note: LS
Number: 3029
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3029
File-URL: http://www.nber.org/papers/w3029.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Economics and Statistics, Volume 72, Number 2, May 1990, pp. 228-240.
Abstract: This paper presents estimates of the average cost of the workers' compensation insurance program for a homogeneous group of employers by state. These estimates are of interest because they reflect the operation, direct nominal costs, and efficiency of workers' compensation. The paper estimates cost equations for a variety of alternative specifications. The main finding is that when cost equations are estimated by ordinary least squares there is a unit elasticity of costs with respect to benefits, but instrumental variable estimates of the effect of benefits yield a greater than unit elasticity. The results also indicate that the presence of a state insurance fund is associated with higher average costs to employers, all else equal. Finally, we explore the impact that the minimum standards recommended by the National Commission on State Workmen's Compensation Laws would have on workers' compensation costs.
Handle: RePEc:nbr:nberwo:3029
Template-Type: ReDIF-Paper 1.0
Title: Employment, Wages, and Unionism in a Model of the Aggregate Labor Market in Britain
Author-Name: John H. Pencavel
Author-Person: ppe335
Note: LS
Number: 3030
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3030
File-URL: http://www.nber.org/papers/w3030.pdf
File-Format: application/pdf
Abstract: Two propositions figure prominently in explanations for Britain's comparatively low growth in employment: first, the wage-setting mechanism is insufficiently responsive to the growth of unemployment and, second, there exists a well-defined negative causal relationship from wages to employment with the features of a conventional labor demand function. Using aggregate annual observations from 1953 to 1979, find the evidence for a conventional labor demand curve to be fragile and find little support for the notion that trade union objectives are unaffected by unemployment as some versions of the "insider-outsider" hypothesis would maintain. In general, the empirical results in this paper emphasize that confident inferences about Britain's employment record cannot be drawn from aggregate data.
Handle: RePEc:nbr:nberwo:3030
Template-Type: ReDIF-Paper 1.0
Title: Monopsony Power in the Market for Nurses
Author-Name: Daniel Sullivan
Author-Person: psu257
Note: LS
Number: 3031
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3031
File-URL: http://www.nber.org/papers/w3031.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law and Economics, vo. 32, no.2 part 2, pp. s135-s178, October 1989.
Abstract: Estimates are presented of the inverse elasticity of supply of nursing services to the individual hospital, a quantity which is a natural measure of employer market power. The estimates corresponding to employment changes taking place over one year are quite high (in the neighborhood of 0.79) and even for changes taking place over three years are substantial (in the neighborhood of 0.26). The estimates do not significantly differ for hospitals in major metropolitan areas and do not depend very sensitively on the assumed form of the oligopsony equilibrium.
Handle: RePEc:nbr:nberwo:3031
Template-Type: ReDIF-Paper 1.0
Title: Copycatting: Fiscal Policies of States and Their Neighbors
Author-Name: Anne C. Case
Author-Person: pca108
Author-Name: James R. Hines, Jr.
Author-Person: phi111
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 3032
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3032
File-URL: http://www.nber.org/papers/w3032.pdf
File-Format: application/pdf
Publication-Status: published as "Budget Spillover and Fiscal Policy Interdependence: Evidence from the States", Journal of Public Economics, vol. 52, October 1993, p. 285-307
Abstract: This paper formalizes and tests the notion that state governments' expenditures depend on the spending of similarly situated states. We find that even after allowing for fixed state effects, year effects, and common random effects between neighbors, as state government's level of per capita expenditure is positively and significantly affected by the expenditure levels of its neighbors. Ceteris paribus, a one dollar increase in a state's neighbors' expenditures increases its own expenditure by over 70 cents.
Handle: RePEc:nbr:nberwo:3032
Template-Type: ReDIF-Paper 1.0
Title: The Role of External Economies in U.S. Manufacturing
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Richard K. Lyons
Author-Person: ply9
Note: ITI EFG IFM
Number: 3033
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3033
File-URL: http://www.nber.org/papers/w3033.pdf
File-Format: application/pdf
Publication-Status: published as "External Effects in U.S. Procyclical Productivity", Journal of Monetary Economics, May 1992, Vol. 24, pp.209-225
Abstract: This paper develops a method for joint estimation of both the degree of internal returns to scale and the extent of external economies. We apply the method in estimating returns to scale indexes for U.S. manufacturing industries at the two-digit level. Overall, we find that only three of the twenty industry categories show any evidence of internal increasing returns: (1) Primary Metals, (2) Electrical Machinery, and (3) Paper Products. More striking, however, is the very strong evidence of the existence of external economies, where external is defined as external to a given two-digit industry and internal to the U.S.. According to our preferred estimates, if all manufacturing industries simultaneously raise their inputs by 10%, aggregate manufacturing production rises by 13%, of which about 5% is due to external economies. Thus, when an industry increases its inputs in isolation by 10%, its output rises by no more than 8%.
Handle: RePEc:nbr:nberwo:3033
Template-Type: ReDIF-Paper 1.0
Title: Invariance Properties of Solow's Productivity Residual
Author-Name: Robert E. Hall
Note: EFG
Number: 3034
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3034
File-URL: http://www.nber.org/papers/w3034.pdf
File-Format: application/pdf
Publication-Status: published as Growth/Productivity/Unemployment, edited by Peter Diamond, pp. 71-112. Cambridge, MA: MIT Press, 1990.
Abstract: In 1957, Robert Solow published a paper that provided the theoretical foundation for almost all subsequent work on productivity measurement. Although most applications of Solow's method have measured trends over fairly long time periods, the method also has important uses at higher frequencies. Under constant returns to scale and competition, the Solow residual measures the pure shift of the production function. Shifts in product demand and factor supplies should have no effect on the residual. Tests of this invariance property show that it fails in a great many industries. Though other explanations may deserve some weight, it appears that the leading cause of the failure of invariance is increasing returns and market power. The empirical findings give some support to the theory of monopolistic competition.
Handle: RePEc:nbr:nberwo:3034
Template-Type: ReDIF-Paper 1.0
Title: An Analysis of the Earnings of Canadian Immigrants
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Morley Gunderson
Author-Person: pgu122
Note: LS
Number: 3035
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3035
File-URL: http://www.nber.org/papers/w3035.pdf
File-Format: application/pdf
Publication-Status: published as With Christopher L. Cavanagh, published as "An Analysis of the Selection of Arbitrators", American Economic Review, Vol. 76, no. 3 (1986): 408-422.
Publication-Status: published as An Analysis of the Earnings of Canadian Immigrants, David E. Bloom, Morley Gunderson. in Immigration, Trade, and the Labor Market, Abowd and Freeman. 1991
Abstract: This paper reports estimates of simple wage equations fit to cross-sectional and pseudo-longitudinal data for Canadian immigrants in the 1971 and 1981 Canadian censuses. The estimates are used to assess (1) the usefulness of cross-sectional analyses for measuring the pace of immigrant earnings growth, (2) the labor market implications of admissions policies that place different weights on the work skills possessed by prospective entrants, and (3) the relative impact of selective outmigration and job-matching on the shape of immigrant earnings distributions as duration of stay increases. The estimates provide evidence of a small to moderate assimilation effect that suggests that immigrants make up for relatively low entry wages, although the wage catch-up is not complete until 13 to 22 years after entry into Canada. These results are revealed clearly in both the pseudo-longitudinal and the cross-sectional analyses. The estimates also provide evidence that the unobserved quality of immigrants' labor market skills declined following changes in Canada's immigration policies in 1974 that led to a sharp increase in the proportion of immigrants admitted on the basis of family ties. Finally, since there is no evidence that the variance of immigrant earnings increases with their duration of stay in Canada, and since there are no differential immigrant-native changes in higher-order moments of the earnings distribution as duration of stay increases, the results are inconclusive with respect to the importance of selective outmigration and job matching in the evolution of immigrant earnings distributions over time.
Handle: RePEc:nbr:nberwo:3035
Template-Type: ReDIF-Paper 1.0
Title: Treasury Bill Rates in the 1970s and 1980s
Author-Name: Patric H. Hendershott
Author-Name: Joe Peek
Author-Person: ppe90
Note: ME
Number: 3036
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3036
File-URL: http://www.nber.org/papers/w3036.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, Vol. 24, No. 2, 1992 pp. 195-214
Abstract: As is widely recognized, real interest rates in the early 1980s were at peaks not witnessed since the late 1920s. Less well perceived is the sharp decline in real interest rates since 1984. By 1986-88, real interest rates were back at their average levels of the previous quarter century. This paper seeks to identify the underlying determinants of the major movements in real six-month Treasury bill rates. The rise in real interest rates between the middle 1970s and early 1980s, not surprisingly, results from a variety of factors. First, rates were unusually low in the middle 1970s owing to the first OPEC shock, which lowered investment demand and increased world saving by transferring wealth from the high-consuming developed countries to OPEC. Second, tight money, high inflation, and heightened nuclear fear all contributed to real rates becoming unusually high in the early 1980s. The eventual decline of OPEC surpluses following the second OPEC shock prolonged the period of high real rates. The decline in real rates to more normal levels in the 1986-88 period is also due to multiple factors: lower inflation, declining marginal tax rates, and easy monetary policy.
Handle: RePEc:nbr:nberwo:3036
Template-Type: ReDIF-Paper 1.0
Title: Interest Rates in the Reagan Years
Author-Name: Patric H. Hendershott
Author-Name: Joe Peek
Author-Person: ppe90
Note: ME
Number: 3037
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3037
File-URL: http://www.nber.org/papers/w3037.pdf
File-Format: application/pdf
Publication-Status: published as Sahn, Anandi P. and Ronald L. Tracy (eds.) The Economic Legacy of the Reagan Years: Euphoria or Chaos? Westport, Conn. and London: Greenwood, Praeger, 1991.
Abstract: The Reagan Administration entered office in 1981 with one of the clearest and moat ambitious agendas in recent times. The new administration advanced five economic/budgetary goals to rebuild America economically and militarily: (1) reduce inflation, (2) deregulate the economy, (3) cut taxes, (4) increase military spending and (5) reduce nondefense spending sufficiently to balance the budget. Achieving, or not achieving, these economic/budgetary goals likely had a significant impact on interest rates. Six specific hypotheses are investigated in this paper. During the first Reagan term, the battle to lower inflation acted to maintain the high real interest rates carried over from the Carter years and, while the increase in structural deficits did not raise real rates much, the reduction in private saving due to the unwinding of the second OPEC shock and an aggressive foreign policy that heightened fear of nuclear war raised real interest rates to levels not seen since the late 1920s. Moreover, the increased volatility of interest rates during this protracted battle with inflation raised yields on callable fixed-rate mortgages by over a percentage point relative to the already inflated yields on noncallable Treasuries. By the end of Reagan's second term, inflation, marginal tax rates, nuclear fear, and interest rate volatility were all down. As a result, nominal Treasury rates have plunged (real bill rates since 1986 are below their average values for the previous quarter century), and yields on callable securities have receded to more normal levels relative to noncallable Treasuries. Yields on tax-exempt securities are one and a quarter percentage points higher relative to Treasuries than in the pre-Reagan years, and yields on fixed-rate mortgages are up by a half percentage point. These constitute an intended eduction in the previous financial subsidies to state and local and household capital formation, respectively.
Handle: RePEc:nbr:nberwo:3037
Template-Type: ReDIF-Paper 1.0
Title: Optimal Taxation and Optimal Tax Systems
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 3038
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3038
File-URL: http://www.nber.org/papers/w3038.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol.4, No. 1, pp. 157-178, (Winter 1990).
Abstract: The theory of optimal taxation has , for the pas two decades , been the reigning normative approach of taxation. This paper argues that , in its current state, optimal tax theory is incomplete as a guide to action concerning many critical issues in tax policy. It is incomplete because it has not yet come to terms with taxation as a system of coercively collecting revenues from individuals who will tend to resist. The coercive nature of collection taxes implies that the resource cost of implementing a tax system have been and will continue to be a critical determinant of appropriate tax policy. The paper first presents the three cornerstone propositions of optimal tax theory, and then it discusses the influence of these propositions on recent tax policy developments. It concludes by sketching an alternative to optimal taxation, called the theory of optimal tax systems, which embraces the insights of optimal taxation but also considers the technology of raising taxes and the constraints placed upon tax policy by that technology. The optimal tax systems perspective is shown to shed light on the choice of tax instruments, the problem of tax evasion, and the appropriate tax treatment of capital income.
Handle: RePEc:nbr:nberwo:3038
Template-Type: ReDIF-Paper 1.0
Title: Do Firms Care Who Provides their Financing?
Author-Name: Jeffrey K. MacKie-Mason
Author-Person: pma1
Note: ME
Number: 3039
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3039
File-URL: http://www.nber.org/papers/w3039.pdf
File-Format: application/pdf
Publication-Status: published as R. Glenn Hubbard, editor. Assymetric Information, Corporate Finance and Investment. Chicago: The University of Chicago Press, 1990.
Publication-Status: published as Do Firms Care Who Provides Their Financing?, Jeffrey K. MacKie-Mason. in Asymmetric Information, Corporate Finance, and Investment, Hubbard. 1990
Abstract: Several types of evidence are presented to demonstrate that firms are concerned with who provides their financing, not just with the debt/equity distinction. Aggregate and industry trends and patterns in the incremental sources of financial capital are documented, and a large sample of incremental corporate financial decisions is econometrically analyzed. There are large and persistent differences in the patterns of internal and external financing, both in the aggregate and across industries. Individual firms are shown to have distinct preferences for different providers of funds. Several indicators of potentially costly hidden information problems are important and significant determinants of choices between private and publicly-marketed sources, even after controlling for the type of security (debt or equity).
Handle: RePEc:nbr:nberwo:3039
Template-Type: ReDIF-Paper 1.0
Title: An Explanation of the Behavior of Personal Savings in the United States in Recent Years
Author-Name: Eytan Sheshinski
Author-Person: psh109
Author-Name: Vito Tanzi
Note: PE
Number: 3040
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3040
File-URL: http://www.nber.org/papers/w3040.pdf
File-Format: application/pdf
Abstract: A sharp increase in the real interest rates in the U.S. in the 1980s was expected to induce a higher personal saving rate. Actually, between 1981 and 1983 the personal saving rate fell from 7.5 percent to 5.4 percent and for the 1985-1988 period it had averaged only 4 percent even though real interest rates have remained high. We argue that one possible explanation for this negative relation between interest rates and the personal saving rate is the large fraction of wealth, especially financial wealth, held by persons over 65 years old (this group has received more than 50 percent of all interest income in the U.S. during this period). Life cycle theory suggests, as we demonstrate, that the wealth effect created by an increase in the rate of interest reduces the savings of old persons and raises savings of the young and hence the effect on aggregate savings depends on the age distribution in the population.
Handle: RePEc:nbr:nberwo:3040
Template-Type: ReDIF-Paper 1.0
Title: Dynamic Factor Demand Models, Productivity Measurement, and Rates of Return: Theory and an Empirical Application to the U.S. Bell System
Author-Name: M. Ishaq Nadiri
Author-Name: Ingmar R. Prucha
Author-Person: ppr355
Note: PR
Number: 3041
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3041
File-URL: http://www.nber.org/papers/w3041.pdf
File-Format: application/pdf
Publication-Status: published as Structural Change and Economic Dynamics, Vol. 1, No. 2, pp. 263-289, (1990) .
Publication-Status: published as M. Ishaq Nadiri & Ingmar Prucha, 2001. "Dynamic Factor Demand Models and Productivity Analysis," NBER Chapters, in: New Developments in Productivity Analysis, pages 103-172 National Bureau of Economic Research, Inc.
Abstract: Prucha and Nadiri (1982,1986,1988) introduced a methodology to estimate systems of dynamic factor demand that allows for considerable flexibility in both the choice of the functional form of the technology and the expectation formation process. This paper applies this methodology to estimate the production structure, and the demand for labor, materials, capital and R&D by the U.S. Bell System. The paper provides estimates for short-, intermediate- and long-run price and output elasticities of the inputs, as well as estimates on the rate of return on capital and R&D. The paper also discusses the issue of the measurement of technical change if the firm is in temporary rather than long-run equilibrium and the technology is not assumed to be linear homogeneous The paper provides estimates for input and output based technical change as well as for returns to scale. Furthermore, the paper gives a decomposition of the traditional measure of total factor productivity growth.
Handle: RePEc:nbr:nberwo:3041
Template-Type: ReDIF-Paper 1.0
Title: Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 3042
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3042
File-URL: http://www.nber.org/papers/w3042.pdf
File-Format: application/pdf
Publication-Status: published as Taxation in the Global Economy, edited by Assaf Razin and Joel Slemrod, pp. 79-117. Chicago: The University of Chicago Press, 1990.
Publication-Status: published as Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison , Joel B. Slemrod. in Taxation in the Global Economy, Razin and Slemrod. 1990
Abstract: This paper investigates how the tax system of the U.S. and the capital-exporting country combine to affect the flow of foreign direct investment (FDI) into the U.S. First, using aggregate data, it corroborates earlier work suggesting that the U.S. effective tax rate does influence the amount of FDI financed by transfers of funds, but not the amount financed by retained earnings. The data are then disaggregated by major capital-exporting countries to see if, as theory would suggest, FDI from countries which exempt foreign-source income from taxation is more sensitive to U.S. tax rates than FDI from countries which attempt to tax foreign-source income. The data analysis does not reveal a clear differential responsiveness between these two groups of countries, suggesting either difficulties in accurately measuring effective tax rates or the availability of financial strategies which render the home country tax system immaterial in affecting the return on FDI.
Handle: RePEc:nbr:nberwo:3042
Template-Type: ReDIF-Paper 1.0
Title: Labor Supply Flexibility and Portfolio Choice
Author-Name: Zvi Bodie
Author-Person: pbo569
Author-Name: William Samuelson
Note: ME
Number: 3043
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3043
File-URL: http://www.nber.org/papers/w3043.pdf
File-Format: application/pdf
Publication-Status: Published as "Labor Supply Flexibility and Portfolio Choice in a Life Cycle Model", JEDC, Vol. 16, nos. 3/4 (1992): 427-450.
Abstract: This paper develops a model showing that people who have flexibility in choosing how much to work will prefer to invest substantially more of their money in risky assets than if they had no such flexibility. Viewed in this way, labor supply flexibility offers insurance against adverse investment outcomes. The model provides support for the conventional wisdom that the young can tolerate more risk in their investment portfolios than the old. The model has other implications for the study of household financial behavior over the life cycle. It implies that households will take account of the value of labor supply flexibility in deciding how much to invest in their own human capital and when to retire. At the macro level it implies that people will have a labor supply response to shocks in the financial markets.
Handle: RePEc:nbr:nberwo:3043
Template-Type: ReDIF-Paper 1.0
Title: Leadership and Cooperation in the European Monetary System: A Simulation Approach
Author-Name: Nouriel Roubini
Author-Person: pro145
Note: ITI IFM
Number: 3044
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3044
File-URL: http://www.nber.org/papers/w3044.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Policy Modeling, April 1991.
Abstract: To assess the importance of economic interdependence and the potential gains from policy coordination in the European area, this paper analyzes the international transmission of policies and disturbances in a rational expectation dynamic general equilibrium simulation model of the work economy, and applies the analysis to the study of the European Monetary System. International spillover effects and potential gains from coordination appear to be small under the assumption of flexible exchange rates in the European area. The implications of a fixed rate EMS with German leadership are compared with those of a cooperative fixed exchange rate regime. Finally, capital controls under fixed rates fails to insure policy autonomy and insulation from external disturbances for the countries restricting the capital movements.
Handle: RePEc:nbr:nberwo:3044
Template-Type: ReDIF-Paper 1.0
Title: Does Monetary Policy Matter? Narrative Versus Structural Approaches
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: EFG
Number: 3045
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3045
File-URL: http://www.nber.org/papers/w3045.pdf
File-Format: application/pdf
Abstract: This paper compares results from the narrative approach of Romer and Romer (1989) to those from the structural approach regarding the effects of monetary policy on real output. The results from both approaches lead to the conclusions that monetary policy matters and that the effects build slowly following a monetary policy shock. The narrative approach, however, leads to larger and more persistent effects than does the structural approach. Reasons are advanced in the paper as to why this might be so.
Handle: RePEc:nbr:nberwo:3045
Template-Type: ReDIF-Paper 1.0
Title: Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: Fumio Hayashi
Author-Person: pha83
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 3046
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3046
File-URL: http://www.nber.org/papers/w3046.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 82, No. 5, pp. 1177-1198, (December 1992).
Abstract: What is the basic economic decision-making unit? Is it the household or the extended family? This question is fundamental to economic analysis and policy design. The answer given by the Life Cycle and Keynesian models is that the economic unit is the household. According to these models, members of particular households act selfishly and do not fully share resources with extended family members in other households. Hence, altering the distribution of resources across households within the extended family will alter the consumption and labor supply of those households who acquire or lose resources. In contrast to the Life Cycle and Keynesian models, the altruism model implies that the extended family is the basic economic decision-making unit. According to this model the extended family is linked through altruism and, as a result, acts as if it fully shares resources. In the altruism model nondistortionary changes in the distribution of resources across households within the extended family will have no effect on the consumption or labor supply of any of its members. Despite its importance, the boundaries of economic decision-making units have not, to our knowledge, been examined directly with micro data. Stated differently, the altruism model has not been tested against the Life Cycle and Keynesian alternatives with such data. This paper uses matched data on parents and their adult children, contained in the Panel Study of Income Dynamics, to perform such a test. In essence our test asks whether the distribution of consumption and labor supply across households within the extended family depends on the distribution of resources across households within the extended family. Our findings provide quite strong evidence against the altruism model. The distribution of resources across households within the extended family is a highly significant (statistically and economically) determinant of the distribution of onsumption within the extended family. This finding holds for the entire sample as well as the subsample consisting of rich parents and poor children. In addition to showing that the distribution of extended family resources matters for extended family consumption, we test the life cycle model by asking whether only own resources matter, i.e., whether the resources of extended family members have no affect on a household's consumption. Our results indicate that extended family member resources have, at most, a modest effect on household consumption after one has controlled for the fact that extended family resources help predict a household's own permanent income.
Handle: RePEc:nbr:nberwo:3046
Template-Type: ReDIF-Paper 1.0
Title: Targets, Indicators, and Instruments of Monetary Policy
Author-Name: Bennett T. McCallum
Note: ME
Number: 3047
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3047
File-URL: http://www.nber.org/papers/w3047.pdf
File-Format: application/pdf
Publication-Status: published as Monetary Policy for a Changing Financial Environment, edited by William S. Haraf and Phillip Cagan, pp. 44-70 and 193-197. Washington, DC: The AEI Press, 1990.
Abstract: It has become increasingly evident that the Federal Reserve's official strategy of the past decade, involving the adherence to target paths for monetary aggregates, is not currently being utilized to any significant extent. While some commentators welcome and others deplore this development, most would agree that a need exists for a more explicit and coherent strategy for the conduct of monetary policy. The present paper seeks to advance the strategic discussion in several ways. One involves a comparative consideration of targets for nominal GNP and the price level, with emphasis on specificational robustness and implications for output variability. A second pertains to various "indicator" variables recently suggested by Fed officials and others. In this regard, it is necessary to be clear and specific about the role of potential indicators. Consequently, a careful review of the relevant conceptual distinctions--concerning instruments, targets, indicators, etc.--is reqUired. Finally, the proposal that strategy should be conducted so as to place minimal reliance on quantity variables is given some attention, in the context of evidence concerning the merits of an interest rate instrument.
Handle: RePEc:nbr:nberwo:3047
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy and International Direct Investment
Author-Name: Joosung Jun
Note: PE
Number: 3048
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3048
File-URL: http://www.nber.org/papers/w3048.pdf
File-Format: application/pdf
Abstract: The effects of taxes on direct investment capital outflows are investigated using a theoretical model which integrates the investment and financial decisions of the parent and subsidiary. The resulting marginal qs and costs of capital show that intrafirm investment allocation and tax neutrality results critically hinge on the marginal financing regime. By identifying a channel(s) through which a specific tax policy affects firm decisions, the model evaluates the combined effects of the home country tax system on direct investment. Out analysis suggests that while the 1986 U.S. Tax Reform Act may have an ambiguous effect on the overall level of capital outflows, it may induce more equipment investments to be undertaken abroad.
Handle: RePEc:nbr:nberwo:3048
Template-Type: ReDIF-Paper 1.0
Title: U.S. Tax Policy and Direct Investment Abroad
Author-Name: Joosung Jun
Note: PE
Number: 3049
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3049
File-URL: http://www.nber.org/papers/w3049.pdf
File-Format: application/pdf
Publication-Status: published as Taxation in the Global Economy, ed. by Assaf Razin and Joel Slemrod, University of Chicago Press, 1990.
Publication-Status: published as US Tax Policy and Direct Investment Abroad, Joosung Jun. in Taxation in the Global Economy, Razin and Slemrod. 1990
Abstract: The analysis presented in this paper shows that u.s. tax policy can have significant effects on u.s. direct investment outflows through various channels. It is stressed that a sensible choice of specification and data in an empirical model entails a rigorous examination of the theoretical underpinnings behind the model. In particular, we emphasize the difference between foreign fixed investment undertaken by the foreign subsidiary and direct investment of the entire international firm, and the need to use different theoretical frameworks in each case. We present estimated equations relating the balance of payments direct investment outflows -- distinguishing between retained Subsidiary earnings and parent transfers -- to various measures of the u.s. net rate of return and the cost of funds. The evidence shows that u.s. tax policy toward domestic investment has an important effect on direct investment outflows by influencing the relative net rate of return between the U.S. and abroad. We estimate that a 16 cent reduction in transfers made by U.S. parents firms occurs for every dollar increase in U.S. domestic investment. In contrast to previous studies, transfers equations fit much better than retained earnings equations for every net return variable used in our estimation. Of the various specifications tested, the transfers equation containing a marginal, forward-looking and corporate-investor net return variable fits best, a result which is consistent with the predictions of our theoretical framework.
Handle: RePEc:nbr:nberwo:3049
Template-Type: ReDIF-Paper 1.0
Title: Cyclical Pricing of Durable Goods
Author-Name: Mark Bils
Author-Person: pbi148
Note: EFG
Number: 3050
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3050
File-URL: http://www.nber.org/papers/w3050.pdf
File-Format: application/pdf
Abstract: I examine price markups in monopolisticly-competitive markets that experience fluctuations in demand because the economy experiences cyclical fluctuations in productivity. Markups depend positively on the average income of purchasers in the market. For a nondurable good average income of purchasers is procyclical; so the markup is procyclical. For a durable good. however. the average income of purchasers is likely to decrease in booms because low income consumers of the good concentrate their purchases in boom periods; so the markup is likely countercyclical. This is particularly true for growing markets. I find markups make the aggregate economy fluctuate more in response to productivity if goods are sufficiently durable.
Handle: RePEc:nbr:nberwo:3050
Template-Type: ReDIF-Paper 1.0
Title: Testing for Contracting Effects on Employment
Author-Name: Mark Bils
Author-Person: pbi148
Note: EFG
Number: 3051
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3051
File-URL: http://www.nber.org/papers/w3051.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 106, no. 4 (1991): 1129-1156.
Abstract: I test the importance of wage rigidities from long-term contracts by observing how employment behaves when firms and workers recontract. If rigidities are important then we should observe employment adjusting after recontracting to undo movements in employment during the past contract that were excessive due to rigid wages. The data are for twelve manufacturing industries that display a strong bargaining pattern. I find that contract rigidities are important, causing considerably larger fluctuations in employment than would occur with flexible wages. By far the most striking case is in motor vehicles where long-term contracts much more than double the size of fluctuations in employment. I also examine the behavior of wage rates when new contracts are introduced. Wage growth does respond to employment growth during the prior contract in several of the industries; but these responses are not related to the pattern of employment responses across industries.
Handle: RePEc:nbr:nberwo:3051
Template-Type: ReDIF-Paper 1.0
Title: Alcohol Advertising Bans and Alcohol Abuse: An International Perspective
Author-Name: Henry Saffer
Author-Person: psa935
Note: EH
Number: 3052
Creation-Date: 1989-07
Order-URL: http://www.nber.org/papers/w3052
File-URL: http://www.nber.org/papers/w3052.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol. 10, pp. 65-79, (1991).
Abstract: The purpose of this paper is to empirically examine the effect on alcohol abuse of banning broadcast advertising of alcoholic beverages. The effect of a ban cannot be studied using data from one country because the adoption of new advertising bans is an infrequent event and requires many years for adjustment. However, an international data set can be used since there is considerable variation in the use of advertising bans across countries. The data used in this study are a pooled time series from 17 countries for the period 1970 to 1983. The empirical measures of alcohol abuse are alcohol consumption, liver cirrhosis mortality rates, and highway fatality rates. The cultural factors which influence alcohol use are measured by sets of country dummy variables. The empirical results show that countries with bans on spirits advertising have about 10 percent lower alcohol consumption and motor vehicle fatality rates than countries with no bans. The results also show that countries with bans on beer and wine advertising have about 23 percent lower alcohol consumption and motor vehicle fatality rates than countries with only bans on spirits advertising.
Handle: RePEc:nbr:nberwo:3052
Template-Type: ReDIF-Paper 1.0
Title: Why are Stabilizations Delayed?
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Allan Drazen
Author-Person: pdr25
Note: ME
Number: 3053
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3053
File-URL: http://www.nber.org/papers/w3053.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, vol.81, no.5, (December 1991).
Abstract: When a stabilization has significant distributional implications (as in the case of tax increases to eliminate a large budget deficit) different socio-economic groups will attempt to shift the burden of stabilization onto other groups. The process leading to a stabilization becomes a "war of attrition", with each group finding it rational to attempt to wait the others out. Stabilization occurs only when one group concedes and is forced to bear a disproportionate share of the burden of fiscal adjustment. We solve for the expected time of stabilization in a model of "rational" delay based on a war of attrition and present comparative statics results relating the expected time of stabilization to several political and economic variables. We also motivate this approach and its results by comparison to historical episodes.
Handle: RePEc:nbr:nberwo:3053
Template-Type: ReDIF-Paper 1.0
Title: Optimal Advice for Monetary Policy
Author-Name: Susanto Basu
Author-Person: pba274
Author-Name: Miles S. Kimball
Author-Person: pki97
Author-Name: N. Gregory Mankiw
Author-Name: David N. Weil
Author-Person: pwe24
Note: EFG ME
Number: 3054
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3054
File-URL: http://www.nber.org/papers/w3054.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit, and Banking, Vol. 22, No. 1, pp. 19-36, (February 1990).
Abstract: This paper addresses the issue of how to give optimal advice about monetary policy when it is known that the advice may not be heeded. We examine a simple macroeconomic model in which monetary policy has the ability to stabilize output by offsetting exogenous shocks to aggregate demand. The optimal policy rule for such a model is easily derived. But an adviser who knows that his advice may not be followed should not recommend the optimal policy rule. This is true because, in giving activist advice, such an adviser increases uncertainty about what monetary policy will be followed. We solve for the rule that such an adviser should use in giving advice.
Handle: RePEc:nbr:nberwo:3054
Template-Type: ReDIF-Paper 1.0
Title: Synthetic Eurocurrency Interest Rate Futures Contracts: Theory and Evidence
Author-Name: Annie Koh
Author-Name: Richard M. Levich
Note: ITI IFM
Number: 3055
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3055
File-URL: http://www.nber.org/papers/w3055.pdf
File-Format: application/pdf
Publication-Status: published as Japan, Europe, and Internaitonal Financial Markets: Analytical and Empirical Perspectives, 1994, Ed. Ryuzo Sato, Richard M. Levich, Rama Ramachand Cambridge University Press: New York, pp.147-175.
Abstract: In this paper, we develop a theoretical (arbitrage) pricing model for a Eurocurrency interest rate futures contract and measure its hedging effectiveness. This synthetic Eurocurrency interest rate futures contract is obtained by combining exisiting Eurodollar interest rate futures contracts with near term and far term currency futures contracts based on the covered interest rate parity relationship. In theory, the cash flows of the synthetic contract perfectly replicate the cash flows of a Eurocurrency interest rate futures contract. Our empirical results show that the synthetic contracts are relatively efficient in hedging non-dollar borrowing rates. These results have implications for the practice of hedging non-dollar interest rate risk and for the development of actual Eurocurrency interest rate futures markets.
Handle: RePEc:nbr:nberwo:3055
Template-Type: ReDIF-Paper 1.0
Title: Taxing International Income: An Analysis of the U.S. System and Its Economic Premises
Author-Name: David F. Bradford
Author-Name: Hugh J. Ault
Note: PE
Number: 3056
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3056
File-URL: http://www.nber.org/papers/w3056.pdf
File-Format: application/pdf
Publication-Status: published as Taxation in the Global Economy, edited by Assaf Razin and Joel Slemrod, pp. 11-46. Chicago: The University of Chicago Press, 1990.
Publication-Status: published as Taxing International Income: An Analysis of the US System and Its Economic Premises, Hugh J. Ault, David F. Bradford. in Taxation in the Global Economy, Razin and Slemrod. 1990
Abstract: This paper describes the basic U.S. legal rules that govern the taxation of international transactions and explores the economic policies or principles they reflect. Particular attention is paid to the changes made by the Tax Reform Act of 1986, but it is impossible to understand the 1986 Act changes without placing them in the context of the general taxing system applicable to international transactions. The exposition is intended to be intelligible to readers with either legal or economic training.
Handle: RePEc:nbr:nberwo:3056
Template-Type: ReDIF-Paper 1.0
Title: Recent Trade Liberalization in the Developing World: What is Behind It, and Where is it Headed?
Author-Name: John Whalley
Author-Person: pwh8
Note: ITI IFM
Number: 3057
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3057
File-URL: http://www.nber.org/papers/w3057.pdf
File-Format: application/pdf
Publication-Status: published as Global Protectionism, D. Greenaway (ed.), MacMillan Press, London, U.K. 1992
Abstract: This paper documents recent external sector liberalization in developing countries, evaluates what is behind it, and assesses whether it is likely to persist, accelerate or reverse itself. It draws heavily upon material collected during a recent Ford Foundation-supported research project on developing countries and the global trading system (see Whalley (1989)) covering eleven developing countries (Argentina, Brazil, China, Costa Rica, India, Kenya, Mexico, Nigeria, The Philippines, Republic of Korea and Tanzania). Many factors underlie these liberalizations. These include rethinking of the basic approach towards trade policy in a number of countries, with less commitment than earlier to import substitution and more interest in outward-oriented development strategies. Conditionality in World Bank and IMF lending programs appears important in Africa, and in some of the Asian and Latin American countries. In some cases, sector-specific liberalization has also been the result of bilateral pressure from the U.S. and the European Community. Recent strong macro performance in the developed world has also generated substantial growth in foreign exchange earnings for developing countries, and facilitated this liberalization. The paper concludes by suggesting that, in the short to medium term, some reciprocal actions by the developed countries in the GATT Uruguay Round would help in keeping domestic political support for these liberalizations alive.
Handle: RePEc:nbr:nberwo:3057
Template-Type: ReDIF-Paper 1.0
Title: The Politics of Intergenerational Redistribution
Author-Name: Guido Tabellini
Author-Person: pta37
Note: ME
Number: 3058
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3058
File-URL: http://www.nber.org/papers/w3058.pdf
File-Format: application/pdf
Publication-Status: published as Tabellini, Guido. "The Politics Of Intergenerational Redistribution," Journal of Political Economy, 1991, v99(2), 335-357.
Abstract: This paper studies the political-economic equilibrium of a two-period model with overlapping generations. In each period the policy is chosen under majority rule by the generations currently alive. The paper identifies a "sustainable set" of values for public debt. Any amount of debt within this set is fully repaid in equilibrium, even in the absence of commitments. By issuing debt within this set, the first generation of voters redistributes revenue in its favor and away from the second generation. The paper characterizes the determinants of the equilibrium intergenerational redistribution carried out in this way, and points to a difference between debt policy and social security legislation as instruments of redistribution. The key features of the model are heterogeneity within each generation and altruism across generations.
Handle: RePEc:nbr:nberwo:3058
Template-Type: ReDIF-Paper 1.0
Title: Judging Factor Abundance
Author-Name: Harry P. Bowen
Author-Person: pbo120
Author-Name: Leo Sveikauskas
Note: ITI IFM
Number: 3059
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3059
File-URL: http://www.nber.org/papers/w3059.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 107, no. 2 (1992): 599-620.
Abstract: Recent theoretical developments have cast doubt on the reliability of the commonly used cross-industry regression as a method for inferring a country's abundant factors. This paper examines the empirical importance of these theoretical cautions by comparing regression derived estimates of factor abundance with both revealed and actual factor abundances for thirty-five countries and up to twelve resources. Trade imbalances are found to importantly affect the regression estimates and we therefore derive and implement a theoretically consistent trade balance correction. The results indicate that despite theoretical concerns, the regression measures are often reliable indicators of revealed factor abundances. The results therefore enhance the credibility of the findings of the numerous regression studies that have been conducted over the past thirty years.
Handle: RePEc:nbr:nberwo:3059
Template-Type: ReDIF-Paper 1.0
Title: Interest Rate Term Premiums and the Failure of the Speculative Efficiency Hypothesis: A Theoretical Investigation
Author-Name: Carol L. Osler
Author-Person: pos14
Note: ITI IFM
Number: 3060
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3060
File-URL: http://www.nber.org/papers/w3060.pdf
File-Format: application/pdf
Publication-Status: published as Osler, C. L. "Interest Rate Term Premiums And The Failure Of Uncovered Interest Parity," Journal of International Financial Markets, Institutions and Money, 1992, v2(2), 1-25.
Abstract: This paper develops a new parity condition for international financial markets which relates differences between the forward exchange rate and the expected future exchange rate to interest rate term premiums. It begins with the general proposition that VIP cannot hold for all maturity horizons if interest rate term premiums are imperfectly correlated across countries and expectations are rational. The conditions under which VIP could hold for multiple horizons, under these two assumptions, are found to be very restrictive. It is argued that if VIP holds at all under these circumstances, it is only likely to hold at a very short time horizon. Finally, it is shown that under these assumptions, if VIP holds at the shortest time horizon then the difference between forward exchange rates and expected future spot rates at all other horizons will be the difference in expected term premiums at each maturity.
Handle: RePEc:nbr:nberwo:3060
Template-Type: ReDIF-Paper 1.0
Title: A Note on Optimal Deterrence When Individuals Choose Among Harmful Acts
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 3061
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3061
File-URL: http://www.nber.org/papers/w3061.pdf
File-Format: application/pdf
Publication-Status: published as "A Note on Marginal Deterrence When Individuals Choose Among Harmful Acts" International Review of Law & Economics, September, 1992, Vol. 12, 345-355.
Abstract: The theory of deterrence has been concerned primarily with situations in which individuals consider whether to commit a single harmful act (whether to discharge a pollutant into a lake, whether to steal a car) rather than with situations in which individuals decide which of several harmful acts to commit (whether to discharge one pollutant or another pollutant into a lake, whether to engage in car theft or in burglary). In the latter situations, the threat of sanctions plays a role in addition to the usual one of deterring individuals from committing harmful acts: it influences which harmful acts undeterred individuals choose to commit (it accomplishes "marginal deterrence"). It is shown in the present note that sanctions may increase more with harm when individuals choose among harmful acts than when individuals choose only whether to commit single harmful acts. The reason is that a higher gradation of sanctions encourages the undeterred to commit less harmful acts. The assumption necessary for this conclusion is that probabilities of apprehension for different acts are equal, being determined by a general level of enforcement effort. If enforcement effort is specific to the act, the conclusion does not hold; optimal sanctions for different acts are then equal to each other.
Handle: RePEc:nbr:nberwo:3061
Template-Type: ReDIF-Paper 1.0
Title: Specific Versus General Enforcement of Law
Author-Name: Steven Shavell
Author-Person: psh42
Note: LE
Number: 3062
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3062
File-URL: http://www.nber.org/papers/w3062.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 99, no. 5 (1991): 1088-1108.
Abstract: The problem of optimal public enforcement of law is examined in a model in which two types of enforcement effort are distinguished: specific enforcement effort, activity devoted to apprehending and penalizing individuals who have committed a single type of harmful act; and general enforcement effort, activity affecting the likelihood of apprehension of individuals who have committed any of a range of harmful acts. (A policeman on the beat, for instance, is able to apprehend many types of violators of law.) If all enforcement effort is specific, then under wide assumptions it is optimal for sanctions to be extreme for all acts. However, if all enforcement effort is general, optimal sanctions are low for acts of small harmfulness, increase with the degree of harmfulness, and reach the extreme only for the most harmful acts (the main result of the paper). Also considered is the assumption that enforcement effort may be both general and specific.
Handle: RePEc:nbr:nberwo:3062
Template-Type: ReDIF-Paper 1.0
Title: How Rational Is the Purchase of Life Insurance?
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: AG
Number: 3063
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3063
File-URL: http://www.nber.org/papers/w3063.pdf
File-Format: application/pdf
Publication-Status: published as "The Adequacy of Life Insurance Purchases." From Journal of Financial Intermediation, Vol. 1, No. 3, pp. 215-241, June 1991.
Abstract: This paper examines whether middle age American households purchase adequate amounts of life insurance. The analysis is based on SRI International's 1980, 1982, and 1984 surveys of the financial positions of American households. Our findings indicate that a significant minority of American wives are highly under-insured with respect to the possible deaths of their husbands. Under the assumption that actuarially fair annuities are available we find that just over 30 percent of wives are inadequately insured, by which we mean they would suffer a loss in their rate of sustainable consumption of at least 30 percent in the event of being widowed. If one assumes that annuities are not available the fraction of wives who are inadequately insured is 24 percent. These findings on inadequate life insurance are even more striking if one focuses on those households in which over half of the couple's present expected value of resources is dependent on the husband's survival. The fraction of wives in such households who are inadequately insured is 41 percent if one assumes fair annuities are available, and 31 percent if one assumes annuities are unavailable. The problem of inadequate insurance is even more significant among households of more modest means. Almost half of wives in such households who are in need of life insurance protection are inadequately insured, and this statement holds regardless of whether fair annuities are available. The results of this paper together with those of the related literature strongly suggest that raising the share of social security benefits that are paid to surviving spouses as well as increasing in employer-provided group life insurance could have a very considerable impact on the alleviation of poverty among widows, especially elderly widows.
Handle: RePEc:nbr:nberwo:3063
Template-Type: ReDIF-Paper 1.0
Title: What is the Marginal Source of Funds for Foreign Investment?
Author-Name: Joosung Jun
Note: PE
Number: 3064
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3064
File-URL: http://www.nber.org/papers/w3064.pdf
File-Format: application/pdf
Abstract: This paper analyzes the marginal source of funds for foreign investment using both aggregate and micro data on the intrafirm transactions of U.S. international firms. Tax arbitrage regarding the form and timing of transactions, combined with risks involved with foreign operations and the desire of the parent to control subsidiaries, suggests that parent transfers provide the marginal source of funds for most foreign investment. Our conclusion is consistent with the seemingly puzzling evidence that some subsidiaries have positive dividends and transfers simultaneously despite the associated tax penalties, and others neither pay dividends nor receive transfers. Our analysis and empirical evidence are in sharp conflict with the widely-held tax capitalization view that retained subsidiary earnings are the marginal source of financing foreign investment.
Handle: RePEc:nbr:nberwo:3064
Template-Type: ReDIF-Paper 1.0
Title: Firms' Choice of Method of Pay
Author-Name: Charles Brown
Author-Person: pbr341
Note: LS
Number: 3065
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3065
File-URL: http://www.nber.org/papers/w3065.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review, Vol. 43, No. 3, Special Issue, pp. 165-182, (February 1990).
Abstract: Three types of pay-setting methods are piece rates (pay mechanically linked to output), merit pay (pay based on less formal judgments by one's supervisor), and standard rates (pay based on one's job classification and perhaps seniority, but not directly on performance). Firms' choice among methods depends on balancing the gains from more precise links between performance and pay against the costs of either precise or judgmental measures of output. Using data from the BLS Industry Wage Study program, hypotheses suggested by this observation are tested and for the most part confirmed.
Handle: RePEc:nbr:nberwo:3065
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Exchange Rate Regime Switches
Author-Name: Gabriel de Koch
Author-Name: Vittorio Grilli
Note: ITI IFM
Number: 3066
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3066
File-URL: http://www.nber.org/papers/w3066.pdf
File-Format: application/pdf
Abstract: In this paper we demonstrate that exchange rate regime switching is compatible with optimal government policies. Nominal exchange-rate regimes are formalized as equilibrium commitments on future seigniorage policies, and the collapse of an exchange-rate peg as an excusable default which allows the government to lump-sum tax private sector money holdings. We demonstrate that a regime in which the exchange-rate peg is allowed to collapse when government spending is unusually high is a trigger-strategy equilibrium. Such a regime can be superior to both fixed and flexible exchange rate because it combines some of the flexibility of the floating exchange rates with some of the benefits of precommitment afforded by fixed rates.
Handle: RePEc:nbr:nberwo:3066
Template-Type: ReDIF-Paper 1.0
Title: Nominal Exchange Rate Regimes and the Real Exhange Rate, Evidence from the U.S. and Britain, 1885-1986
Author-Name: Vittorio U. Grilli
Author-Name: Graciela Kaminsky
Author-Person: pka84
Note: ITI IFM
Number: 3067
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3067
File-URL: http://www.nber.org/papers/w3067.pdf
File-Format: application/pdf
Publication-Status: Published as "Nominal Exchange Rate Regimes and the Real Exchange Rate, Evidence from the United States and Britain, 1885-1986", Journal of Monetary Economics.
Abstract: Two propositions are common in the international finance literature: (1) the real exchange rate is a random walk, (2) the real exchange rate time series properties essentially depend on the nominal exchange rate regime. The first proposition has been used in support of the claim that PPP cannot even be considered a long run relationship since deviations from it are permanent in nature. The second proposition has been used as evidence of price stickiness. Contrary to the first proposition, this paper presents evidence that the random walk behavior of the real exchange rate is just a characteristic of the post-WWII period, while in the prewar period we observe the presence of transitory fluctuations. Also, although real exchange rate volatility appears to be different between fixed and flexible exchange rate regimes, these differences are not as systematic and large as the postwar data suggest.
Handle: RePEc:nbr:nberwo:3067
Template-Type: ReDIF-Paper 1.0
Title: Managing Exchange Rate Crises: Evidence from the 1890's
Author-Name: Vittorio Grilli
Note: ITI IFM
Number: 3068
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3068
File-URL: http://www.nber.org/papers/w3068.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Vol. 9, no. 3 (1990): 258-275.
Abstract: This paper investigates the effectiveness of the monetary authority's borrowing policies in resolving exchange rate crises. It shows why obtaining loans or lines of credit in foreign currency may avoid, at least temporarily, the devaluation of a fixed exchange rate, and discusses the problem of the optimal size of the loan and/or the line of credit. The analysis focuses on a particular episode of foreign exchange rate pressure, during the troubled years between 1894 to 1896. The results suggest that the borrowing policy followed by the U.S. Treasury in those years was effective in avoiding the collapse of the United States' gold standard, and that the amount of the borrowing undertaken by the Treasury might have been optimal.
Handle: RePEc:nbr:nberwo:3068
Template-Type: ReDIF-Paper 1.0
Title: The Impact of the Mariel Boatlift on the Miami Labor Market
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 3069
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3069
File-URL: http://www.nber.org/papers/w3069.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review, Vol. 43, No. 2, pp. 245-257, (January 1990).
Abstract: This paper presents an empirical analysis of the effect of the Mariel Boatlift on the Miami labor market, focusing on the wages and unemployment rates of less-skilled workers. The Mariel immigrants increased the population and labor force of the Miami metropolitan area by 7 percent. Most of the immigrants were relatively unskilled: as a result, the proportional increase in labor supply to less-skilled occupations and industries was much greater. Nevertheless, an analysis of wages of non-Cuban workers over the 1979-85 period reveals virtually no effect of the Mariel influx. Likewise, there is no indication that the Boatlift lead to an increase in the unemployment rates of less-skilled blacks or other non-Cuban workers. Even among the Cuban population wages and unemployment rates of earlier immigrants were not substantially effected by the arrival of the Mariels.
Handle: RePEc:nbr:nberwo:3069
Template-Type: ReDIF-Paper 1.0
Title: Taxation of Foreign-Owned Land
Author-Name: James A. Brander
Author-Person: pbr168
Note: ITI PE IFM
Number: 3070
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3070
File-URL: http://www.nber.org/papers/w3070.pdf
File-Format: application/pdf
Abstract: This paper examines the welfare effects of a tax on foreign purchases of domestic land. Using a simple static framework the paper shows that an appropriately chosen tax will generally be welfare-improving for the domestic country.
Handle: RePEc:nbr:nberwo:3070
Template-Type: ReDIF-Paper 1.0
Title: Trade Adjustment Assistance: Welfare and Incentive Effects of Payments to Displaced Workers
Author-Name: James A. Brander
Author-Person: pbr168
Author-Name: Barbara J. Spencer
Author-Person: psp2
Note: ITI IFM
Number: 3071
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3071
File-URL: http://www.nber.org/papers/w3071.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, vol. 36, no. 3/4, May 1994, pp. 239-261.
Abstract: We analyze the welfare effects of conditional trade adjustment assistance (i.e. assistance that is received only if displaced workers remain unemployed), and compare the conditional program with unconditional assistance. Taking the level of assistance as exogenous, we show that either the conditional or unconditional program may impose greater efficiency costs, depending on underlying parameters. We then introduce an explicit social welfare function and solve for the optimal level of assistance for each program. Finally, we compare the optimized values of the two programs. If the distribution of wage offers is uniform, the unconditional program is welfare superior.
Handle: RePEc:nbr:nberwo:3071
Template-Type: ReDIF-Paper 1.0
Title: Moderating Elections
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Howard Rosenthal
Note: ME
Number: 3072
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3072
File-URL: http://www.nber.org/papers/w3072.pdf
File-Format: application/pdf
Abstract: This paper extends the spatial theory of voting to an institutional structure in which policy choices are a function of the composition of the legislature and of the executive. In an institutional setup in which the policy outcome depends upon relative plurality, each voter has incentives to be strategic since the outcome depends upon how everybody else votes. By applying to this game between voters the refinements of Strong Nash and Coalition Proof Nash we prove existence of equilibria with properties which appear intuitive and realistic. In fact, the model has several testable implications which seem consistent with some observed patterns of voting behavior in the United States and perhaps in other democracies in which the executive is directly elected. For instance, the model predicts: a) split-ticket voting; b) for some parameter values, a split government with different parties controlling the executive and the majority of the legislature; and c) the mid-term electoral cycle.
Handle: RePEc:nbr:nberwo:3072
Template-Type: ReDIF-Paper 1.0
Title: Election Polls, Free Trade, and the Stock Market: Evidence from the Canadian General Election
Author-Name: James A. Brander
Author-Person: pbr168
Note: ME ITI IFM
Number: 3073
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3073
File-URL: http://www.nber.org/papers/w3073.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, Vol. 24, No. 4, (November 1991).
Abstract: This paper examines the relationship between the Toronto Stock Exchange (TSE) and election polls during the 1988 Canadian General Election campaign. Two hypotheses are investigated: first, did polls influence the TSE, and secondly, if so, did the nature of the influence suggest that investors were reacting to expectations concerning the effect of the Canada-U.S. Free Trade Agreement (FTA)? I find that the TSE was positively related to Conservative popularity as measured by polls, but that the differential movement of TSE subindices does not offer additional support to an FTA based interpretation of events.
Handle: RePEc:nbr:nberwo:3073
Template-Type: ReDIF-Paper 1.0
Title: Consistent Valuation and Cost of Capital Expressions with Corporate and Personal TAxes
Author-Name: Robert A. Taggart, Jr.
Note: PE ME
Number: 3074
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3074
File-URL: http://www.nber.org/papers/w3074.pdf
File-Format: application/pdf
Publication-Status: published as FM, Vol. 20, no. 3 (1991): 8-20.
Abstract: This paper examines three valuation methods, each of which should lead to the same value for a given asset. These are the Adjusted Present Value, Adjusted Discount Rate and Flows to Equity methods. To achieve identical valuations, however, the different methods must be implemented with cost of capital expressions that embody a consistent set of assumptions about (1) the tax regime and (2) the time pattern and riskiness of debt tax shields. Valuation and cost of capital expressions that have been proposed in the literature are grouped and contrasted according to these assumptions. It is also shown that the familiar weighted average cost of capital can be consistent with any such set of assumptions, as long as the correct expression is used to estimate the relationship between the levered and unlevered cost of equity.
Handle: RePEc:nbr:nberwo:3074
Template-Type: ReDIF-Paper 1.0
Title: Israel's Crisis and Economic Reform: A Historical Perspective
Author-Name: Michael Bruno
Note: ITI IFM
Number: 3075
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3075
File-URL: http://www.nber.org/papers/w3075.pdf
File-Format: application/pdf
Abstract: This article analyses the roots of the deep crisis that has afflicted the Israeli economy since 1973 and the attempt at economic reform and recovery since 1985. All of these are discussed against the background of the long-term evolution in Israel's structure and growth process. At the center of the analysis lie the implications of an oversized government and especially the devastating effects on growth and inflation of the large and persistent public sector deficit on top of the growing tax and public expenditure levels. The norm of "living beyond one's means" at the public sector level has also severely affected the norms of behavior of the private, household as well as business, sectors. Since 1985 there have been signs of recovery originating from the balancing of the budget and the relative stabilization of the currency. Labor and capital markets are gradually becoming more flexible and real interest rates are coming down. Even so, inflation rates are not yet down to international levels, continued budget balance is not assured and excessive wage increases have substantially diminished profit rates and investments in the business sector. Structural problems, rooted in economic mismanagement of the crisis years, are surfacing. Resumption of a sustained growth process requires persistent budget balance and a substantial additional reduction in public expenditure and tax levels. Structural reforms, only barely started, have to be persistently followed in the labor and capital markets, in the fiscal system, and in the further opening up of commodity and financial markets to competition from both home and abroad.
Handle: RePEc:nbr:nberwo:3075
Template-Type: ReDIF-Paper 1.0
Title: Distance, Demand, and Oligopoly Pricing
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: James A. Levinsohn
Author-Person: ple386
Note: ITI IFM
Number: 3076
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3076
File-URL: http://www.nber.org/papers/w3076.pdf
File-Format: application/pdf
Publication-Status: published as "Estimating Markups and Market Conduct with Multidimensional Product Attributes," Review of Economic Studies, vol. 62, pp 19-52, 1995.
Abstract: We demonstrate how to estimate a model of product demand and oligopoly pricing when products are multi-dimensionally differentiated. We provide an empirical counterpart to recent theoretical work on product differentiation. Using specifications informed by economic theory, we simultaneously estimate a demand system and price-cost margins for products differentiated in many dimensions.
Handle: RePEc:nbr:nberwo:3076
Template-Type: ReDIF-Paper 1.0
Title: Economic and Financial Determinants of Oil and Gas Exploration Activity
Author-Name: Peter C. Reiss
Note: ME EEE
Number: 3077
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3077
File-URL: http://www.nber.org/papers/w3077.pdf
File-Format: application/pdf
Publication-Status: published as Peter C. Reiss, 1990. "Economic and Financial Determinants of Oil and Gas Exploration Activity," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 181-206 National Bureau of Economic Research, Inc.
Abstract: This paper studies the investment activities of 44 independent oil and gas firms from 1978 to 1986. It develops a dynamic model of oil and gas exploration and development. The model predicts less of a decline in exploration activity than actually occurred in 1985-86. I consider the extent to which financial factors may have affected firms' investment plans during the 1985-86 deflation. There is some evidence that credit contracts in this industry did place important limitations on firm's abilities to respond to the energy price deflation. These constraints were imposed because lenders could not separately distinguish between unfavorable industry developments and poor individual firm performance.
Handle: RePEc:nbr:nberwo:3077
Template-Type: ReDIF-Paper 1.0
Title: Tax Compliance: An Investigation Using Individual TCMP Data
Author-Name: Helen V. Tauchen
Author-Name: Ann Dryden Witte
Author-Name: Kurt J. Beron
Note: PE
Number: 3078
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3078
File-URL: http://www.nber.org/papers/w3078.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Quantitative Criminology, vol. 9, no. 2, 1993, p. 177-202
Abstract: In this paper, we analyze the tax compliance behavior of US taxpayers by using a 1979 data set that combines information from a random sample of individual tax returns each of which has been thoroughly audited, IRS administrative records, and sociodemographic data from the Census. We find evidence that both audits and tax code provisions affect compliance. However, the effects are significant for only the low and high income groups. Interestingly, previous research has shown that these groups also participate most actively in underground economic activities, the income from which is not reported on any tax returns. Our results for audits suggest that the "ripple" or general deterrent effect of audits may be many times larger than the direct revenue yield of audits for high income taxpayers. Our results for allowable subtractions from income imply that the 1986 Tax Reform Act changes to lower allowable subtractions may have procompliance effects.
Handle: RePEc:nbr:nberwo:3078
Template-Type: ReDIF-Paper 1.0
Title: Bank Monitoring and Investment: Evidence from the Changing Structure of Japanese Corporate Banking Relationships
Author-Name: Takeo Hoshi
Author-Person: pho107
Author-Name: Anil Kashyap
Author-Person: pka35
Author-Name: David Scharfstein
Author-Person: psc177
Note: ME
Number: 3079
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3079
File-URL: http://www.nber.org/papers/w3079.pdf
File-Format: application/pdf
Publication-Status: published as Information, Capital Markets, and Investment, (ed)Glenn Hubbard, UCP, 1991, pp. 105- 126
Publication-Status: published as Hoshi, Takeo, Anil Kashyap and David Scharfstein. "Corporate Structure, Liquidity, And Investment: Evidence From Japanese Industrial Groups," Quarterly Journal of Economics, 1991, v106(1), 33-60.
Publication-Status: published as Bank Monitoring and Investment: Evidence from the Changing Structure of Japanese Corporate Banking Relationships, Takeo Hoshi, Anil Kashyap, David Scharfstein. in Asymmetric Information, Corporate Finance, and Investment, Hubbard. 1990
Abstract: During this decade the structure of corporate finance in Japan has changed dramatically. Japanese firms that once used bank debt as their prime source of financing now rely more heavily on the public capital markets. This trend was facilitated by the substantial deregulation of the Japanese capital markets. In an earlier paper (Moshi, Kashyap, and Scharfstein 1988). we demonstrated that investment by firms with close bank relationships appears to be less liquidity constrained than investment by firms without close bank ties. We interpreted this finding as evidence that bank ties tend to mitigate information problems in the capital market. This paper tracks the investment behavior of firms that have recently weakened their bank ties in favor of greater reliance on the bond market. The results suggest that these firms are now more liquidity constrained. The paper concludes with a discussion of why firms would loosen their bank ties in light of these liquidity costs.
Handle: RePEc:nbr:nberwo:3079
Template-Type: ReDIF-Paper 1.0
Title: Optimal Incentives to Domestic Investment in the Presence of Capital Flight
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Efraim Sadka
Author-Person: psa492
Note: ITI PE IFM
Number: 3080
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3080
File-URL: http://www.nber.org/papers/w3080.pdf
File-Format: application/pdf
Publication-Status: published as "Efficient Investment Incentives in the Presence of Capital Flight," Journal of International Economics, Vol. 31, pp. 171-181, (1991).
Publication-Status: published as Population Economics, Cambridge: MIT Press, 1995, chapter 9.
Abstract: This paper develops a model of an open economy which employs distortionary taxes to finance public consumption, and with an access to the world capital market. The paper examines the efficiency of quantity restrictions on capital exports and the accompanying set of taxes. A distinction is made between a benchmark case where the government can fully tax foreign-source income and a more realistic case where the government cannot effectively tax foreign-source income.
Handle: RePEc:nbr:nberwo:3080
Template-Type: ReDIF-Paper 1.0
Title: Wage and Employment Uncertainty and the Labor Force Participation Decisions of Married Women
Author-Name: Francine D. Blau
Author-Person: pbl16
Author-Name: Adam J. Grossberg
Author-Person: pgr119
Note: LS
Number: 3081
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3081
File-URL: http://www.nber.org/papers/w3081.pdf
File-Format: application/pdf
Publication-Status: published as Economic Inquiry, October 1991.
Abstract: Over the past 30 years, research on married women's labor force participation has concluded virtually without exception that the principal source of labor force participation rate growth for married women has been the concurrent growth of women's real wages. The experience of the 1970's suggests, however, that real wage growth cannot account for the increase In participation rates that occurred during that period. His paper argues that an Important determinant of married women's current participation decisions is the level of uncertainty associated with expectations of future wages, and that high levels of uncertainty during the 1970's may have contributed substantially to the growth in participation that occurred during that time. Engle's model of autoregressive conditional heteroscedasticity (ARCH) Is apply led to aggregate time series data covering the years 1956-1986 to measure the level of uncertainty at each point In time. Our estimates Indicate support for the basic hypothesis that the level of uncertainty is an important determinant of labor force participation decisions for married women.
Handle: RePEc:nbr:nberwo:3081
Template-Type: ReDIF-Paper 1.0
Title: Health Benefits of Increases in Alcohol and Cigarette Taxes
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 3082
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3082
File-URL: http://www.nber.org/papers/w3082.pdf
File-Format: application/pdf
Publication-Status: published as British Journal of Addiction, Vol. 84, No. 10, pp. 1193-1204, (October 1989).
Abstract: Health taxes on alcohol and cigarettes imposed by the Federal government of the United States have been very stable since 1951. This paper summarizes research that shows that increased taxation, which results in higher prices, would discourage alcohol abuse and cigarette smoking. One striking finding is that a policy to raise the Federal excise tax on beer in line with the rate of inflation over the last three decades would cut motor vehicle fatalities of 18 to 20 year olds, many of which are alcohol-related, by about 15 percent, saving more than 1,000 lives per year. A second is that over 800,000 premature deaths in the cohort of Americans 12 years and older in 1984 would be averted if the Federal excise tax on cigarettes were restored to its real value in 1951.
Handle: RePEc:nbr:nberwo:3082
Template-Type: ReDIF-Paper 1.0
Title: Collateral, Rationing and Government Intervention in Credit Markets
Author-Name: William G. Gale
Author-Person: pga40
Note: ME
Number: 3083
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3083
File-URL: http://www.nber.org/papers/w3083.pdf
File-Format: application/pdf
Publication-Status: published as Collateral, Rationing, and Government Intervention in Credit Markets, William G. Gale. in Asymmetric Information, Corporate Finance, and Investment, Hubbard. 1990
Abstract: This paper analyzes the effects of government intervention in credit markets when lenders use collateral, interest, and the probability of granting a loan as potential screening devices. Equilibria with and without rationing are examined. The principal theme is that credit policies operate through their effect on the incentive compatibility constraint, which inhibits high-risk borrowers from mimicking the behavior of low-risk borrowers. Any policy that loosens (tightens) the constraint raises (reduces) efficiency. Most government credit programs explicitly attempt to fund investors that cannot obtain private financing. In the model presented here, these subsidies increase the extent of rationing and reduce efficiency. In contrast, policies that subsidize the nonrationed borrowers, or all borrowers, are efficiency enhancing, and reduce the extent of rationing.
Handle: RePEc:nbr:nberwo:3083
Template-Type: ReDIF-Paper 1.0
Title: Explaining Pension Dynamics
Author-Name: Rebecca A. Luzadis
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Note: LS
Number: 3084
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3084
File-URL: http://www.nber.org/papers/w3084.pdf
File-Format: application/pdf
Publication-Status: published as Luzadis, Rebbeca A. and Olivia S. Mitchell. "Explaining Pension Dynamics." Journal of Human Resources, 26, Fall 1991: 679-703
Abstract: Some contend the US labor market will fail to adapt smoothly to an aging workforce, whereas others argue that employee pensions can and will play an important role in helping companies induce desired turnover patterns. This paper undertakes a longitudinal examination of pension retirement incentives in several dozen plans observed between about 1960 to 1980. The plans under study instituted many changes over this period, several of which enhanced the financial payoff to early retirement. These alterations included increases in benefit levels, reductions in early, normal and mandatory retirement ages, and cuts in the age at which pension present values peak (with retirement after that age penalized). We also find that simple indicators of pension plans' structural features (e.g. the plan's early retirement age) do not adequately summarize the complex financial incentives inherent in pensions, so that most of our attention is directed to analysis of financial benefit level measures. Three major explanations for observed pension outcomes are evaluated empirically. Of special policy interest is an evaluation of pension responses to changes in Social Security benefit rules. Additionally, key differences in behavior are discovered between single employer and multiemployer pension plans. We conclude that pension plan behavior is systematically related to both labor and product market characteristics, and is responsive to retirement income policy.
Handle: RePEc:nbr:nberwo:3084
Template-Type: ReDIF-Paper 1.0
Title: Evaluating Pension Policies in a Model with Endogeous Contributions
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 3085
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3085
File-URL: http://www.nber.org/papers/w3085.pdf
File-Format: application/pdf
Publication-Status: published as Pension Incentives and Job Mobility. Kalamazoo, MI: Upjohn Institutefor Employment Research, 1995.
Abstract: A model of the firm and its pension plan is used to simulate the first round effects of pension policies. Pension policies create an imbalance in the pension fund which affects the level of pension contributions and ultimately wages. Changes in the differential between compensation and productivity for individual workers alter the distributions of compensation and of incentives for retirement, mobility and effort. Policies investigated include those regulating vesting, pension calculations for early leavers, early retirees and late retirees, maximum service credits, liabilities at termination, and funding practices.
Handle: RePEc:nbr:nberwo:3085
Template-Type: ReDIF-Paper 1.0
Title: The Stampede Toward Defined Contribution Pension Plans: Fact or Fiction?
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 3086
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3086
File-URL: http://www.nber.org/papers/w3086.pdf
File-Format: application/pdf
Publication-Status: published as Industrial Relations, Vol.31, No.2, Spring 1992, pp. 361-369
Abstract: This paper questions recent conclusions that the trend towards defined contribution plans and away from defined benefit plans is due to increased pension regulation and/or a changing economic environment. Using data from IRS 5500 filings by pension administrators, we find that at least half of the trend is due to a shifting employment mix toward firms with industry, size, and union status characteristics which have historically been associated with lower defined benefit plan rates. Not more than half of the trend can be attributed to a "stampede" by firms with given industry, size, and union status characteristics toward defined contribution pension coverage.
Handle: RePEc:nbr:nberwo:3086
Template-Type: ReDIF-Paper 1.0
Title: Changing the Social Security Rules for Workers over 65: Proposed Policies and Their Effects
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS
Number: 3087
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3087
File-URL: http://www.nber.org/papers/w3087.pdf
File-Format: application/pdf
Publication-Status: published as "Changing the Social Security Rules for Work After 65." From Industrial & Labor Relations Review, Vol. 44, No. 4, pp. 733-745, (July 1991).
Abstract: This paper simulates the effects of proposals to modify procedures for adjusting the Social Security benefits of those who work after normal retirement age. A basic set of policies, currently under consideration, is projected to raise long run costs by $30 billion dollars net of taxes, while inducing an increase of 5 percent in the number of full-time male workers between the ages of 65 and 69. Alternative policies may create very different flows of funds. Outcomes, especially in the short run, will vary widely with the timing of the application decision for benefits.
Handle: RePEc:nbr:nberwo:3087
Template-Type: ReDIF-Paper 1.0
Title: Financial Integration, Liquidity and Exchange Rates
Author-Name: Vittorio Grilli
Author-Name: Nouriel Roubini
Author-Person: pro145
Note: ITI IFM
Number: 3088
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3088
File-URL: http://www.nber.org/papers/w3088.pdf
File-Format: application/pdf
Publication-Status: published as as "Liquidity and exchange rates," Journal of International Economics. Volume 32, Issues 3-4, May 1992, Pages 339-352
Publication-Status: published as Journal of International Money and Finance, 1993, vol. 12, issue 2, pages 139-153
Abstract: This paper presents a two-country extension of Lucas' (1988) work on the effects of cash-in-advance constraints in asset markets on the pricing of financial assets. The model is one where there exists some degree of separation between the goods markets and the asset markets and money is used for transactions in both markets. The main results of the paper are the following. First, the equilibrium level of the exchange rate depends on the share of money used for asset transactions: a greater share will correspond to a more appreciated exchange rate. Second, under uncertainty, liquidity effects deriving from stochastic shocks to bond creation lead to an "excess" volatility of nominal and real exchange rates even when the "fundamental" value of the exchange rate is constant. Third, capital controls in the form of taxes on foreign asset acquisitions tend to appreciate the exchange rate. Fourth, the maturity structure of the public debt affects the equilibrium exchange rate. In particular, a move towards a longer maturity structure will tend to depreciate the exchange rate.
Handle: RePEc:nbr:nberwo:3088
Template-Type: ReDIF-Paper 1.0
Title: Incentive Effects of Workers' Compensation Insurance
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 3089
Creation-Date: 1989-08
Order-URL: http://www.nber.org/papers/w3089
File-URL: http://www.nber.org/papers/w3089.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 41, No. 1, pp. 73-99, (1990).
Abstract: This paper uses Current Population Survey data on a large sample of workers to estimate the determinants of participation in state workers' compensation programs in the United States. The principal finding is Chat higher workers' compensation benefits are associated with greater participation in the workers' compensation program, after accounting for worker characteristics, state fixed effects, and other aspects of the workers' compensation law. Moreover, this result holds for both manufacturing and non-manufacturing workers. Workers' compensation benefits, however, have an insignificant effect on program participation for the sample of women. Overall, a 10% increase in benefits is associated with a 6.7% increase in program participation. In addition, the results show that the waiting period that is required before benefit payments begin has a substantial negative effect on participation in the workers' compensation program. Finally, the parameters of the cross-sectional model are used to simulate the aggregate workers' compensation incidence rate from 1969 to 1987. The growth in workers' compensation claims in the 1970s appears to correspond reasonably well co the growth in real benefits that occurred during this time period.
Handle: RePEc:nbr:nberwo:3089
Template-Type: ReDIF-Paper 1.0
Title: Consumption Growth Parallels Income Growth: Some New Evidence
Author-Name: Chris Carroll
Author-Person: pca45
Author-Name: Lawrence H. Summers
Author-Person: psu137
Note: EFG ME
Number: 3090
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3090
File-URL: http://www.nber.org/papers/w3090.pdf
File-Format: application/pdf
Publication-Status: published as National Saving and Economic Performance, eds. B. Douglas Bernheimand and John Shoven. Chicago: The University of Chicago Press, 1991. pp305-343.
Publication-Status: published as Consumption Growth Parallels Income Growth: Some New Evidence, Christopher D. Carroll, Lawrence H. Summers. in National Saving and Economic Performance, Bernheim and Shoven. 1991
Abstract: This paper argues that the versions of both permanent income and life-cycle theories which have recently become fashionable are inconsistent with the grossest features of cross-country and cross-section data on consumption and income. There is clear evidence that consumption and income growth are much more closely linked than would be predicted by these theories. it appears that consumption smoothing takes place over periods of several years not several decades. These results confirm Milton Friedman's (1957) initial view that: "The permanent income component is not to be regarded as expected lifetime earnings... It is to be interpreted as the mean income at any age regarded as permanent by the consumer unit in question, which in turn depends on its horizon and foresightedness." They call into question the usefulness of standard representative Consumer approaches to the analysis of saving behavior. And they call for increased emphasis on liquidity constraints and short run precautionary saving as determinants of consumption behavior.
Handle: RePEc:nbr:nberwo:3090
Template-Type: ReDIF-Paper 1.0
Title: Intrinsic Bubbles: The Case of Stock Prices
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: ME
Number: 3091
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3091
File-URL: http://www.nber.org/papers/w3091.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 81, No. 5, pp. 1189-1214, (December 1991).
Abstract: Several puzzling aspects of the behavior of United States stock prices can be explained by the presence of a specific type of rational bubble that depends exclusively on dividends. We call such bubbles "intrinsic" bubbles because they derive all of their variability from exogenous economic fundamentals, and none from extraneous factors. Unlike the most popular examples of rational bubbles, intrinsic bubbles provide an empirically plausible account of deviations from present-value pricing. Their explanatory potential comes partly from their ability to generate persistent deviations that appear relatively stable over long periods.
Handle: RePEc:nbr:nberwo:3091
Template-Type: ReDIF-Paper 1.0
Title: Converting Corporations to Partnerships through Leverage: Theoretical and Practical Impediments
Author-Name: Myron S. Scholes
Author-Name: Mark A. Wolfson
Note: PE ME
Number: 3092
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3092
File-URL: http://www.nber.org/papers/w3092.pdf
File-Format: application/pdf
Publication-Status: published as Debt, Taxes, and Corporate Restructuring, ed. John B. Shoven and Joel Waldfogel. Washington, DC: Brookings Institution, 1990.
Abstract: We explore the degree to which debt financing can reduce the corporate-level tax on income in the U.S.. Although we show that debt is capable of shielding the competitive rate of return on projects from the corporate-level tax, debt financing cannot shield the positive net present value portion of project returns. Since nontax factors preclude corporate activities from being 100% debt-financed, a portion of the competitive return to corporate activity is also subject to double taxation. We also consider alternative mechanisms that serve to convert the corporate tax to a personal tax (or a partnership tax). These include other claims that give rise to tax deductible payments to the corporation such as obligations to employees, lessors and suppliers. As we show, all of these alternatives are limited in their ability to eliminate the corporate-level tax.
Handle: RePEc:nbr:nberwo:3092
Template-Type: ReDIF-Paper 1.0
Title: Decentralized Investment Banking: The Case of Discount Dividend-Reinve stment and Stock-Purchase Plans
Author-Name: Myron S. Scholes
Author-Name: Mark A. Wolfson
Note: ME
Number: 3093
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3093
File-URL: http://www.nber.org/papers/w3093.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, September 1989.
Abstract: Discount dividend-reinvestment and stock-purchase plans allow shareholders to capture part of the underwriting fees incurred in new stock offerings and save sponsoring firms some of the usual underwriting costs. We tested the degree to which individual investors can profitably serve this investment banking function by implementing simple investment/trading strategies designed to capture the discounts and distribute the shares in the market. The large profits earned by our strategies raise serious questions about why it takes firms so long to raise the target level of capital and why many eligible shareholders do not participate in these discount plans.
Handle: RePEc:nbr:nberwo:3093
Template-Type: ReDIF-Paper 1.0
Title: Employee Stock Ownership Plans and Corporate Restructuring: Myths and Realities
Author-Name: Myron S. Scholes
Author-Name: Mark A. Wolfson
Note: PE ME
Number: 3094
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3094
File-URL: http://www.nber.org/papers/w3094.pdf
File-Format: application/pdf
Publication-Status: published as Financial Management, Spring 1990.
Abstract: During the first six months of 1989 U.s. corporations acquired over $19 billion of their own stock to establish employer stock ownership plans (ESOPs). We evaluate the common claims that there exist unique tax and incentive contracting advantages to establishing ESOPs. Our analysis suggests that, particularly for large firms, where the greatest growth in ESOPs has occurred, the case is very weak for taxes being the primary motivation to establish an ESOP. The case is also weak for employee incentives being the driving force behind their establishment. We conclude that the main motivation for the growth of ESOPs is their anti-takeover characteristics.
Handle: RePEc:nbr:nberwo:3094
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Changes in Tax Laws on Corporate Reorganization Activity
Author-Name: Myron S. Scholes
Author-Name: Mark A. Wolfson
Note: PE ME
Number: 3095
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3095
File-URL: http://www.nber.org/papers/w3095.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business, January 1990.
Abstract: We present evidence that changes in tax laws passed in the 1980s, culminating with the Tax Reform Act of 1986, had a first order effect on observed merger and acquisition activity in the US. We also present evidence of increased reliance on certain institutional arrangements (unit management buyouts and going-private transactions) used to effect mergers and acquisitions that were designed to reduce the nontax costs of transacting, thereby enabling tax benefits to be realized in a larger number of mergers and acquisitions than might otherwise have occurred. We begin with a "closed-economy" perspective, focusing on the effects of changes in tax laws on the demand for mergers and acquisitions of us corporations by US corporations. We then broaden the scope of inquiry by modeling and testing the effects of changes in tax laws on the demand for mergers and acquisitions of US corporations by foreign multinationals. Here we predict and present confirmatory evidence that while the 1986 Tax Act discouraged transactions among US corporations, it increased the demand for merger and acquisition transactions between US sellers and foreign buyers.
Handle: RePEc:nbr:nberwo:3095
Template-Type: ReDIF-Paper 1.0
Title: The Capital Levy in Theory and Practice
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 3096
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3096
File-URL: http://www.nber.org/papers/w3096.pdf
File-Format: application/pdf
Publication-Status: published as Public Debt Management: Theory and History, edited by Dornbusch and Dreghi , pp. 191-220. New York: Cambridge University Press, 1990.
Abstract: A capital levy is a one-time tax on all wealth holders with the goal of retiring public debt. This paper reconsiders the historical debate over the capital levy in a contingent capital taxation framework. This shows how in theory the imposition of a levy can be welfare improving when adopted to redress debt problems created by special circumstances, even if its nonrecurrence cannot be guaranteed. If the contingencies in response to which the levy is imposed are fully anticipated, independently verifiable and not under government control, then saving and investment should not fall following the imposition of the levy, nor should the government find it more difficult to raise revenues subsequently. In practice, serious problems stand in the way of implementation. A capital levy has profound distribution consequences. Property owners are sure to resist its adoption. In a democratic society, their objections are guaranteed to cause delay. This provides an opportunity for capital flight, reducing the prospective yield, and allows the special circumstances providing the justification for the levy to recede in the past. The only successful levies occur in cases like post-World War II Japan, where important elements of the democratic process are suppressed and where the fact that the levy was imposed by an outside power minimized the negative impact on the reputation of subsequent sovereign governments.
Handle: RePEc:nbr:nberwo:3096
Template-Type: ReDIF-Paper 1.0
Title: The Comparative Performance of Fixed and Flexible Exchange Rate Regimes : Interwar Evidence
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 3097
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3097
File-URL: http://www.nber.org/papers/w3097.pdf
File-Format: application/pdf
Publication-Status: published as in Niels Thysgesen et al (eds.) Business Cycles: Theories, Evidence and Analysis, London: Macmillan, 1992
Abstract: This paper reports evidence on the characteristics of fixed and flexible exchange rate regimes. It contrasts experience under three interwar exchange rate regimes: the free float of the early 1920s, the fixed rates of 1927-31, and the managed float of the early 1930s. A number of important differences across nominal exchange rate regimes emerge. Major findings include: (1) The variability of nominal exchange rates was positively associated with the freedom of the float. Nominal rates were considerably more variable under free than managed floating. (2) The reduction in nominal exchange rate variability achieved with the move from free to managed floating was not accompanied by a commensurate fall in exchange rate uncertainty. While government policy succeeded in damping spot rate fluctuations, it seems to have been subject to periodic shifts that heightened risk. (3) There was a strong association between nominal exchange rate predictability and real exchange rate predictability in both the free float of 1922-26 and the managed float of 1932-36. Together with (2), this implies that intervention of stabilize nominal rates did not guarantee a commensurate reduction in real exchange rate uncertainty. (4) There was no direct correspondence between the degree of exchange rate stability and the volume of international capital flows. Real interest differentials were larger under the managed float of the 1930s than under the free float of the 1920s. (5) Capital controls provide a major part of the explanation for differences across regimes in the magnitude of real interest differentials. Controls were considerably more prevalent under managed floating than under either free floating or fixed rates. Thus, interwar experience provides a counterexample to the popular notion that capital controls tend to be associated with fixed rate regimes.
Handle: RePEc:nbr:nberwo:3097
Template-Type: ReDIF-Paper 1.0
Title: Increasing Returns and New Developments in the Theory of Growth
Author-Name: Paul M. Romer
Author-Person: pro45
Note: EFG ITI EFG IFM
Number: 3098
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3098
File-URL: http://www.nber.org/papers/w3098.pdf
File-Format: application/pdf
Publication-Status: published as Equilibrium Theory and Applications: Proceedings of the Sixth International Symposium in Economic Theory and Econometrics, edited by William A. Barnett, Bernard Cornet, Claude d'Aspermont, Jean J. Gabszewicz and Andreu Mas-Colell, pp. 83-110. Cambridge: Cambridge University Press, 1991.
Abstract: From the beginning, growth theory has been faced with technically challenging questions about increasing returns and the way to capture ideas in a model of market exchange. Initially, reliance on perfect competition forced growth theory to narrow its scope. Recently, new tools for studying dynamic equilibria with nonconvexities, externalities, and imperfect competition have allowed growth theory to address broader questions like: Why have growth rates tended to increase over time? Why is it that flows of capital are not sufficient to equalize wages in different countries? How is it that trade policy, or aggregate research and development expenditure, or the extent of patent protection influences the rate of growth?
Handle: RePEc:nbr:nberwo:3098
Template-Type: ReDIF-Paper 1.0
Title: Quality Ladders in the Theory of Growth
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: EFG
Number: 3099
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3099
File-URL: http://www.nber.org/papers/w3099.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Economic Studies, Vol. 58, No. 193, pp. 43-61, (January 1991)
Abstract: We develop a model of repeated product improvements in a continuum of sectors. Each product follows a stochastic progression up a quality ladder. Progress is not uniform across sectors, so an equilibrium distribution of qualities evolves over time. But the rate of aggregate growth is constant. The growth rate responds to profit incentives in the R&D sector. We explore the welfare properties of our model. Then we relate our approach to an alternative one that views product innovation as a process of generating an ever expanding range of horizontally differentiated products. Finally, we apply the model to issues of resource accumulation and international trade.
Handle: RePEc:nbr:nberwo:3099
Template-Type: ReDIF-Paper 1.0
Title: The McKibbin-Sachs Global Model: Theory and Specifications
Author-Name: Warwick J. McKibbin
Author-Person: pmc14
Author-Name: Jeffrey D. Sachs
Note: ITI IFM
Number: 3100
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3100
File-URL: http://www.nber.org/papers/w3100.pdf
File-Format: application/pdf
Publication-Status: published as Brookings discussion paper #78, August 1989
Abstract: This paper presents the theoretical underpinnings of the MSG2 simulation model of the world economy. The MSG2 model is a dynamic general equilibrium model of the world economy which pays particular attention to the relation between stocks and flows and intertemporal constraints. The formation of expectations also plays an important role in the model. In the version presented here the world is divided into the U.S., Japan, Germany, the rest of the EMS, and the rest of the OECD, non-oil developing countries and OPEC.
Handle: RePEc:nbr:nberwo:3100
Template-Type: ReDIF-Paper 1.0
Title: Pension Funds and Financial Innovation
Author-Name: Zvi Bodie
Author-Person: pbo569
Note: ME
Number: 3101
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3101
File-URL: http://www.nber.org/papers/w3101.pdf
File-Format: application/pdf
Publication-Status: published as Financial Management, Vol. 19, No. 3, pp. 11-22, (Autumn 1990).
Abstract: Pension funds have played a critical role in the evolution of the markets for debt and equity securities and their derivatives in the U.S. over the last 15 years. The new securities and markets can largely be explained as responses to the investment demands of pension funds in an environment of increased interest rate volatility and tighter regulation. Defined benefit pension plans offer annuities that have a guaranteed floor specified by the benefit formula. In order to minimize the cost to the sponsor of providing this guarantee, there is a strong incentive to invest an amount equal to the present value of the accumulated benefit obligation in fixed- income securities with a matching duration. The pursuit of duration matching and related immunization strategies by pension funds has contributed to the emergence and rapid growth of markets for zero coupon bonds, GIC's, CMO's, options, and financial futures contracts. Recent changes in accounting rules (FAS 87) and tax law (OBRA) are likely to reinforce the use of immunization strategies.
Handle: RePEc:nbr:nberwo:3101
Template-Type: ReDIF-Paper 1.0
Title: Inflationary Expectations and Price Setting Behavior
Author-Name: Ray C. Fair
Author-Person: pfa24
Note: EFG
Number: 3102
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3102
File-URL: http://www.nber.org/papers/w3102.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 75, no. 1 (1993): 8-18.
Abstract: This paper tests for the existence of expectational effects in very disaggregate price equations. Price equations are estimated using monthly data for each of 40 products. The dynamic specification of the equations is also tested, including whether the equations should be specified in level form or in change form. Two expectational hypotheses are used, one in which expectations of the aggregate price level are a function of the past values of the price level and one in which expectations are rational. Under the first hypothesis the lag length is estimated along with the other parameters, and under the second hypothesis the lead length is estimated along with the other parameters. The results strongly support the hypothesis that aggregate price expectations affect individual pricing decisions. The results do not discriminate very well between the level and change forms of the price equation, although there is a slight edge for the level form. The lag and lead lengths are not estimated precisely, but in most cases the lag length is less than 30 months and the lead length is less than 5 months.
Handle: RePEc:nbr:nberwo:3102
Template-Type: ReDIF-Paper 1.0
Title: World Integration, Competitive and Bargaining Regimes Switch: an Exploration
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI IFM
Number: 3103
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3103
File-URL: http://www.nber.org/papers/w3103.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, May 1994, pp. 459-483
Abstract: The purpose of this paper is to study the role of an endogenous switch from a competitive to a bargaining international equilibrium. We consider two trading blocks, which can engage in a free-market determined trade, or a bargaining dictated trade. Bargaining can be called for by either pany, and it may involve a fixed real cost. We propose a framework in order to deal with these issues. We apply such a framework to a symmetric global environment, where the bargaining equilibrium is shown to offer an international diversification of the countryspecific shocks, whereas the competitive equilibrium retains the country specific nature of the shocks. The degree of trade dependency is shown to determine the risk diversification achieved via the bargaining process, the frequency of bargaining, and the volume of trade. An increase in the relative importance of the trade dependent activities is associated with greater international diversification of country-specific shocks, and with a greater frequency of bargaining. We derive the optimal investment -- less costly bargaining will move us towards a comer solution, where trade dependency and local shock diversification are maximized. With positive bargaining costs, we will observe an internal solution with smaller diversification of local shocks. In such an environment the choice of optimal trade dependency balances at the margin the expected diversification against the costs of bargaining.
Handle: RePEc:nbr:nberwo:3103
Template-Type: ReDIF-Paper 1.0
Title: The Fisherian Time Preference and the Ebolution of Capital Ownership Patterns in a Global Economy
Author-Name: Kyoji Fukao
Author-Person: pfu14
Author-Name: Koichi Hamada
Note: ITI IFM
Number: 3104
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3104
File-URL: http://www.nber.org/papers/w3104.pdf
File-Format: application/pdf
Abstract: Conventionally economic growth theory was based on the assumption of a constant rate of time preference. Uzawa (1968) and Obstfeld (~, 1981) introduced the rate of time preference that increases with the utility level. Irving Fisher (The Theory of Interest) has a different opinion, however, that people are more time impatient at the lower level of income. This paper assumes a non-monotonic time preference schedule such that people are more patient at the middle income levels and are less patient when they are either very poor or rich. Based on a nonlinear savings function out of wealth implied by such a time-preference schedule, this paper develops a single-good, multi-country growth model of a global economy with free capital mobility. The long-run property of this System is characterized by three kinds of long-run equilibrium: the starvation (fatal attractor) equilibrium, the imperialism equilibria dominated by a nation or by a group of nations, and the co-prosperity equilibrium where the wealth and the income of countries in the system grow proportionately. Bifurcation phenomena and the global stability of the system by the Lyapunov function will be discussed. Our system has a strong resemblance to some models of ecology where species compete for their survival (May, Stability and Complexity in Model Ecosystems). Here we can properly analyze the transition of a debtor to a creditor country from a global perspective, and make a case for the pump-priming foreign aid or debt relief policy.
Handle: RePEc:nbr:nberwo:3104
Template-Type: ReDIF-Paper 1.0
Title: A Shred of Evidence on Theories of Wage Stickiness
Author-Name: Alan S. Blinder
Author-Person: pbl41
Author-Name: Don H. Choi
Note: EFG
Number: 3105
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3105
File-URL: http://www.nber.org/papers/w3105.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol.55, No.issue 4, pp.1003-1015, November 1990.
Abstract: A small interview survey was undertaken to see how actual wage-setters would react to the central. ideas of several economic theories of wage stickiness. Wage cuts were surprisingly prevalent in recent years, despite the booming economy. The strongest finding was that managers believe that perceptions of fairness play a major motivational role in labor markets; and that a "fair" wage policy is a good deal more complicated than simply not cutting wages. We also found substantial evidence for money illusion and against the adverse-selection version of the efficiency wage model.
Handle: RePEc:nbr:nberwo:3105
Template-Type: ReDIF-Paper 1.0
Title: An Equilibrium Theory of Excess Volatility and Mean Reversion in Stock Market Prices
Author-Name: Alan J. Marcus
Author-Person: pma1156
Note: ME
Number: 3106
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3106
File-URL: http://www.nber.org/papers/w3106.pdf
File-Format: application/pdf
Abstract: Apparent mean reversion and excess volatility in stock market prices can be reconciled with the Efficient Market Hypothesis by specifying investor preferences that give rise to the demand for portfolio insurance. Therefore, several supposed macro anomalies can be shown to be consistent with a rational market in a simple and parsimonious model of the economy. Unlike other models that have derived equilibrium mean reversion in prices, the model in this paper does not require that the production side of the economy exhibit mean reversion. It also predicts that mean reversion and excess volatility will differ substantially across subperiods.
Handle: RePEc:nbr:nberwo:3106
Template-Type: ReDIF-Paper 1.0
Title: Liquidity Constraints in Production Based Asset Pricing Models
Author-Name: William A. Brock
Author-Person: pbr142
Author-Name: Blake LeBaron
Author-Person: ple1
Note: ME
Number: 3107
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3107
File-URL: http://www.nber.org/papers/w3107.pdf
File-Format: application/pdf
Publication-Status: published as Liquidity Constraints in Production-Based Asset-Pricing Models, William A. Brock, Blake LeBaron. in Asymmetric Information, Corporate Finance, and Investment, Hubbard. 1990
Abstract: This paper explores the time series implications of introducing credit constraints into a production based asset pricing model. Simulations are performed choosing parameter values which generate reasonable values for aggregate fluctuations. These results show that mean reversion in simulated returns series, measured by variance ration tests, is enhanced with the introduction of binding credit constraints. Without these constraints there is very little evidence of mean reversion. This is consistent with financial market data where the weak evidence for mean reversion is stronger in small firm returns. Other tests are run on the simulated series including checking the standard deviation, skewness, and kurtosis. These other tests do not show strong differences between the constrained and unconstrained firms in the model.
Handle: RePEc:nbr:nberwo:3107
Template-Type: ReDIF-Paper 1.0
Title: Striking for a Bargain Between Two Completely Informed Agents
Author-Name: Raquel Fernandez
Author-Person: pfe17
Author-Name: Jacob Glazer
Author-Person: pgl69
Note: LS
Number: 3108
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3108
File-URL: http://www.nber.org/papers/w3108.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, March 1991.
Abstract: This paper models the wage-contract negotiation procedure between a union and a firm as a sequential bargaining process in which the union also decides, in each period, whether or not to strike for the duration of that period. We show that there exist subgame-perfect equilibria in which the union engages in several periods of strikes prior to reaching a final agreement, although both parties are completely rational and fully informed. This has implications for other inefficient phenomena such as tariff wars, debt negotiations, and wars in general. We characterize the set of equilibria, show that strikes can occur in real time, and discuss extensions of the model such as lockouts and the possibility of multiple recontracting opportunities.
Handle: RePEc:nbr:nberwo:3108
Template-Type: ReDIF-Paper 1.0
Title: Asset Prices and Interest Rates in Cash-In-Advance Models
Author-Name: Alberto Giovannini
Author-Name: Pamela Labadie
Author-Person: pla413
Note: ME
Number: 3109
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3109
File-URL: http://www.nber.org/papers/w3109.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Volume 6, No. 5, December 1991
Abstract: This paper develops a method to solve and simulate cash-in-advance models of money and asset prices. The models are calibrated to US data spanning the period from 1890 to 1987 and are used to study some empirical regularities observed in the US data over this period. The phenomena which are the focus of the paper include the average level of stock returns and returns on nominal bonds, the covariation of realized real interest rates and real asset returns with inflation, and the ability of nominal interest rates to predict inflation and nominal stock returns.
Handle: RePEc:nbr:nberwo:3109
Template-Type: ReDIF-Paper 1.0
Title: The Stolper-Samuelson Theorem Reconsidered: An Example of Ricardian Dynamic Trade Effects
Author-Name: Richard E. Baldwin
Author-Person: pba124
Note: ITI IFM
Number: 3110
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3110
File-URL: http://www.nber.org/papers/w3110.pdf
File-Format: application/pdf
Abstract: Standard trade theory views the capital stock as an endowment. However, trade policy can affect a country's steady-state capital stock. By ignoring the endogeneity of capital, standard analysis is incomplete and can be misleading. For instance, when capital in endogenous, the Stolper-Samuelson theorem incorrectly predicts the long-run impact of a tariff n factor rewards in a 2-by-2 trade model. Moreover, the output effects of a trade policy can be greatly amplified by its indirect effect on the steady-state capital stock. Since this indirect effect may take a very long time to be fully realized, trade policy can have a long-lasting effect on growth. Ricardo first studied this link between trade and steady-state factor supplies.
Handle: RePEc:nbr:nberwo:3110
Template-Type: ReDIF-Paper 1.0
Title: Corporate Payouts and the Tax Price of Corporate Retentions: Evidence from the Undistributed Profits Tax of 1936-1938
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Peter C. Reiss
Note: ME
Number: 3111
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3111
File-URL: http://www.nber.org/papers/w3111.pdf
File-Format: application/pdf
Abstract: Many provisions of the U.S. tax code affect corporate decisions to pay out or retain earnings. Most studies of these effects have examined the effects of dividend and capital gains taxes on payouts. Relatively few studies have considered the effects of corporate taxes on retentions. In the early 1900s, the United States experimented with several corporate taxes on retentions. These taxes increased the price of corporate retentions, thereby encouraging corporate payouts. This paper studies the response of corporations to the most significant of these experiments the Undistributed Profits Tax of 1936-1938. While the U.S. no longer directly taxes corporate retentions, our study provides empirical results relevant to two recent policy debates. First, to the extent that corporate payouts did respond significantly to a change in the corporate price of retentions, we can learn more about the implicit prices corporations place on internal funds. These estimates enable us better understand the effects of government policies designed to encourage corporate reinvestment. Second, our study provides evidence relevant to several recent proposals designed to resolve managerial agency problems. These proposals require managers to payout their "free" cash flows as a way of committing not to waste financial capital. The Undistributed Profits Tax of 1936-1938 had a similar goal. Its maximum marginal tax rate of 27 percent on corporate retentions gave managers strong incentives to pay out retained earnings. We study the effects of the Undistributed Profits Tax on corporate payouts using a panel data set on 26 large petroleum companies. These data have a number of advantages, not the least of which is the relative homogeneity of petroleum firms' investment opportunities. We find that on average corporate payout policies did respond significantly to the surtax in 1936, the first year of the tax. There was much less of a response in 1937, and practically none in the last year, 1938. The smaller payouts in 1937 and 1938 suggest that managers were able to find margins other than dividends through which they could reduce their tax burden. These other margins included the short-term manipulation of expenses and delays in recognizing revenues. These responses suggest that managers place a relatively high valuation on internal versus external funds. They also suggest that proposals that would require managers to payout free cash flows must resolve an important incentive problem -- how to get managers to reveal fully what cash flows are "free." Finally, our results document the importance of recognizing behavioral responses to taxes. That is, firms may respond to changes in relative tax prices by finding other margins by which they can reduce their tax burdens.
Handle: RePEc:nbr:nberwo:3111
Template-Type: ReDIF-Paper 1.0
Title: Capital Controls and International Trade Finance
Author-Name: Alberto Giovannini
Author-Name: Jan Won Park
Note: ITI IFM
Number: 3112
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3112
File-URL: http://www.nber.org/papers/w3112.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Volume 33, No.3/4, pp. 285-304 November 1992
Abstract: This paper studies the effects of prohibiting individuals from holding foreign assets, and of allowing firms to trade in foreign assets only up to what is needed to finance export and import activities. Although firms can perform arbitrage between domestic and foreign financial markets, the distortions in asset markets are not fully arbitraged away but instead they are transmitted to domestic goods market. The paper discusses the effects of shocks in foreign financial markets and in domestic fiscal policy. We show that the dynamics and steady states are crucially affected by capital controls.
Handle: RePEc:nbr:nberwo:3112
Template-Type: ReDIF-Paper 1.0
Title: Social Security and the Determinants of Full and Partial Retirement: A Competing Risks Analysis
Author-Name: Glenn T. Sueyoshi
Note: PE
Number: 3113
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3113
File-URL: http://www.nber.org/papers/w3113.pdf
File-Format: application/pdf
Abstract: Empirical analyses of retirement typically assume a single form of retirement. In this paper, I consider the determinants of retirement in a competing risks model which allows for full and partial retirement. Simulation results indicate that the large increase in Social Security benefits in the early 1970s has had moderate effects upon retirement, increasing the probability of early full retirement (before age 65) by less than 5 percent and reducing the probability of partial retirement by 1-2 percent.
Handle: RePEc:nbr:nberwo:3113
Template-Type: ReDIF-Paper 1.0
Title: Introducing Risky Housing and Endogenous Tenure Choice into Portfolio- Based General Equilibrium Models
Author-Name: Patric H. Hendershott
Author-Name: Yunhi Won
Note: PE
Number: 3114
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3114
File-URL: http://www.nber.org/papers/w3114.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics 48, pp. 293-316 (1992). August 1992
Abstract: Portfolio-based general equilibrium models are useful for analyzing the interaction between the structure of individual tax rates and the way particular assets are taxed, for considering the role of differential tax rules and risk in determining household portfolio choices, and for addressing distributional questions. Unfortunately, current versions of these models give housing short shrift; owner housing is assumed to be riskless, rental housing is not a separately identifiable asset, and tenure choice is of necessity exogenously determined. This paper shows how these models can be extended to incorporate a full housing subsector and uses an extended version of the Galper-Lucke-Toder (GLT) model to analyze the impact of the 1986 Tax Act. The interest rate impacts of the extended model are similar to those of GLT: a sharp decline in the fully taxable rate (just over a percentage point), a noticeable fall in the corporate equity rate (two-thirds of a point) and increases in the returns on noncorporate equity and tax-exempt bonds. The capital stock effects are different owing to endogenous tenure choice, the riskiness of owner housing, and the smaller initial holdings of owner housing by high income households. The owner housing stock increases by 3 percent, the increase corning roughly 50/50 from rental housing and state and local capital. The homeownership rate rises by one-half percentage point, virtually all of the increase occurring for households with incomes under $30,000. The small utility gains, $14 billion, are roughly comparable to those of the GLT model. While most of the gains go to high income households, other households also gain, unlike the results originally reported in GLT, which contained computational errors.
Handle: RePEc:nbr:nberwo:3114
Template-Type: ReDIF-Paper 1.0
Title: AIL Theory and the Ailing Phillips Curve: A Contract Based Approach to Aggregate Supply
Author-Name: Roger E.A. Farmer
Author-Person: pfa3
Note: ME
Number: 3115
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3115
File-URL: http://www.nber.org/papers/w3115.pdf
File-Format: application/pdf
Publication-Status: published as Roger E.A. Farmer, 1989. "AIL theory and the ailing Phillips curve: a contract based approach to aggregate supply," Proceedings, Federal Reserve Bank of San Francisco.
Publication-Status: published as AIL Theory and the Ailing Phillips Curve: A Contract-Based Approach to Aggregate Supply, Roger E. A. Farmer. in Asymmetric Information, Corporate Finance, and Investment, Hubbard. 1990
Abstract: This paper presents empirical evidence from U.S. data of a structurally stable aggregate supply relationship between real and nominal rates of interest and the rate of unemployment. The paper reviews theories of contracts that are based on the twin assumptions of asymmetric information and limited collateral and it argues that these theories (referred to as A.I.L. theories) provide a strong theoretical foundation for a contract-based theory of aggregate supply. It is suggested that the original Phillips curve estimates should be reinterpreted in the light of A.I.L. theories which represent alternatives to the Phelps-Friedman interpretation of the Phillips relationship.
Handle: RePEc:nbr:nberwo:3115
Template-Type: ReDIF-Paper 1.0
Title: Investment, Finacial Factors and Cash Flow: Evidence From UK Panel Data
Author-Name: Michael Devereux
Author-Person: pde32
Author-Name: Fabio Schiantarelli
Author-Person: psc8
Note: ME
Number: 3116
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3116
File-URL: http://www.nber.org/papers/w3116.pdf
File-Format: application/pdf
Publication-Status: published as Investment, Financial Factors, and Cash Flow: Evidence from U.K. Panel Data, Michael Devereux, Fabio Schiantarelli. in Asymmetric Information, Corporate Finance, and Investment, Hubbard. 1990
Abstract: In this paper we provide some econometric evidence on the impact of financial factors like cash flow, debt and stock measures of liquidity on the investment decisions of U. K. firms. These variables are introduced via an extension of the Q model of investment which explicitly includes agency/financial distress costs. We discuss if the significance of cash flow may be due to the fact that it proxies for output or because it is a better measure of market fundamentals than Q. Moreover we investigate if the effect of financial factors varies across different types of firms, according to size, age, and type of industry (growing and declining). We analyze the determinants of the magnitude of the cash flow effect and explain why caution must be exercised in attributing inter-firm differences only to differences in the importance of agency or financial distress costs.
Handle: RePEc:nbr:nberwo:3116
Template-Type: ReDIF-Paper 1.0
Title: Solving Nonlinear Stochastic Growth Models: A Comparison of Alternative Solution Methods
Author-Name: John B. Taylor
Author-Person: pta174
Author-Name: Harald Uhlig
Author-Person: puh1
Note: EFG
Number: 3117
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3117
File-URL: http://www.nber.org/papers/w3117.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business & Economic Statistics, Vol. 8, No. 1, pp. 1-17, (January 1990).
Abstract: The purpose of this paper is to report on a comparison of several alternative numerical solution techniques for nonlinear rational expectations models. The comparison was made by asking individual researchers to apply their different solution techniques to a simple representative agent, optimal, stochastic growth model. Decision rules as well as simulated time series are compared. The differences among the methods turned out to be quite substantial for certain aspects of the growth model. Therefore, researchers might want to be careful not to rely blindly on the results of any chosen numerical solution method in applied work.
Handle: RePEc:nbr:nberwo:3117
Template-Type: ReDIF-Paper 1.0
Title: The Non-Optimality of Optimal Trade Policy: The U.S. Automobile Indust ry Revisited, 1979-1985
Author-Name: Kala Krishna
Author-Person: pkr26
Author-Name: Kathleen Hogan
Author-Name: Phillip Swagel
Author-Person: psw34
Note: ITI IFM
Number: 3118
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3118
File-URL: http://www.nber.org/papers/w3118.pdf
File-Format: application/pdf
Publication-Status: published as Empirical Studies of Strategic Trade Policyedited by Paul Krugman and Alasdair Smith University of Chicago Press; 1994
Abstract: We examine the sensitivity of simple calibration models of trade in imperfectly competitive industries to changes in model specification, as well as to changes in the calibration parameters. We find that not just the magnitude, but also the sign of the optimal trade policies is very sensitive to the change in model specification. Indeed, use of policies derived from the 'wrong' model can reduce welfare from the status quo. However, the welfare gains to be obtained from application of the 'correct' model remain limited. Calibration models nonetheless provide useful estimates of firm and market behavior over time, as well as disaggregated elasticities of demand. We conclude that careful empirical work is necessary to guide model selection. For the present, the case for activist trade policy on the basis of calibration models should not be made.
Handle: RePEc:nbr:nberwo:3118
Template-Type: ReDIF-Paper 1.0
Title: The Growth Effects of 1992
Author-Name: Richard Baldwin
Author-Person: pba124
Note: ITI IFM
Number: 3119
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3119
File-URL: http://www.nber.org/papers/w3119.pdf
File-Format: application/pdf
Publication-Status: published as Economic Policy, No. 9, pp. 1-42, (1989).
Abstract: This paper demonstrates that several types of dynamic trade effects can be easily quantified, at least roughly. These dynamic effects on output are found to be much larger than the static effects measured by existing empirical studies of trade liberalizations. The paper exposits and measures the Ricardian dynamic trade effect (the link between trade and steady-state level of productive factors). It also exposits and measures the Grossman-Helpman dynamic trade effect (the link between trade and the steady-state rate of accumulation of productive factors) by calibrating two of the "new" growth theory models.
Handle: RePEc:nbr:nberwo:3119
Template-Type: ReDIF-Paper 1.0
Title: Economic Growth in a Cross Section of Countries
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 3120
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3120
File-URL: http://www.nber.org/papers/w3120.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. CVI, No. 425, pp. 407-443, (May 1991).
Abstract: In neoclassical growth models with diminishing returns to capital, a country's per capita growth rate tends to be inversely related to its initial level of income per person. This convergence hypothesis seems to be inconsistent with the cross-country evidence, which indicates that per capita growth rates for about 100 countries in the post-World War II period are uncorrelated with the starting level of per capita product. However, if one holds constant measures of initial human capital-measured by primary and secondary school-enrollment rates - there is evidence that countries with lower per capita product tend to grow faster. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. These results on growth, fertility, and investment are consistent with some recent theories of endogenous economic growth. With regard to government, the cross-country data indicate that government consumption is inversely related to growth, whereas public investment has little relation with growth. Average growth rates are positively related to political stability, which may capture the benefits of secure property rights. There is also some indication that distortions of investment-goods prices are adverse for growth. Finally, the analysis leaves unexplained a good deal of the relatively weak growth performances of countries in sub- Saharan Africa and Latin America.
Handle: RePEc:nbr:nberwo:3120
Template-Type: ReDIF-Paper 1.0
Title: Debt Write-Downs and Debt-Equity Swaps in the Two Sector Model
Author-Name: Linda S. Goldberg
Author-Person: pgo256
Author-Name: Mark Spiegel
Author-Person: psp18
Note: ITI IFM
Number: 3121
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3121
File-URL: http://www.nber.org/papers/w3121.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, vol. 33, (November 1992), p. 267-283
Abstract: "Debt overhang" models have motivated the possibility of Pareto-improving "market-based debt-reduction schemes" under an assumption of creditor seizure in bad states. These models usually reach the conclusion that while pure debt forgiveness is in the interest of debtor nations, debt repurchase programs are not. This paper introduces a "safe sector" into the debtor nation which is unexposed to seizure during default states. Two important results which emerge are that debt forgiveness is not necessarily in the interest of all debtors, and the potential for Pareto-improving debt-equity swaps is magnified.
Handle: RePEc:nbr:nberwo:3121
Template-Type: ReDIF-Paper 1.0
Title: The Gold Standard Since Alec Ford
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 3122
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3122
File-URL: http://www.nber.org/papers/w3122.pdf
File-Format: application/pdf
Publication-Status: published as Capital, Labor and Gold: Essays in Honor of Alec Ford; Cambridge University Press, Cambridge, 1992
Publication-Status: published as The Gold Standard in Theory and History, Eichengreen, Barry and Marc Flandreau, eds., second edition, Rowdedge, 1997 (abridged version reprinted
Abstract: This paper surveys studies of the operation of the classical gold standard published subsequent to the appearance of Alec Ford's The Gold Standard 1880-1914: Britain and Argentina in 1962. Contributions tend to fall under two headings: those which emphasize stock equilibrium in money markets (examples of the so-called "monetary approach") and those which emphasize instead stockflow interactions in bond markets. The paper then addresses the perennial question of how the gold standard worked. A central element of my explanation for the stability of the gold standard at the center is the credibility of the official commitment to gold. Knowing that policymakers would intervene in defense of the gold standard, markets responded in the same direction in anticipation of official action. Hence the need for actual intervention was minimized. Credibility derived from the fact that the commitment to the gold standard was international. Central banks like the Bank of England could rely on foreign assistance in times of exceptional stress. Again, the need for actual assistance was minimized because the commitment to offer it was fully credible. Thus, international cooperation is a central element of my explanation of how the classical gold standard worked.
Handle: RePEc:nbr:nberwo:3122
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Immigration on the Labor Market Outcomes of Natives
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 3123
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3123
File-URL: http://www.nber.org/papers/w3123.pdf
File-Format: application/pdf
Publication-Status: published as John Abowd and Richard Freeman, editors. Immigration, Trade and Labor. Chicago: The University of Chicago Press, 1991.
Publication-Status: published as The Effects of Immigration on the Labor Market Outcomes of Less-skilled Natives, Joseph G. Altonji, David Card. in Immigration, Trade, and the Labor Market, Abowd and Freeman. 1991
Abstract: This paper examines the effects of immigration on the labor market outcomes of less-skilled natives. Working from a simple model of a local labor market, we show that the effects of immigration can be estimated from the correlations between the fraction of immigrants in a city and the employment and wage outcomes of natives. The size of the effects depend on the fraction and skill composition of the immigrants. We go on to compute these correlations using city-specific outcomes for individuals in 120 major SMSA's in the 1970 and 1980 Censuses. We also use the relative industry distributions of immigrants and natives to provide a direct assessment of the degree of labor market competition between them. Our empirical findings indicate a modest degree of competition between immigrants and less-skilled natives. A comparison of industry distributions shows that an increase in the fraction of immigrants in the labor force translates to an approximately equivalent percentage increase in the supply of labor to industries in which less-skilled natives are employed. Based on this calculation, immigrant influws between 1970 and 1980 generated 1-2 percent increases in labor supply to these industries in most cities. A comparison of industry distributions of less-skilled natives in high- and low-immigrant share cities between 1970 and 1980 shows some displacement out of low-wage immigrant-intensive industries. We find little effect of immigration on the employment outcomes of the four race/sex groups that we consider. Our estimates of the effect of immigration on the wages of less-skilled natives are sensitive to the specification and estimation procedure. However, our preferred estimates, which are based on first differences between 1980 and 1970 and the use of instrumental variables to control for the endogeneity of immigrant inflows, imply that an increase in immigrants equal to 1 percent of an SMSA's population reduces native wages by roughly 1.2 percent.
Handle: RePEc:nbr:nberwo:3123
Template-Type: ReDIF-Paper 1.0
Title: International Monetary Instability Between the Wars: Structural Flaws or Misguided Policies?
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI IFM
Number: 3124
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3124
File-URL: http://www.nber.org/papers/w3124.pdf
File-Format: application/pdf
Publication-Status: published as The Evolution of the International Monetary System, edited by Yoshio Suzuki , Junichi Miyake, and Mitsuaki Okabe, pp. 71-116. Tokyo: University of Tokyo Press, 1990.
Abstract: This paper reassesses the history of the international monetary system between the wars. It confirms the generality of several widely held interpretations of recent experience with floating exchange rates. There is a positive association between nominal exchange rate variability and real exchange rate variability. But policies of intervention which reduce nominal exchange rate variability do not guarantee a proportionate reduction in nominal exchange rate risk or in real exchange rate variability and unpredictability. A credible commitment to a stable intervention rule is needed to deliver these benefits. The paper then goes on to consider four potential explanations for the collapse of the fixed rate regime that prevailed from 1926 through 1931: (1) failure to play by the "rules of the game", (2) inadequate international economic leadership by the United States, (3) inadequate cooperation among the leading gold standard countries, and (4) structural features of a system in which reserves were comprised of both gold and foreign exchange. It concludes by assessing the role of the international monetary system in the Great Depression.
Handle: RePEc:nbr:nberwo:3124
Template-Type: ReDIF-Paper 1.0
Title: A Multi-Country Study of the Information in the Term Structure about Future Inflation
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG ME
Number: 3125
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3125
File-URL: http://www.nber.org/papers/w3125.pdf
File-Format: application/pdf
Publication-Status: published as "A Multi-Country Study of the Information in the Shorter Maturity Term Structure about Future Inflation." From Journal of International Money and Finance, Vol. 10, No. 1, pp. 2-22, (March 1991).
Abstract: This paper provides evidence on what the term structure (for maturities of twelve months or less) tells us about future inflation in ten OECD countries. The empirical results on the information in the term structure contrast with those that find that the level of interest rates help forecast the future level of inflation. Instead, they indicate that for the majority of the countries in the sample, the term structure does not contain a great deal of information about the future path of inflation. The results for France, the United Kingdom and Germany tell a different story, however. In these countries, the term structure contains a highly significant amount of information about future changes in inflation. The evidence in this paper suggests that central banks for most of the countries studied here should exercise some caution in using the term structure of interest rates as a guide for assessing inflationary pressures in the economy, as is currently under consideration in the U.S. central bank. Although there is significant information in the term structure about the future path of inflation for a few of the countries, this is not a result that is true in general. The empirical evidence does reveal, however, that for every country studied except the United Kingdom, there is a great deal of information in the term structure of nominal' interest rates about the term structure of real' interest rates. This finding is an extremely useful one because it suggests that for most countries researchers can examine observable data on the nominal term structure to provide them with information about the behavior of the real' term structure.
Handle: RePEc:nbr:nberwo:3125
Template-Type: ReDIF-Paper 1.0
Title: The Information in the Longer Maturity Term Structure about Future Inflation
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG ME
Number: 3126
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3126
File-URL: http://www.nber.org/papers/w3126.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, Vol. CV, No. 442, pp. 815-828, (August 1990).
Abstract: This paper provides empirical evidence on the information in the term structure for longer maturities about both future inflation and the term structure of real interest rates. The evidence indicates that there is substantial information in the longer maturity term structure about future inflation: the slope of the term structure does have a great deal of predictive power for future changes in inflation. On the other hand, at the longer maturities, the term structure of nominal interest rates contains very little information about the term structure of real interest rates. These results are strikingly different from those found for very short-term maturities, six months or less, in previous work. For maturities of six months or less, the term structure contains no information about the future path of inflation, but it does contain a great deal of information about the term structure of real interest rates. The evidence in this paper does indicate that, at longer maturities, the term structure of interest rates can be used to help assess future inflationary pressures: when the slope of the term structure steepens, it is an indication that the inflation rate will rise in the future and when the slope falls, it is an indication that the inflation rate will fall. However, we must still remain cautious about using the evidence presented here to advocate that the Federal Reserve should target on the term structure in conducting monetary policy. A change in Federal Reserve operating procedures which focuses on the term structure may well cause the relationship between the term structure and future inflation to shift, with the result that the term structure no longer remains an accurate guide to the path of future inflation. If this were to occur, Federal Reserve monetary policy could go far astray by focusing on the term structure of interest rates.
Handle: RePEc:nbr:nberwo:3126
Template-Type: ReDIF-Paper 1.0
Title: The Evolution of Unjust-Dismissal Legislation in the United States
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 3127
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3127
File-URL: http://www.nber.org/papers/w3127.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review, Volume 44, Number 4, July 1991, pp. 644-660.
Abstract: In the last decade, state courts in many areas of the United States have ruled in favor of employees alleqing they were improperly dismissed. Many economists have contended that any judical or legislative departure from the employment-at-will doctrine is regressive and inefficient because it restricts employment flexibility and freedom of contact. This paper advances an evolutionary theory of unjust-dismissal leqislation in which employer groups eventually support unjust-dismissal leqislation in response to the threat of large and variable damage awards imposed by the judicial system. Legislation is sought to clearly define property rights and to limit employer liability. In comparison to the common law, the unjust-dismissal laws that have been proposed are likely to result in smaller awards, reduce uncertainty, resolve disputes rapidly, and reduce legal and other transaction costs. An institutional and empirical analysis supports the conclusion that the proposal of unjust-dismissal leqislation is a response to court rulings that weaken and obfuscate the employers' right to dismiss employees at will. This evidence is inconsistent with the conventional political-economy view of unjust-dismissal leqislation.
Handle: RePEc:nbr:nberwo:3127
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Election Timings and Political Business Cycles in Japan
Author-Name: Takatoshi Ito
Note: ME
Number: 3128
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3128
File-URL: http://www.nber.org/papers/w3128.pdf
File-Format: application/pdf
Publication-Status: published as "The Timing of Elections and Political Business Cycles in Japan," Journal of Asian Economics, Vol. 1, No. 1, March 1990, pp. 135-156.
Abstract: This paper constructs a theoretical model of political business cycles in a Parliamentary system and tests predictions and hypotheses of a theoretical model against the post-war Japanese data. Unlike in a presidential system, the timing of a general election is an endogenous policy variable in a parliamentary system. Thus, one of the interesting questions in a parliamentary system is whether elections cause business cycles or economic expansions trigger general elections. Empirical analyses of the post-war Japanese experience strongly indicate that the Japanese government did not manipulate policies in anticipation of approaching elections as political business cycle theories in a presidential system indicate. Instead, general elections were usually held during times of autonomous economic expansion. In other words, the Japanese government opportunistically manipulated the timing of elections rather than the economy.
Handle: RePEc:nbr:nberwo:3128
Template-Type: ReDIF-Paper 1.0
Title: International Differences in Capital Taxation and Corporate Borrowing Behavior: Evidence from the U.S. Withholding Tax
Author-Name: Leslie E. Papke
Author-Person: ppa153
Note: PE
Number: 3129
Creation-Date: 1989-09
Order-URL: http://www.nber.org/papers/w3129
File-URL: http://www.nber.org/papers/w3129.pdf
File-Format: application/pdf
Abstract: Securities transactions in the U.S. climbed on a net basis from $19 billion in 1983 to $50 billion in 1985. This rise was due almost entirely to an increase in foreign purchases of U.S. securities - largely corporate and government bonds. One reason suggested for this phenomenon is foreign investors' perception that the U.S. is a safe haven: there are strong investment fundamentals in the U.S. relative to other industrialized countries. Moreover, since the summer of 1984, these instruments have been free from withholding tax on interest paid to foreign holders of notes and bonds issued by U.S. entities. Recently, there has been discussion of re-imposing the withholding tax. A common counter argument to re-imposition is that such a tax is notoriously ineffective at raising revenue. As evidence, opponents point to the U.S. experience with the now-repealed withholding tax on the interest earned by foreigners. This paper explains the reasons that the tax was ineffectual. It is essentially a case study of the earlier U.S. experience with a withholding tax. In particular, the paper focuses on corporate borrowing behavior during the tenure of the tax and the change which took place after repeal.
Handle: RePEc:nbr:nberwo:3129
Template-Type: ReDIF-Paper 1.0
Title: Unit Roots in Real GNP: Do We Know, and Do We Care?
Author-Name: Lawrence J. Christiano
Author-Person: pch45
Author-Name: Martin Eichenbaum
Author-Person: pei4
Note: EFG
Number: 3130
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3130
File-URL: http://www.nber.org/papers/w3130.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie Rochester Conference Series on Public Policy, Vol. 32, pp. 7-61, Spring 1990.
Publication-Status: published as Christiano, Lawrence J. & Eichenbaum, Martin, 1990. "Unit roots in real GNP: Do we know, and do we care?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 7-61, January.
Abstract: No, and maybe not. [additional text from author's introduction] To us, the possibility of providing a compelling case that real GMP is either trend or difference stationary seems extremely small, certainly on the basis of post-war data. This is because there is only one difference between these two types of processes and that difference is completely summarized by the answer to the question. How much should an innovation to real GMP affect the optimal forecast of real GMP into the infinite future? If the answer is zero, then real GMP is trend stationary. If the answer is not zero, then real GMP is difference stationary. The competing hypotheses have no other testable differences. Once we pose the question in this way, it seems clear that economists ought to be extremely skeptical of any argument that purports to support one view or the other. Simply put, it's hard to believe that a mere 40 years of data contain any evidence on the only experiment that is relevant.
Handle: RePEc:nbr:nberwo:3130
Template-Type: ReDIF-Paper 1.0
Title: Cost and Price Movements in Business Cycle Theories and Experience: Hypotheses of Sticky Wages and Prices (SEE ALSO WP3132-send out together)
Author-Name: Victor Zarnowitz
Note: EFG
Number: 3131
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3131
File-URL: http://www.nber.org/papers/w3131.pdf
File-Format: application/pdf
Abstract: In the post-World War II period, wage and price levels reacted much less to business contractions than they did in earlier times. Inflation prevailed and its persistence increased. The contractions themselves became relatively short and mild. All these developments have some common roots in the major structural, institutional, and policy changes of the era. This paper takes a look at the assumptions concerning wage and price behavior in types of contemporary macroeconomic theories and their implications for the analysis of the business cycle. The various hypotheses of real and nominal "rigidities" are then related to each other and to alternative theories of how markets clear. Long-term stable wage and price arrangements or contracts have important equilibrium aspects that are consistent with high degrees of competition; or, to put it differently, there are good reasons for market clearing by nonprice mechanisms. Further, imperfections of competition, information, and markets make some stickiness of wages and prices inevitable. Changes in relative prices and costs, productivity, and profitability play an important role in the process of propagation of business cycles.
Handle: RePEc:nbr:nberwo:3131
Template-Type: ReDIF-Paper 1.0
Title: Cost and Price Movements in Business Cycle Theories and Experience: Causes and Effects of OBserved Changes (SEE ALSO WP3131-Send out together)
Author-Name: Victor Zarnowitz
Note: EFG
Number: 3132
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3132
File-URL: http://www.nber.org/papers/w3132.pdf
File-Format: application/pdf
Abstract: This paper is a sequel to Working Paper No. 3131, "Hypotheses of Sticky Wages and Prices". My first objective is to re-examine the historical record of prices and wages. What changes in their behavior are indicated by the data and how can they be explained? Next, the models that imply that price flexibility may be destabilizing are identified and assessed. This requires in particular an analysis of the role of changes in interest rates and price expectations. Money wages and prices in general had a predominantly pro cyclical pattern of movement before World War II, at least during the major fluctuations, but no declines in the more recent business contractions. Real wages never conformed closely to business cycles but most of their weak reactions were procyclical. Depending on the underlying condition and sources of the shifts in the economy, the departures from flexibility mayor may not be destabilizing. The main contrast, though, is between the stabilizing potential of flexible relative prices and the destabilizing potential of major general price movements. Major deflations of the past had strong and adverse expectational and distributional effects. So had the recent inflation as it accelerated and grew increasingly volatile. But moderate fluctuations in the price level or the rate of inflation are not necessarily detrimental to the growth in real economic activity.
Handle: RePEc:nbr:nberwo:3132
Template-Type: ReDIF-Paper 1.0
Title: Forecasting Aggregate Period Specific Birth Rates: The Time Series Properties of a Microdynamic Neoclassical Model of Fertility
Author-Name: James J. Heckman
Author-Name: James R. Walker
Author-Person: pwa398
Note: LS
Number: 3133
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3133
File-URL: http://www.nber.org/papers/w3133.pdf
File-Format: application/pdf
Publication-Status: published as Heckman, James J. and James R. Walker. "Forecasting Aggregate Period-Specific Birth Rates: The Time Series Properties Of A Microdynamic Neoclassical Model Of Fertility," Journal of the American Statistical Association, 1989, v84(408), 958-965.
Abstract: This article demonstrates the value of microdata for understanding the effect of wages on life cycle fertility dynamics. Conventional estimates of neoclassical economic fertility models obtained from linear aggregate time series regressions are widely criticized for being nonrobust when adjusted for serial correlation. Moreover, the forecasting power of these aggregative neoclassical models has been shown to be inferior when compared with conventional time series models that assign no role to wages. This article demonstrates, that when neoclassical models of fertility are estimated on microdata using methods that incorporate key demographic restrictions and when they are properly aggregated, they have considerable forecasting power.
Handle: RePEc:nbr:nberwo:3133
Template-Type: ReDIF-Paper 1.0
Title: Staggered Price Setting with Endogenous Frequency of Adjustment
Author-Name: David Romer
Author-Person: pro406
Note: EFG
Number: 3134
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3134
File-URL: http://www.nber.org/papers/w3134.pdf
File-Format: application/pdf
Publication-Status: published as Economics Letters, Vol. 32, pp. 205-210, March 1990.
Abstract: The classic models of staggered adjustment of Taylor and Blanchard takes the frequency of price or wage adjustment as exogenous. This paper develops a model in which the frequency of price changes in endogenous. It then uses the model to analyze the effects of changes in the parameters of the economy on the frequency of adjustment and the real effects of monetary shocks.
Handle: RePEc:nbr:nberwo:3134
Template-Type: ReDIF-Paper 1.0
Title: Public Confidence and Debt Management: A Model and A Case Study of Italy
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Alessandro Prati
Author-Name: Guido Tabellini
Author-Person: pta37
Note: ME
Number: 3135
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3135
File-URL: http://www.nber.org/papers/w3135.pdf
File-Format: application/pdf
Publication-Status: published as R. Dornbusch and M. Draghi, editors. Debt Management and Capital Markets. London: Cambridge University Press, 1990.
Abstract: High debt countries may face the risk of self-fulfilling debt crises. If the public expects that in the future the government will be unable to roll over the maturing debt, they may refuse to buy debt today and choose to hold foreign assets. This lack of confidence may then be self-fulfilling. This paper argues that under certain conditions, the occurrence of a confidence crisis is more likely if the average maturity of the debt is short. In the contrary, a long and evenly distributed maturity structure may reduce such a risk. We consider the recent Italian experience from this perspective. In particular we ask whether recent developments in the market for government debt showy signs of unstable public confidence, and of a risk premium.
Handle: RePEc:nbr:nberwo:3135
Template-Type: ReDIF-Paper 1.0
Title: Market Forces and the Public Good: Competition Among Hospitals and Provision of Indigent Care
Author-Name: Richard G. Frank
Author-Name: David S. Salkever
Author-Person: psa1313
Author-Name: Jean Mitchell
Note: EH
Number: 3136
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3136
File-URL: http://www.nber.org/papers/w3136.pdf
File-Format: application/pdf
Publication-Status: published as R. M. Scheffler and L. F. Rossiter, editors. Advances in Health Economicsand Health Services Research, Volume 11, pp. 159-184. Greenwich, CT: JAI Press, 1990.
Abstract: The research presented here focuses on the impact of competitive forces on the provision of social or merit goods by non-profit hospitals. We specifically examine the behavior of altruistic non-profit hospitals in the supply of charity care. The effects of competitive pressures and past charity care provision on the supply of philanthropic donations to nonprofit hospitals are also examined. Empirical models of the supply of donations and charity care are specified and estimated using data on nonprofit hospitals in Florida for the years 1980-1984. The coefficient estimates imply strong income effects in the charity care supply equations. This raises the possibility that competitive pressures and limits on hospital payments, under public insurance programs, may reduce the supply of indigent care. The results from the supply of donations models suggest that philanthropic donations will alleviate the competitive pressures to a small degree.
Handle: RePEc:nbr:nberwo:3136
Template-Type: ReDIF-Paper 1.0
Title: Tax Credits for Debt Reduction
Author-Name: Michael P. Dooley
Author-Person: pdo13
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI IFM
Number: 3137
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3137
File-URL: http://www.nber.org/papers/w3137.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 32, pp. 165-177, (1992).
Abstract: The incentives for domestic investment in debtor countries are influenced by the terms of their external obligations and by the system of taxation utilized to provide government revenue for debt payments. It is well known that existing debt contracts could be altered to improve the incentives for investment but this has proven difficult to accomplish, perhaps because individual creditors have incentives not to agree to such changes. In this paper we show that a simple tax credit scheme that can be implemented unilaterally by the debtor government can overcome at least some of the inefficiencies caused by existing debt contracts.
Handle: RePEc:nbr:nberwo:3137
Template-Type: ReDIF-Paper 1.0
Title: On the Sequencing of Structural Reforms
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 3138
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3138
File-URL: http://www.nber.org/papers/w3138.pdf
File-Format: application/pdf
Abstract: Both OECD and developing economies have embarked on structural reforms aimed at dismantling regulations and reducing the extent of distortions affecting different sectors of their economies. Regardless of the marked difference, both groups have to deal with the problems of the appropriate sequencing and speed of reforms. This paper first critically reviews the LDCs' related literature on sequencing and speed of structural reforms drawing out features which are of relevance for OECD economies. The paper then develops a formal framework based on a welfare criterion for evaluating efficiency effects of structural policies paying particular attention to the way in which distortions interact both intra and inter-temporally. The framework is then used to discuss some of the important issues such as the sequencing of micro and macro reforms ("competition of instruments"), broad front versus sequential reforms, and the role of policy credibility.
Handle: RePEc:nbr:nberwo:3138
Template-Type: ReDIF-Paper 1.0
Title: Promoting Investment under International Capital Mobility: An Intertemporal General Equilibrium Analysis
Author-Name: A. Lans Bovenberg
Author-Person: pbo45
Author-Name: Lawrence H. Goulder
Note: ITI PE IFM
Number: 3139
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3139
File-URL: http://www.nber.org/papers/w3139.pdf
File-Format: application/pdf
Publication-Status: published as Bovenberg, A Lans & Goulder, Lawrence H, 1993. " Promoting Investment under International Capital Mobility: An Intertemporal General Equilibrium Analysis," Scandinavian Journal of Economics, Blackwell Publishing, vol. 95(2), pages 133-56.
Abstract: This paper uses a dynamic computable general equilibrium model to compare, in an economy open to international capital flows, the effects of two U.S. policies intended to promote domestic capital formation. The two policies -- the introduction of an investment tax credit (ITC) and a reduction in the statutory corporate income tax rate -- differ in their treatment of old (existing) and new capital. The model features adjustment dynamics, intertemporal optimization by U.S. and foreign households and firms endowed with model-consistent expectations, imperfect substitution between domestic and foreign assets in portfolios, an integrated treatment of the current and capital accounts of the balance of payments, and industry disaggregation in the United States. We find that the two policies (scaled to imply the same revenue cost) differ in their consequences for foreign and domestic welfare, the balance of payments accounts, international competitiveness, and U.S. industrial structure. The ITC produces larger domestic welfare gains because it is more effective in reducing intertemporal distortions, while the two policies have similar implications for intersectoral efficiency. From the point of view of domestic welfare, the relative attractiveness of the ITC is enhanced when international capital mobility is taken into account, a reflection of international transfers of wealth associated with foreign ownership of part of the U.S. capital stock. Whereas reducing the corporate tax rate improves the trade balance initially, introducing the ITC causes a deterioration of the trade balance in the short run. Reflecting a lower real exchange rate, export-oriented sectors perform better relative to non-tradable industries under a lower corporate tax rate than in the presence of the lTC, especially in the short run.
Handle: RePEc:nbr:nberwo:3139
Template-Type: ReDIF-Paper 1.0
Title: What Do Rich Countries Trade with Each Other? R&D and the Composition of U.S. and Swedish Trade
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Lennart Ohlsson
Note: ITI IFM
Number: 3140
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3140
File-URL: http://www.nber.org/papers/w3140.pdf
File-Format: application/pdf
Publication-Status: published as Banca Nazionale del Lavoro Quarterly Review, No. 173, pp. 215-235, (June 1990).
Abstract: A long tradition in international economics explains comparative advantage by differences between countries in their stage of development, or their endowments of land, labor, and capital, and suggests that universal development will reduce the importance of trade. Sweden and the United States possess similar factor endowments and have converged in overall productivity, but their bilateral trade has grown. The example of these two countries suggests that mutual technological progress may promote trade, with the new basis for specialization being the different technology levels or R&D intensities of the goods being traded, rather than the initial endowments.
Handle: RePEc:nbr:nberwo:3140
Template-Type: ReDIF-Paper 1.0
Title: Multinational Corporations and Productivity Convergence in Mexico
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Edward N. Wolff
Note: ITI IFM
Number: 3141
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3141
File-URL: http://www.nber.org/papers/w3141.pdf
File-Format: application/pdf
Publication-Status: published as William Baumol, Richard Nelson and Ed Wolff, eds., Convergence of Productivty: Cross-National Studies and Historical Evidence, Oxford University Press Oxford, 1994
Abstract: This paper examines the impact of the operations of foreign-owned multinational firms on the productivity growth of Mexican manufacturing industries, 1965-1984. It investigates both the extent to which the penetration of a sector by foreign-owned firms affects the productivity of local firms in that sector and whether there is any evidence of convergence between that industry's productivity level and that of the United States. The main results can be summarized as follows: First, productivity levels of locally-owned firms in Mexico have converged to those of foreign-owned firms. Second, both the rate of productivity growth of local firms and their rate of catch-up to the multinationals are positively related to the degree of foreign ownership of an industry. Third, the productivity gap between Mexico and U.S. manufacturing has diminished between the mid-1960s and the mid-1980s. Fourth, the rate of productivity growth of Mexican industries and its rate of convergence to the United States are higher in industries with a greater presence of multinationals. We conclude that multinational firms have contributed to a geographical diffusion of technology and acted as a bridge between advanced and less advanced countries.
Handle: RePEc:nbr:nberwo:3141
Template-Type: ReDIF-Paper 1.0
Title: Corporate Taxation and the Efficiency Gains of the 1986 Tax Reform Act
Author-Name: Jane G. Gravelle
Author-Person: pgr185
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 3142
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3142
File-URL: http://www.nber.org/papers/w3142.pdf
File-Format: application/pdf
Publication-Status: Published as "Equity Effects of the Tax Reform Act of 1986", The Journal of Economic Perspectives, Vol. 6,no. 1 (1992): 27-44.
Publication-Status: Published as "Corporate Taxation and the Efficiency Gains of the 1986 Tax Reform Act", Economic Theory, Vol. 6, no. 1 (1995): 51-81.
Publication-Status: published as Gravelle, Jane G & Kotlikoff, Laurence J, 1995. "Corporate Taxation and the Efficiency Gains of the 1986 Tax Reform Act," Economic Theory, Springer, vol. 6(1), pages 51-81, June.
Abstract: The 1986 Tax Reform Act, while having little effect on the overall effective tax rate on U.S. capital income, did reduce significantly the difference in effective taxation of corporate and noncorporate capital within a number of U.S. industries. The Mutual Production Model developed in Gravelle and Kotlikoff (1989) can be used to study the efficiency gains from the reduction in corporate tax wedges within industries. Unlike the Harberger Model, the Mutual Production Model permits both corporate and noncorporate firms to produce the same goods and, therefore, to coexist within a given industry. This paper develops an 11 industry - 55 year dynamic life cycle version of the Mutual Production Model. We use this model to study the steady state efficiency gains associated with the new law. While we do not simulate the economy's transition path, our steady state welfare changes are those that arise from compensating transitional generations for the first order redistribution of income associated with the Tax Reform. We find that the 1986 Tax Reform law reduces excess burden by .85 percent of our model's economy's present value of consumption. This efficiency gain reflects the Tax Reform's reduction in corporate non-corporate tax wedges, particularly in those industries with significant non-corporate production. Measured as a flow the 1988 estimated efficiency gain from the Tax Reform Act is $31 billion.
Handle: RePEc:nbr:nberwo:3142
Template-Type: ReDIF-Paper 1.0
Title: Temporal Agglomeration
Author-Name: Robert E. Hall
Note: EFG
Number: 3143
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3143
File-URL: http://www.nber.org/papers/w3143.pdf
File-Format: application/pdf
Abstract: When economic activity is concentrated over space or over time, it is more efficient. Most production occurs in geographic hot spots, and most production occurs between 9 and 12 in the morning and 1 to 5 in the afternoon on weekdays. The thick-market efficiencies that encourage the concentration of activity in certain time periods may be internal to the firm, or they may be external to the firm. When they are internal, the firm can make efficient arrangements to take advantage of the effects. The firm should martial all its forces from time to time in bursts of activity. When thick-market effects are external to the firm, the possibility of indeterminacy can arise. Aggregate fluctuations may arise with either internal or external thick-market effects.
Handle: RePEc:nbr:nberwo:3143
Template-Type: ReDIF-Paper 1.0
Title: Spontaneous Volatility of Output and Investment
Author-Name: Robert E. Hall
Note: EFG
Number: 3144
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3144
File-URL: http://www.nber.org/papers/w3144.pdf
File-Format: application/pdf
Abstract: Spontaneous shifts in output originating within the business sector are an important factor in aggregate fluctuations. This paper develops a simple two-component decomposition of the movement of real GNP. One component is the path that GNP would have followed in order to deliver the volume of goods and services actually taken by consumers, government, and the rest of the world. The second component, noise, is the residual between actual GNP and the theoretical calculation. The two components are of roughly the same size, but noise has more of its power at higher frequencies.
Handle: RePEc:nbr:nberwo:3144
Template-Type: ReDIF-Paper 1.0
Title: A Framework for studying Monetary Non-Neutrality
Author-Name: Robert E. Hall
Note: EFG
Number: 3145
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3145
File-URL: http://www.nber.org/papers/w3145.pdf
File-Format: application/pdf
Abstract: This paper sets forth a simple general structural model of aggregate output, the interest rate, and the price level. The core of the model is the determination of the level of output as a product-market equilibrium, either competitive or oligopolistic, possible indeterminate because of thick-market externalities. Monetary non-neutrality can affect either product demand or product supply. In either case, monetary policy has leverage over output as well as the price level. The paper develops a two-diagram analysis intended to replace the aggregate demand-aggregate supply diagram.
Handle: RePEc:nbr:nberwo:3145
Template-Type: ReDIF-Paper 1.0
Title: Real Wages, Monetary Accommodation, and Inflation
Author-Name: Elhanan Helpman
Author-Person: phe205
Author-Name: Leonardo Leiderman
Note: EFG ME
Number: 3146
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3146
File-URL: http://www.nber.org/papers/w3146.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 34, pp. 897-911, (1990).
Abstract: We analyze the dynamics of inflation in an economy characterized by a forward-looking, staggered, price and wage determination process, and by monetary accommodation. In our model, inflation reconciles the conflicting claims of workers and firms. The model is capable of generating a positive association between real wages and inflation, of the type that has been observed in some high-inflation countries. It generates a price-wage spiral but does not result in inflationary inertia.
Handle: RePEc:nbr:nberwo:3146
Template-Type: ReDIF-Paper 1.0
Title: Measureable Dynamic Gains from Trade
Author-Name: Richard Baldwin
Author-Person: pba124
Note: LS
Number: 3147
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3147
File-URL: http://www.nber.org/papers/w3147.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 100, issue 1, pp. 162-174, 1992.
Abstract: Productive factors such as human and physical capital are accumulated and trade can affect the steady-state levels of such factors. Consequently, trade liberalization will have dynamic effects on output and welfare as the economy moves to its new steady state, in addition to its usual static effects. The output impact of this dynamic effect is measurable and appears to be quite large. The welfare impact of this dynamic effect is also measurable. The size of this dynamic gain from trade depends on the importance of external scale economies.
Handle: RePEc:nbr:nberwo:3147
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Human Resource Management Decisions on Shareholder Value
Author-Name: John M. Abowd
Author-Person: pab175
Author-Name: George T. Milkovich
Author-Name: John M. Hannon
Note: LS
Number: 3148
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3148
File-URL: http://www.nber.org/papers/w3148.pdf
File-Format: application/pdf
Publication-Status: published as John M. Abowd & George T. Milkovich & John M. Hannon, 1990. "The Effects of Human Resource Management Decisions on Shareholder Value," ILR Review, Cornell University, ILR School, vol. 43(3), pages 203-2-236-, April.
Abstract: We examine the effects of selected human resource management decisions on the abnormal change in total shareholder return. Announcements of human resource decisions are classified into five types--general HR system announcements, compensation and benefits, staffing, shutdowns and relocations, and miscellaneous. Using an event study methodology we investigate whether any of these HR decisions had a discernible effect on either the level or variation of abnormal total shareholder return. We find no consistent pattern of increased or decreased valuation in response to the different types of HR announcements, even after controlling for the likely effect of such announcements on total compensation costs. We do find substantially increased variation in abnormal total shareholder return around the announcement date, which indicates that HR decisions do provide information to the stock market. The events associated with increased variation in total shareholder value are permanent staff reductions and shutdown/relocations. The absence of consistent valuation effects combined with the evidence of increased variation in shareholder value may be attributed to uncontrolled firm-specific factors, the categorization of the HR events or, simply, to the unique interpretations the market placed upon these events.
Handle: RePEc:nbr:nberwo:3148
Template-Type: ReDIF-Paper 1.0
Title: Does Performance-Based Managerial Compensation Affect Subsequent Corporate Performance?
Author-Name: John M. Abowd
Author-Person: pab175
Note: LS
Number: 3149
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3149
File-URL: http://www.nber.org/papers/w3149.pdf
File-Format: application/pdf
Publication-Status: published as ILRR, Vol. 43, no. 3 (1990): 52S-73S.
Abstract: An effective performance-based compensation system must increase the probability of high performance corporate outcomes in order to justify the incremental expense relative to a straight salary system. A positive relation between current performance and current compensation indicates that the pay system is performance-based in practice, if not explicitly. This study considers whether increasing the sensitivity of current compensation to current performance is associated with higher performance in the future. For accounting-based performance measures, there is only weak evidence that greater performance-based compensation is associated with improved future performance. However, for economic and market performance measures, there is stronger evidence. Payment of an incremental 10% bonus for good economic performance is associated with a 30 to 90 basis point increase in the expected after tax gross economic return in the following fiscal year. Payment of an incremental raise of 10' following a good stock market performance is associated with a 400 to 1200 basis point increase in expected total shareholder return. These results are comparable in magnitude when compared to the intrinsic variability of the performance measure considered.
Handle: RePEc:nbr:nberwo:3149
Template-Type: ReDIF-Paper 1.0
Title: Demographics, Fiscal Policy, and U.S. Saving in the 1980s and Beyond
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE AG EFG
Number: 3150
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3150
File-URL: http://www.nber.org/papers/w3150.pdf
File-Format: application/pdf
Publication-Status: published as Tax Policy and the Economy 4, edited by Lawrence H. Summers, pp. 73-101. Cambridge, MA: MIT Press, 1990.
Publication-Status: published as Demographics, Fiscal Policy, and US Saving in the 1980s and Beyond, Alan J. Auerbach, Laurence J. Kotlikoff. in Tax Policy and the Economy: Volume 4, Summers. 1990
Abstract: This paper focuses on U.S. saving, demographics, and fiscal policy. We use data from the Consumer Expenditure Surveys of the 1980s to consider the effect of demographic change on past and future U.S. saving rates. Our findings indicate that demographic change may significantly alter the U.S. rate of national saving and current account position over the next 50 years. The gradual aging of the population is predicted to lead to higher saving rates over the next three decades with declines in the rate of saving thereafter. Associated with these predicted saving rate changes is a predicted improvement in the U.S. current account position is the 1990s, with a very gradual deterioration during the subsequent decades. While demographics is a potentially very important factor in explaining saving, it does not appear to explain the drop in the U.S. saving rate in the 1980s. What happened to U.S. saving in the 1980s remains an intriguing puzzle.
Handle: RePEc:nbr:nberwo:3150
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Growth and the role of History
Author-Name: Mervyn A. King
Author-Name: Mark Robson
Note: EFG PE EFG
Number: 3151
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3151
File-URL: http://www.nber.org/papers/w3151.pdf
File-Format: application/pdf
Publication-Status: published as Scandinavian Journal of Economics, vol 95, no., 4 p. 445-466 (1993)
Abstract: This paper presents a model in which the realizations of stochastic tax and depreciation rates determine both the level and growth rate of output: externalities to investment - learning by watching - are characterized by diminishing returns, yielding a nonlinear "technical progress function". This results in multiple steady-state growth rates. History matters. It is possible that two economies with identical "deep" parameters and initial capital stocks may cycle around different trend growth rates, depending upon the historical path of fiscal shocks. Growth and cycles interact, and the nonlinearity means that output changes cannot be decomposed into a stochastic trend and a trend-stationary process.
Handle: RePEc:nbr:nberwo:3151
Template-Type: ReDIF-Paper 1.0
Title: International Tax Competition and Gains from Tax Harmonization
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Efraim Sadka
Author-Person: psa492
Note: ITI PE EFG IFM
Number: 3152
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3152
File-URL: http://www.nber.org/papers/w3152.pdf
File-Format: application/pdf
Publication-Status: published as Economics Letters, Vol. 37, pp. 69-76, (August 1991).
Abstract: In a world economy there are two types of distortions which can be caused by capital income taxation in addition to the standard closed-economy wedge between the consumer-saver marginal intertemporal rate of substitution and the producer-investor marginal productivity of capital: (i)international differences in intertemporal marginal rates of substitution, implying an inefficient allocation of world savings across countries; and (ii) international differences in the marginal productivity of capital, implying an inefficient allocation of world investment across countries. The paper focuses on the structure of taxation for countries which are engaged in tax competition and on potential gains from s tax harmonization. We show that if the competing countries are sufficiently coordinated with the rest of the world then tax competition leads each country to apply the residence principle of taxation and there are no gains from tax harmonization. If, however there is not sufficient coordination,tax competition leads to low capital income taxes and the tax burden falls on the internationally immobile factors. The outcome is nevertheless still efficient relative to the available constrained set of tax instruments.
Handle: RePEc:nbr:nberwo:3152
Template-Type: ReDIF-Paper 1.0
Title: Yield Spreads and Interest Rate Movements: A Bird's Eye View
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 3153
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3153
File-URL: http://www.nber.org/papers/w3153.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 58, pp. 495-514, (1991).
Abstract: The expectations theory of the term structure implies that the spread between a longer-term interest rate and a shorter-term interest rate forecasts two subsequent interest rate changes: the change in yield of the longer-term bond over the life of the shorter-term bond, and a weighted average of the changes in shorter-term rates over the life of the longer-term bond. For postwar U.S. data from Mcculloch [1987] and just about any combination of maturities between one month and ten years we find that the former relation is not borne out by the data, the latter roughly is. When the yield spread is high the yield on the longer-term bond tends to fall, contrary to the expectations theory; at the same time, the shorter-term interest rate tends to rise, just as the expectations theory requires. We discuss several possible interpretations of these findings. We argue that they are consistent with a model in which the spread is a multiple of the value implied by the expectations theory. This model could be generated by time-varying risk premia which are correlated with expected increases in short-term interest rates, or by a failure of rational expectations in our sample period.
Handle: RePEc:nbr:nberwo:3153
Template-Type: ReDIF-Paper 1.0
Title: Stock Market Forecastability and Volatility: A Statistical Appraisal
Author-Name: N. Gregory Mankiw
Author-Name: David H. Romer
Author-Person: pro406
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Note: ME
Number: 3154
Creation-Date: 1989-10
Order-URL: http://www.nber.org/papers/w3154
File-URL: http://www.nber.org/papers/w3154.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 58, No. 3, pp. 455-477, May 1991.
Abstract: This paper presents and implements statistical tests of stock market forecastability and volatility that are immune from the severe statistical problems of earlier tests. Although the null hypothesis of strict market efficiency is rejected, the evidence against the hypothesis is not overwhelming. That is, the data do not provide evidence of gross violations of the conventional valuation model.
Handle: RePEc:nbr:nberwo:3154
Template-Type: ReDIF-Paper 1.0
Title: Job Security and Work Force Adjustment: How Different are U.S. and Japanese Practices?
Author-Name: Katharine G. Abraham
Author-Person: pab32
Author-Name: Susan N. Houseman
Author-Person: pho473
Note: LS
Number: 3155
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3155
File-URL: http://www.nber.org/papers/w3155.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the Japanese and International Economies, Vol. 3, No. 4, pp. 500-521, (December 1989).
Abstract: This paper compares employment and hours adjustment in Japanese and U.S. manufacturing. In contrast to some previous work, we find that adjustment of total labor input to demand changes is significantly greater in the United States than in Japan; adjustment of employment is significantly greater in the United States, while that of average hours is about the same in the two countries. Although workers in Japan enjoy greater employment stability than do U.S. workers, we find considerable variability in the adjustment patterns across groups within each country. In the United States, most of the adjustment is borne by production workers. In Japan, female workers, in particular, bear a disproportionate share of adjustment.
Handle: RePEc:nbr:nberwo:3155
Template-Type: ReDIF-Paper 1.0
Title: Japanese Finance: A Survey
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI IFM
Number: 3156
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3156
File-URL: http://www.nber.org/papers/w3156.pdf
File-Format: application/pdf
Publication-Status: published as "The Japanese Cost of Finance: A Survey." From Financial Management, Vol. 20, No. 1, pp. 95-127, (Spring 1991).
Publication-Status: published as Trade With Japan: Has the Door Opened Wider?,ed. Paul Krugman. Chicago: The University of Chicago Press, 1991, pp. 225-268.
Publication-Status: published as Japanese Finance in the 1980s: A Survey, Jeffrey A. Frankel. in Trade with Japan: Has the Door Opened Wider?, Krugman. 1991
Abstract: Five sets of questions puzzle observers of Japanese financial markets, particularly from the U.S. viewpoint. They concern: the apparently low corporate cost of capital, low real interest rates, high equity prices, high land prices, and the rising real yen. The paper surveys writings on these issues, in brief enough form that one can see how the questions fit together. Topics covered include: the leverage of Japanese firms, dividend payout, equity price/earnings ratios, corporate taxation, cross-ownership, land price/rental ratios, speculative bubbles, the household saving rate, international capital mobility, expected real appreciation of the yen, the lower cost of financing investment internally and through "main bank" relationships, and the move to a more market-oriented system as these relationships break down. Conclusions include: (1) the real interest rate in Japan may remain below that in the United States, despite international arbitrage, (2) the main relevant effect of the internationalization in Japan may have been to accelerate the process whereby corporate finance becomes market-oriented, so that (3) affiliated firms are losing the special privilege of borrowing at a cheaper rate, while (4) unaffiliated firms are able to borrow more cheaply than before, and (5) the increased availability of funds for asset-market arbitrage allowed the great run-up in equity and land prices in the 1980s.
Handle: RePEc:nbr:nberwo:3156
Template-Type: ReDIF-Paper 1.0
Title: Explaining the Variance of Price Dividend Ratios
Author-Name: John H. Cochrane
Author-Person: pco57
Note: EFG
Number: 3157
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3157
File-URL: http://www.nber.org/papers/w3157.pdf
File-Format: application/pdf
Publication-Status: published as The Review of Financial Studies, Vol. 5, No. 2, pp. 243-280, (1992).
Abstract: This paper presents a bound on the variance of the price-dividend ratio and a decomposition of the variance of the price-dividend ratio into components that reflect variation in expected future discount rates and variation in expected future dividend growth. Unobserved discount rates needed to make the variance bound and variance decomposition hold are characterized, and the variance bound and variance decomposition are tested for several discount rate models, including the consumption based model, and models based on interest rates plus a constant risk premium.
Handle: RePEc:nbr:nberwo:3157
Template-Type: ReDIF-Paper 1.0
Title: Commodity Prices and Inflation: Evidence From Seven Large Industrial Countries
Author-Name: James M. Boughton
Author-Name: William H. Branson
Author-Name: Alphecca Muttardy
Note: EFG ITI IFM
Number: 3158
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3158
File-URL: http://www.nber.org/papers/w3158.pdf
File-Format: application/pdf
Abstract: This paper examines the relationships between movements in primary commodity prices and changes in inflation in the large industrial countries. It begins by developing a two-country model in order to examine the theoretical effects of monetary, fiscal, and supply-side disturbances on commodity and manufactures prices and on exchange rates. It is shown that if monetary shocks dominate, then commodity prices should lead general price movements, and the level of commodity prices should be correlated with the general inflation rate. Non-monetary shocks generally weaken these relationships, but such disturbances may cancel out for broad indexes covering a wide range of commodities. Country-specific commodity price indexes are developed for the major industrial countries. The weights assigned to different commodities vary substantially across countries. Nonetheless, when the indexes are expressed in a common currency, they tend to be highly correlated over time, except when sharp movements occur in certain commodity prices. The major source of contrast across countries in the behavior of the indexes derives from exchange rate movements. Several empirical tests broadly support the conclusions of the theoretical model, with relatively few differences across countries. Three main tendencies may be cited. First, low inflation in industrial countries has tended to be associated with low levels of commodity prices, and conversely; commodity-price levels are cointegrated with consumer-price inflation rates. Second, there has been some tendency for movements in commodity prices to precede changes in general inflation rates by a few months, although it is not clear whether this tendency is strong enough to be a reliable aid in forecasting the rate of inflation. Third, there s a strong and fairly reliable tendency for turning points in general inflation rates. Commodity prices thus appear to contribute to predictions of turning points in inflation, predictions of inflation rates but more strongly to predictions of turning points in inflation.
Handle: RePEc:nbr:nberwo:3158
Template-Type: ReDIF-Paper 1.0
Title: A Quasi-Experimental Approach to the Effects of Unemployment Insurance
Author-Name: Bruce D. Meyer
Author-Person: pme273
Note: LS
Number: 3159
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3159
File-URL: http://www.nber.org/papers/w3159.pdf
File-Format: application/pdf
Publication-Status: published as Meyer, Bruce D. "Unemployment Insurance And Unemployment Spells," Econometrica, 1990, v58(4), 757-782.
Abstract: This paper uses the natural experiment provided by periodic increases in state benefit levels to estimate the effects of higher unemployment insurance benefits, individuals who filed just before and just after sixteen benefit increases are compared using data from five states during 1979-1984. The increases, which average about 9 percent, are found to increase the period of unemployment insurance receipt by about one week. This effect is precisely estimated and found using several approaches. the incidence of layoffs resulting in unemployment insurance claims is unaffected by the increases. The evidence does not suggest that higher benefits lead to better jobs. In fact, the post-unemployment earnings of individuals receiving higher benefits are estimated to fall slightly, but the estimates are imprecise.
Handle: RePEc:nbr:nberwo:3159
Template-Type: ReDIF-Paper 1.0
Title: Real Business Cycles and the Test of the Adelmans
Author-Name: Robert G. King
Author-Person: pki21
Author-Name: Charles I. Plosser
Author-Person: ppl11
Note: ME
Number: 3160
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3160
File-URL: http://www.nber.org/papers/w3160.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 33, no. 2 (April 1994): 405-438.
Publication-Status: published as Robert G. King & Charles I. Plosser, 1989. "Real business cycles and the test of the Adelmans," Proceedings, Federal Reserve Bank of San Francisco.
Abstract: This paper conducts a modern variant of the test proposed and carried out by Adelman and Adelman (1959). Using the methods developed by Burns and Mitchell (1946). we see if we can distinguish between the economic series generated by an actual economy and those analogous artificial series generated by a stochastically perturbed economic model. In the case of the Adelmans, the model corresponded to the Klein-Goldberger equations. In our case, the model corresponds to a simple real business cycle model. The results indicate a fairly high degree of coincidence in key economic aggregates between the business cycle characteristics identified in actual data and those found in our simulated economy.
Handle: RePEc:nbr:nberwo:3160
Template-Type: ReDIF-Paper 1.0
Title: Latin American Economic Development: 1950-1980
Author-Name: Eliana A. Cardoso
Author-Name: Albert Fishlow
Author-Person: pfi25
Note: ITI IFM
Number: 3161
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3161
File-URL: http://www.nber.org/papers/w3161.pdf
File-Format: application/pdf
Publication-Status: published as Cardoso, Eliana and Albert Fishlow. "Latin American Economic Development: 1950–1980." Journal of Latin American Studies 24 Supplement S1 (1992): 197-218.
Abstract: The paper stresses the evolutionary and adaptive experience of Latin American growth between 1950 and 1980, and provides a synthetic view by considering the sources of growth within a simple production framework. Regressions use quinquennial panel data for 18 Latin American countries.They provide an estimate of the net return to investment, of the elasticity of output to labor and of the contribution of other variables with influence on efficiency. The regressions show that Latin American growth varied systematically with trade performance. The paper provides information on the effects of inflation upon per capita income growth in the region. There is a negative correlation: an inflation rate of even 20 percent reduces the per capita growth rate by 0.4 percentage point, or almost 1.5 percent of the regional mean of 3 percent growth between 1950 and 1980. This result does not hold, however, once high inflation observations are excluded. Finally we call attention to the persistent problems of income distribution and poverty.
Handle: RePEc:nbr:nberwo:3161
Template-Type: ReDIF-Paper 1.0
Title: Could A Monetary Base Rule Have Prevented the Great Depression?
Author-Name: Bennett T. McCallum
Note: EFG ME
Number: 3162
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3162
File-URL: http://www.nber.org/papers/w3162.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary of Economics, Vol. 26, No. 1, pp. 3-26, (1990).
Publication-Status: published as McCallum, Bennett T., 1990. "Could a monetary base rule have prevented the great depression?," Journal of Monetary Economics, Elsevier, vol. 26(1), pages 3-26, August.
Abstract: This paper continues an ongoing investigation of the properties of a specific, quantitative, and operational rule for the conduct of monetary policy, a rule that specifies settings of the monetary base that are designed to keep nominal GNP growing smoothly at a noninflationary rate. Whereas previous studies have examined the rule's performance in the context of United States experience since World War II, the present paper is concerned with the period 1923-1941. Counterfactual historical simulations are conducted with the rule and a small model of nominal GNP determination, estimated with U.S. quarterly data for 1922-1941. Residuals from the estimated relationships serve as estimates of the behavioral shocks that occurred and accordingly are fed into the simulation process quarter by quarter. The simulation results indicate that nominal GNP would have been kept reasonably close to a steady 3 percent growth path over 1923-1941 if the rule had been in effect, in which case it is highly unlikely that real output and employment could have collapsed as they did during the 1930s.
Handle: RePEc:nbr:nberwo:3162
Template-Type: ReDIF-Paper 1.0
Title: International Trade Effects of Value Added Taxation
Author-Name: Paul Krugman
Author-Person: pkr10
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: ITI PE IFM
Number: 3163
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3163
File-URL: http://www.nber.org/papers/w3163.pdf
File-Format: application/pdf
Publication-Status: published as Taxation in the Global Economy, ed. by Assaf Razin and Joel Slemrod, University of Chicago Press, 1990.
Publication-Status: published as International Trade Effects of Value-Added Taxation, Martin S. Feldstein, Paul R. Krugman. in Taxation in the Global Economy, Razin and Slemrod. 1990
Abstract: The actual value added tax systems used in many countries differ significantly from the completely general VAT that has been the focus of most economic analyses. In practice, VAT systems exempt broad classes of consumer goods and services. This has important implications for the effect of the VAT on international trade.
A value added tax is sometimes advocated as a way of improving a country's international competitiveness because GATT rules permit the tax to be levied on imports and rebated on exports. This leads to political support for the VAT among exporters and producers of import-competing products. For a general VAT on all consumption, this argument is incorrect except in the very short run because exchange rates or domestic prices adjust to offset the effect of the tax on the relative prices of domestic and foreign goods. When prices or exchange rates have adjusted, a general value added tax will have no effect on imports and exports.
In practice, the value added tax frequently exempts housing and many personal services. The VAT thus raises the price of tradeables relative to nontradeables and induces a substitution of housing and services for tradeable goods. Since this implies a reduced consumption of imported goods, it also implies a decline in exports. The most likely effect of the introduction of a VAT would thus be a decline of exports.
Handle: RePEc:nbr:nberwo:3163
Template-Type: ReDIF-Paper 1.0
Title: National Saving and International Investment
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Philippe Bacchetta
Author-Person: pba111
Note: ITI PE IFM
Number: 3164
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3164
File-URL: http://www.nber.org/papers/w3164.pdf
File-Format: application/pdf
Publication-Status: published as Bernheim, B. Douglas and John B. Shoven (eds.) National Saving and Economic Performance. Chicago: The University of Chicago Press, 1991.
Publication-Status: published as National Saving and International Investment, Martin Feldstein, Philippe Bacchetta. in National Saving and Economic Performance, Bernheim and Shoven. 1991
Abstract: This paper extends earlier work by Feldstein and Horioka on the relation between domestic saving rates and international capital flows or, equivalently, between domestic saving rates and domestic investment. The basic conclusion of the present analysis is that an increase in domestic saving has a substantial effect on the level of domestic investment although a smaller effect than would have been observed in the 1960s and 1970s. The savings retention coefficient for the 1980-86 period is 0.79, down from 0.91 in the l960s and 0.86 in the 1970s. The more closely integrated economies of the EEC also appear to have more outward capital mobility (i.e., a lower saving retention coefficient) than other OECD countries. There is no support for the view that the estimated saving-investment relation reflects a spurious impact of an omitted economic growth variable. Although budget deficits are inversely related to the difference between private investment end private saving, we reject the view that this reflects an endogenous response of fiscal policy in favor to the alter-native interpretation that the negative relation is evidence of crowding out of private investment by budget deficits. This interpretation is supported by the evidence that domestic investment responds equally to private saving and to budget deficits. The implication of the analysis thus supports the original Feldstein-Horioka conclusion that increase in domestic saving does raise a nation's capital stock and therefore the productivity of its workforce. Similarly, a tax on capital income is not likely to be shifted fully to labor and land by the outflow of enough capital to maintain the real rate of return unchanged.
Handle: RePEc:nbr:nberwo:3164
Template-Type: ReDIF-Paper 1.0
Title: Long Swings in the Exchange Rate: Are they in the Data and Do Markets Know It?
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: James D. Hamilton
Author-Person: pha60
Note: ITI IFM
Number: 3165
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3165
File-URL: http://www.nber.org/papers/w3165.pdf
File-Format: application/pdf
Publication-Status: published as "Long Swings in the Dollar: Are they in the Data and Do Markets Know It?" American Economic Review, Volume 80, September 1990, 689-713
Abstract: The value of the dollar appears to move in one direction for long periods of time. We develop a new statistical model of exchange rate dynamics as a sequence of stochastic, segmented time trends. The paper implements new techniques for parameter estimation and hypothesis testing for this framework. We reject the null hypothesis that exchange rates follow a random walk in favor of our model of long swings. Our model also generates better forecasts than a random walk. We conclude that persistent movement in the value of the dollar is a fact that calls for greater attention in the theory of exchange rate behavior. The model is a natural framework for assessing the importance of the "peso problem" for the dollar. It allows for the expectation of future exchange rates to be influenced by the probability of a change in regime. We nonetheless reject uncovered interest parity. The forward premium appears frequently to put too high a probability on a change in regime.
Handle: RePEc:nbr:nberwo:3165
Template-Type: ReDIF-Paper 1.0
Title: Measuring 1992's Medium-Term Dynamic Effects
Author-Name: Richard Baldwin
Author-Person: pba124
Note: ITI IFM
Number: 3166
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3166
File-URL: http://www.nber.org/papers/w3166.pdf
File-Format: application/pdf
Publication-Status: published as "On the Measurement od Dynamic Effects of Integration", Empirica, Vol. 20,pp 129-145, 1993.
Abstract: This paper presents an explicit model of the link between the 1992 market liberalization and the aggregate marginal productivity of EC capital. We show that the liberalization is likely to lead to a ceteris paribus rise in capital's marginal product and thereby raise the steady-state capital-labor ratio. The comparative steady-state impact of 1992 on output is roughly quantified.
Handle: RePEc:nbr:nberwo:3166
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Industrial Relations Legislation on British Union Density
Author-Name: Richard Freeman
Author-Person: pfr23
Author-Name: Jeffrey Pelletier
Note: LS
Number: 3167
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3167
File-URL: http://www.nber.org/papers/w3167.pdf
File-Format: application/pdf
Publication-Status: published as British Journal of Industrial Relations, Vol. 28, No. 2, pp. 141-164, (July 1990).
Abstract: The unionized share of the work force changed markedly in the United Kingdom between the 1970s and 1980s. In the 1970s density rose steadily, making the United Kingdom the most heavily organized large OECD country. In the 1980s, by contrast, density fell by 1.4 percentage points per annum -- a faster drop than in the rapidly de-unionizing U.S. or in Japan. What explains this turnaround - the severe recession of the 1980s? Shifts in the composition of employment from unionized manufacturing to services? The Thatcher government's industrial relations legislation? In this paper we investigate these questions with a quantitative analysis of 1945-1986 changes in British union density. In contrast to studies that concentrate on cyclical determinants of unionism (Bain and Elshiekh, Carruth and Disney, Booth (1983)) we focus on industrial relations legislation. We develop an index of the favorableness of labor laws to unionism and relate it to changes in density in time series regressions that control for inflation, unemployment, and the manufacturing share of employment, among other variables. As a further test, we develop an analogous labor law index for Ireland, whose industrial relations system is similar to the U.K.'s and which experienced a similar severe 1980s recession but which did not pass new laws to weaken unions, and contrast changes in density between the countries with differences in industrial relations law. Our major finding is that the Thatcher government's labor laws caused much of the 1980s fall in British union density. We present the evidence for this claim in three stages. Section 1 lays out the facts of changing union density in the U.K. and Ireland and examines structural explanations of the U.K. changes. Section 2 discusses the 1980s U.K. labor laws and develops an index of their likely impact on unionism. Section 3 presents our econometric analysis of the U.K. time series data.
Handle: RePEc:nbr:nberwo:3167
Template-Type: ReDIF-Paper 1.0
Title: Two Tools for Analyzing Unemployment
Author-Name: Olivier Jean Blanchard
Author-Person: pbl2
Note: EFG
Number: 3168
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3168
File-URL: http://www.nber.org/papers/w3168.pdf
File-Format: application/pdf
Publication-Status: published as Issues in Contemporary Economics Marc Nerlove ed. ,Macmillan/International Economics Association Volume 2, 1990,pp. 102-107
Abstract: This paper shows how one can interpret the joint movements of wages, unemployment and vacancies in the Phillips and Beveridge spaces to learn about the origins of the movements in unemployment. The view of the labor market underlying the conceptual framework emphasizes flows, matching, and Nash bargaining determination of wages. The approach is used to analyze the movements in unemployment in the US, in the UK and in Germany over the last twenty years.
Handle: RePEc:nbr:nberwo:3168
Template-Type: ReDIF-Paper 1.0
Title: Equity Issues and Stock Price Dynamics
Author-Name: Deborah J. Lucas
Author-Person: plu94
Author-Name: Robert L. McDonald
Note: ME
Number: 3169
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3169
File-URL: http://www.nber.org/papers/w3169.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. XLV, No. 4, pp. 1019-1043, (September 1990).
Abstract: This paper presents an information-theoretic, infinite horizon model of the equity issue decision. The model's predictions about stock price behavior and issue timing explain most of the stylized facts in the empirical literature: (a) equity issues on average are preceded by an abnormal positive return on the stock, although there is considerable variation across firms, (b) equity issues on average are preceded by an abnormal rise in the market, and (c) the stock price drops significantly at the announcement of an issue. In this model, the price drop at issue announcement is uncorrelated with the social cost of suboptimal investment due to asymmetric information; the welfare loss may be small even if the price drop is large.
Handle: RePEc:nbr:nberwo:3169
Template-Type: ReDIF-Paper 1.0
Title: Understanding Stock Price Behavior around the Time of Equity Issues
Author-Name: Robert A. Korajczyk
Author-Person: pko2
Author-Name: Deborah J. Lucas
Author-Person: plu94
Author-Name: Robert L. McDonald
Note: ME
Number: 3170
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3170
File-URL: http://www.nber.org/papers/w3170.pdf
File-Format: application/pdf
Publication-Status: published as R. Glenn Hubbard, editor. Assymetric Information, Corporate Economy and Investment. Chicago: University of Chicago, 1990.
Publication-Status: published as Korajczyk, Robert A., Deborah J. Lucas and Robert L. McDonald. "Equity Issues With Time-Varying Asymmetric Information," Journal of Financial and Quantitative Analysis, 1992, v27(3), 397-418.
Publication-Status: published as Understanding Stock Price Behavior around the Time of Equity Issues, Robert A. Korajczyk, Deborah Lucas, Robert L. McDonald. in Asymmetric Information, Corporate Finance, and Investment, Hubbard. 1990
Abstract: It is well-documented that stock prices rise significantly prior to an equity issue, and fall upon announcement of the issue. We expand on earlier studies by using a large sample which includes OTC firms, by examining the cross-sectional properties of the price rise, and by using accounting data to track the pattern of debt ratios and Tobin's q around the time of equity issues. We consider a number of explanations for our results, and conclude that the data is largely consistent with informational models in which managers are asymmetrically informed about the value of the firm. Surprisingly, debt ratios do not increase prior to equity issues, suggesting that strained debt capacity is not the main reason for equity issues. The behavior of Tobin's q is consistent with equity issues being used to finance new investments.
Handle: RePEc:nbr:nberwo:3170
Template-Type: ReDIF-Paper 1.0
Title: Bull and Bear Markets in the Twentieth Century
Author-Name: Robert B. Barsky
Author-Person: pba670
Author-Name: J. Bradford De Long
Note: ME
Number: 3171
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3171
File-URL: http://www.nber.org/papers/w3171.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic History, Vol. 50, No. 2, (June 1990), pp. 1-17.
Abstract: The major bull and bear markets of this century have suggested to many that large decade-to-decade stock market swings reflect irrational "fads and fashions" that periodically sweep investors. We argue instead that investors have perceived significant shifts in the long-run mean rate of future dividend growth. and that stock prices depend sufficiently sensitively on expectations about the underlying future growth rate that these perceived shifts would plausibly generate large swings like those of the twentieth century. We go on to document that analysts who have often been viewed as "smart money" held assessments of fundamental values based on their perceptions of future economic growth and technological progress: the judgments of these analysts, like the assessments of fundamentals we generate from simple dividend growth forecasting rules, track the major decade-to-decade swings in the market rather closely.
Handle: RePEc:nbr:nberwo:3171
Template-Type: ReDIF-Paper 1.0
Title: A New Monthly Index of Industrial Production, 1884-1940
Author-Name: Christina Romer
Author-Person: pro407
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Note: EFG ME
Number: 3172
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3172
File-URL: http://www.nber.org/papers/w3172.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic History, Vol. 50, pp. 321-337, June 1990.
Abstract: The paper derives a new monthly index of industrial production for the United States for 1884-1940. This index improves upon existing measures of industrial production by excluding indirect proxies of industrial activity, by only using component series that are consistent over time, and by not making ad hoc adjustments to the data. Analysis of the new index shows that it has more within-year volatility than conventional indexes, has relatively unimportant seasonal fluctuations, and has cyclical turning points that are grossly similar to but subtly different from existing series.
Handle: RePEc:nbr:nberwo:3172
Template-Type: ReDIF-Paper 1.0
Title: Human Capital And Growth: Theory and Evidence
Author-Name: Paul M. Romer
Author-Person: pro45
Note: EFG
Number: 3173
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3173
File-URL: http://www.nber.org/papers/w3173.pdf
File-Format: application/pdf
Publication-Status: published as Romer, Paul M., 1990. "Human capital and growth: Theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 251-286, January.
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy: Unit Roots, Investment Measures and Other Essays, Vol. 32, pp. 251-286, Spring 1990.
Abstract: This paper outlines a theoretical framework for thinking about the role of human capital in a model of endogenous growth. The framework pays particular attention to two questions: What are the theoretical differences between intangibles like education and experience on the one hand, and knowledge or science on the other? and How do knowledge and science actually affect production? One implication derived from this framework is that the initial level of a variable like literacy may be important for understanding subsequent growth. This emphasis on the level of an input contrasts with the usual emphasis from growth accounting on rates of change of inputs. The principal empirical finding is that literacy has no additional explanatory power in a cross-country regression of growth rates on investment and other variables, but consistent with the model, the initial level of literacy does help predict the subsequent rate of investment, and indirectly, the rate of growth.
Handle: RePEc:nbr:nberwo:3173
Template-Type: ReDIF-Paper 1.0
Title: Prices during the Great Depression: Was the Deflation of 1930-32 really unanticipated?
Author-Name: Stephen G. Cecchetti
Author-Person: pce4
Note: ME
Number: 3174
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3174
File-URL: http://www.nber.org/papers/w3174.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 82, No. 1, March 1992, pp. 141-156.
Abstract: Several explanations for the depth of the Great Depression presume that the -30% deflation of 1930-32 was unanticipated. For example, the debt-deflation hypothesis originally put forth by Irving Fisher is based on the notion that unanticipated deflation increases the burden of nominal debt, adversely affecting the banking system and the aggregate economy. Other theories imply on ex ante real interest rates being low during the period, and so it is essential that the deflation was unanticipated. This paper measures inflationary expectations from data on prices, interest rates and money growth in order to investigate whether the deflation could have been anticipated. Current econometric techniques are used to compute expectations implied both by the univariate time series properties of the price level, and by the information contained in nominal interest rates. The major conclusion is that price changes were substantially serially correlated, and so once the deflation began, people expected it to continue. This implies both that the deflation was anticipated, and that real interest rates were very high during the initial phases of the Great Depression. These results call into question the validity of theories that rely on contemporary agents' belief in reflation during the early 1930s, and provide further support for the proposition that monetary contraction was the driving force behind the economic decline.
Handle: RePEc:nbr:nberwo:3174
Template-Type: ReDIF-Paper 1.0
Title: The Aggregate Matching Function
Author-Name: Olivier Jean Blanchard
Author-Person: pbl2
Author-Name: Peter A. Diamond
Author-Person: pdi24
Note: EFG ME
Number: 3175
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3175
File-URL: http://www.nber.org/papers/w3175.pdf
File-Format: application/pdf
Publication-Status: published as Growth/Productivity/Unemployment, edited by Peter Diamond, pp. 159-201. Cambridge, MA: MIT Press, 1990.
Abstract: We present a picture of the labor market, one with large flows of jobs and workers, and matching. We develop a consistent approach to the interaction among those flows and the stocks of unemployed workers and vacant jobs, and to the determination of wages. We estimate the matching function, using both aggregate data and data from manufacturing and find evidence of a stable matching process in the data. We examine the joint movements in unemployment, vacancies and wages -the Beveridge and Phillips curve relations- in the light of our model. We conclude that aggregate activity shocks rather than reallocation shocks dominate the movement of unemployment.
Handle: RePEc:nbr:nberwo:3175
Template-Type: ReDIF-Paper 1.0
Title: Pro-Competitive Effects of Trade Reform: Results from a CGE Model of Cameroon
Author-Name: Shantayanan Devarajan
Author-Name: Dani Rodrik
Author-Person: pro60
Note: ITI IFM
Number: 3176
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3176
File-URL: http://www.nber.org/papers/w3176.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, July 1991.
Abstract: How likely is trade liberalization to produce efficiency gains in the presence of imperfect competition, scale economies, and higher-than-average wages in the modern sectors -- all common features of developing economies? These features create a potential conflict to the extent that traditional notions of comparative advantage would lead us to expect that the modern sectors will be squeezed with liberalization. In this paper we investigate the issue by using an applied general equilibrium model calibrated to Cameroonian data. Under perfect competition, the traditional expectations are borne out: manufacturing sectors on the whole contract, and the cash crops sector (mainly coffee and cocoa) is the main beneficiary; the welfare effect is a wash since the beneficial consequence of expanded imports is offset by labor being pulled away from the modern, high-wage sectors. By contrast, under imperfect competition (in the modern sectors only), trade liberalization produces welfare gains of the order of 1 to 2 percent of real income. The key is the pro-competitive effect of liberalization: domestic firms now perceive themselves as facing a higher elasticity of demand, which spurs them to increase production. Therefore, the modern sectors do much better in terms of output than in the perfectly competitive benchmark. The introduction of scale economies amplifies these results. Under reasonable circumstances imperfect competition will make liberalization more desirable, even in the absence of firm entry and exit.
Handle: RePEc:nbr:nberwo:3176
Template-Type: ReDIF-Paper 1.0
Title: Business Cycles and Fertility Dynamics in the U.S.: A Vector-Autoregressive Model
Author-Name: Naci H. Mocan
Author-Person: pmo270
Note: EH
Number: 3177
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3177
File-URL: http://www.nber.org/papers/w3177.pdf
File-Format: application/pdf
Publication-Status: published as "Business Cycles and Fertility Dynamics in the United States: A Vector Autoregressive Model." From Journal of Population Economics, Vol. 3, pp. 125- 146, (1990).
Abstract: Using recent developments in time-series econometrics, this paper investigates the behavior of fertility over the business cycle. The sex-specific unemployment rates, the divorce rate and the fertility rate are shown to be governed by stochastic trends. Furthermore, fertility is determined to be co-integrated with the divorce and unemployment rates. In the bivariate vector-autoregressions between fertility and unemployment, an increase in the female or male unemployment rates generate a decrease in fertility, which confirms the findings of previous time-series research concerning the procyclical behavior of fertility. However, when the models include the divorce rate and the proportion of young marriages as additional regressors, shocks to the unemployment rates bring about an increase in fertility, implying the countercyclicality of fertility.
Handle: RePEc:nbr:nberwo:3177
Template-Type: ReDIF-Paper 1.0
Title: The "Gold Standard Paradox" and its Resolution
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Vittorio U. Grilli
Note: ITI IFM
Number: 3178
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3178
File-URL: http://www.nber.org/papers/w3178.pdf
File-Format: application/pdf
Publication-Status: published as Paul Krugman and Marcus Miller, editors, "Anomalous Speculative Attacks on Fixed Exchange Rate Regimes," Exchange Rates and Currency Bands. Cambridge University Press, forthcoming 1991.
Abstract: This paper analyzes Krugman's contention that there is a "gold standard paradox" in the speculative attack literature. The paradox occurs if a country's currency appreciates after it runs out of gold or equivalently if a speculative attack can happen only after the country "naturally" runs out of reserves. We first show that Krugman's paradox is a very general phenomenon which does not require mean reverting processes for the fundamentals and which can be present in discrete time models as well as in continuous time models. We present several specific cases in which the paradox occurs i.e. environments which do not support an equilibrium. Next we show that, contrary to Krugman's conjecture, it is not necessary to abandon the assumption of a perfectly fixed exchange rate in favor of a band system in order to recover a well-defined equilibrium. We propose two alternative ways of amending the model which produce an equilibrium and preserve the fixed exchange rate assumption.
Handle: RePEc:nbr:nberwo:3178
Template-Type: ReDIF-Paper 1.0
Title: Insider Power in Wage Determination
Author-Name: David G. Blanchflower
Author-Person: pbl22
Author-Name: Andrew J. Oswald
Author-Name: Mario D. Garrett
Note: LS
Number: 3179
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3179
File-URL: http://www.nber.org/papers/w3179.pdf
File-Format: application/pdf
Publication-Status: published as Economica, Vol. 57, pp. 143-170, (1990).
Abstract: The paper argues that wage determination is best seen as a kind of rent sharing in which workers' bargaining power is influenced by conditions in the external labour market. It uses British establishment data from 1984 to show that pay depends upon a blend of insider pressure (including the employer's financial performance and oligopolistic position) and outsider pressure (including external wages and unemployment). Lester's feasible 'range' of wages appears typically to be between 8% and 22% of pay. Estimates of the unemployment elasticity of the wage lie in a narrow band around -0.1.
Handle: RePEc:nbr:nberwo:3179
Template-Type: ReDIF-Paper 1.0
Title: Unionization and Employment Behavior
Author-Name: David G. Blanchflower
Author-Person: pbl22
Author-Name: Neil Millward
Author-Name: Andrew J. Oswald
Note: LS
Number: 3180
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3180
File-URL: http://www.nber.org/papers/w3180.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal, Vol. 101, No. 407, pp.815-834, July 1991.
Abstract: Although there exists a large literature on the effects of trade unions upon wages, there is no published work that uses microeconomic data to examine the employment consequences of unionization. The paper addresses this issue with a new British data set and shows that, even after the addition of a substantial set of control variables, there is a strong association between poor employment performance and the presence of trade unions. The union employment growth differential is estimated at approximately -3% per annum.
Handle: RePEc:nbr:nberwo:3180
Template-Type: ReDIF-Paper 1.0
Title: The Wage Curve
Author-Name: David G. Blanchflower
Author-Person: pbl22
Author-Name: Andrew J. Oswald
Note: LS
Number: 3181
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3181
File-URL: http://www.nber.org/papers/w3181.pdf
File-Format: application/pdf
Publication-Status: published as The Scandinavian Journal of Economics, Vol. 92, No. 2, pp. 215-235, 1990.
Publication-Status: published as David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, April.
Abstract: This paper, which follows in an LSE tradition begun by Phillips and Sargan, examines the role of unemployment in shaping pay. In contrast to most of the literature, it 1) uses microeconometric data on individuals and workplaces 2) examines a variety of data sets as a check on the robustness of results, and 3) studies the effects of unemployment on the real wage level (not on the rate of change of pay or prices) . The paper finds evidence - on British and US data - of a wage curve. The curve has a negative gradient at low levels of unemployment, but becomes horizontal at relatively high levels of unemployment.
Handle: RePEc:nbr:nberwo:3181
Template-Type: ReDIF-Paper 1.0
Title: Does Unmeasured Ability Explain Inter-Industry Wage Differentials?
Author-Name: Robert Gibbons
Author-Person: pgi283
Author-Name: Lawrence F. Katz
Author-Person: pka266
Note: LS
Number: 3182
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3182
File-URL: http://www.nber.org/papers/w3182.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 59, pp. 515-535, (July 1992).
Abstract: This paper provides empirical assessments of the two leading explanations of measured inter-industry wage differentials: (1) true wage differentials exist across industries, and (2) the measured differentials simply reflect unmeasured differences in workers' productive abilities. First, we summarize the existing evidence on the unmeasured-ability explanation, which is based on first-differenced regressions using patched Current Population Survey (CPS) data. We argue that these existing approaches implicitly hypothesize that unmeasured productive ability is equally rewarded in all industries. Second, we construct a simple model in which unmeasured ability in not equally valued in all industries; instead, there is matching. This model illustrates two endogeneity problems inherent in the first-differenced regressions using CPS data: whether a worker changes jobs in endogenous, as is the industry of the new job the worker finds. Third, we propose two new empirical approaches designed to minimize these endogeneity problems. We implement these procedures on a sample that allows us to approximate the experiment of exogenous job loss: a sample of workers displaced by plant closings. We conclude from our findings using this sample that neither of the contending explanations fits the evidence without recourse to awkward modifications, but that a modified version of the true-industry-effects explanation fits more easily than does any existing version of the unmeasured-ability explanation.
Handle: RePEc:nbr:nberwo:3182
Template-Type: ReDIF-Paper 1.0
Title: Economic Analysis and the Political Economy of Policy Formation
Author-Name: Michael Bruno
Note: ITI IFM
Number: 3183
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3183
File-URL: http://www.nber.org/papers/w3183.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, vol. 34, no. 43, May 1990.
Abstract: The first part of the paper analyzes the various components (as well as likely failures) in the complex two-way market chain that links the supply of economic theories with the design, sale and implementation of workable economic policies. Among other aspects of this link two points are stressed. One is the relative contribution to knowledge of economists inside the government machine, which by nature is often not diffused to the profession at large. Another very major point is the advancement of knowledge through the reverse link from policies that have worked in practice, often without prior theoretical grounding, to their subsequent rigorous theoretical formulation and empirical testing. This discussion is followed by detailed first-hand illustrations from the politico-economic experience of Israel, in which government (and economists') involvement in the economy has traditionally been far-reaching. The illustrations which have their parallels in other countries are given in historical order, from the contributions to the literature on trade and development policy issues (paramount in the 1950s and 1960s), on tax and transfer schemes as well as on open economy macro policies and exchange rate regimes (mainly in the 1970s). This is followed by reference to the policy experience and failures of living with high inflation and, in particular, the political economy of the more recent stabilization efforts which provide considerable support for the general points made in the first part of the paper on the workings of the market for ideas and policies. The paper ends with brief references to two important topics for the 1990s - the uncharted practical area of institutional reform in socialist economies and the recent theoretical literature on game-theoretic approaches to policy formation.
Handle: RePEc:nbr:nberwo:3183
Template-Type: ReDIF-Paper 1.0
Title: Interstate Business Tax Differentials and New Firm Location: Evidence from Panel Data
Author-Name: Leslie E. Papke
Author-Person: ppa153
Note: PE
Number: 3184
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3184
File-URL: http://www.nber.org/papers/w3184.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 45, No. 1, pp. 47-68, (June 1991).
Abstract: This paper examines the impact of state and local tax differentials on the location of industry using a panel data set of manufacturing firm startups. The number of firm births is modeled as a Poisson count process and the estimation technique explicitly accounts for unobserved location or state heterogeneity in the estimation. A second focus of the analysis is the development of an industry and year specific series of effective tax rates for each state. After controlling for state and industry effects, the estimates indicate that a high state marginal effective tax rate reduces the number of firm births for most industries examined.
Handle: RePEc:nbr:nberwo:3184
Template-Type: ReDIF-Paper 1.0
Title: Transitional Dynamics and Economic Growth in the Neoclassical Model
Author-Name: Robert G. King
Author-Person: pki21
Author-Name: Sergio T. Rebelo
Note: EFG
Number: 3185
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3185
File-URL: http://www.nber.org/papers/w3185.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 83, no. 4, p. 908-931, Sept. 1993
Abstract: An understanding of the qualitative nature of the transitional dynamics of the neociassical model - the process of convergence from an initial capital stock to a steady state growth path - is a key part of the shared knowledge of most economists. It forms the basis, for example, of the widespread interest in hypotheses about convergence of levels of national economic activity. Based on several quantitative experiments undertaken in the 1960s with fixed savings rates versions of the neoclassical model, many economists further believe that the transition process can be lengthy, potentially rationalizing differences in growth rates across countries that are sustained for decades.
In this paper, we undertake a systematic quantitative investigation of transitional dynamics within the most widely employed versions of the neoclassical model with interteorally optimizing households. Lengthy transitional episodes arise only if there is very low intertemporal substitution. But, more important, we find that the simplest neoclassical model inevitably generates a central implication that is traced to the production technology. Whenever we try to use it to explain major growth episodes, the model produces a rate of return that is counterfactually high in the early stages of development. For example, in seeking to account for U.S-Japan differences in post war growth as a consequence of differences in end-of-war capital, we find that the immediate postwar rate of return in Japan would have had to exceed 500% per annum.
Frequently employed variants of the basic neoclassical model - those that introduce adjustment costs, separate production and consumption sectors, and international capital mobility - can potentially sweep this marginal product implication under the rug. However, such alterations necessarily cause major discrepancies to arise in other areas. With investment adjustment costs, for example, the implications resurface in counterfactual variations in Tobin's Q.
We interpret our results as illustrating two important principles. First, systematic quantitative investigation of familiar models can provide surprising new insights into their practical operation. Second, explanation of sustained cross country differences in growth rates will require departure from the familiar neoclassical environment.
Handle: RePEc:nbr:nberwo:3185
Template-Type: ReDIF-Paper 1.0
Title: The Declining Economic Position of Less-Skilled American Males
Author-Name: McKinley L. Blackburn
Author-Person: pbl77
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 3186
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3186
Abstract: This paper documents the substantial decline in the economic position of less-skilled American males that has occurred since the early 1970's. The paper also explores a variety of potential explanations for the widening of earnings differentials between more- and less-educated white males. On the basis of these analyses, we draw four main conclusions.
First, our analyses indicate that industrial shift and deunionization account for non-negligible portions of the overall increase in educational wage differentials that occurred in the 1980's. Among 25-64 year olds, these effects are offset by changes in the relative supply of college graduates, which acted to reduce differentials. Among 25-34 year olds, in contrast, changes in relative supply add to our ability to explain the widening of wage gaps. As a result, we are modestly successful in explaining the growth of wage differentials between educational groups in the 1980's for males aged 25-34, but are largely unsuccessful in explaining the growth in wage differentials for males aged 25-64.
Second, our analysis achieves greater success when we focus our aim on explaining the change in the growth rate of wage differentials between the 1970's and 1980's. Here we find that relative supply movements, which differed sharply between the 1970's and 1980's, can by themselves account for much of the accelerated pace of change in the wage gaps. This factor operates similarly for 25-64 and 25-34 year olds, since the relative supply of college graduates in both age groups decelerated from the 1970's to the 1980's.
Third, our analysis suggests that the 1970's and 1980's differed importantly in ways not captured by our analyses. Since we are able to measure labor supply and institutional changes reasonably well, we can infer that outward shifts in the relative demand for college graduates, caused by factors we were unable to measure, accelerated in the 1980's.
Fourth, we find little evidence that the recent widening of wage gaps across educational groups is due to (1) the 1980's decline in the real value of the minimum wage, (2) the increased pace of technological change, (3) changes in the labor supply of white males below age 25 and of women in different educational groups, or (4) changes over time in the quality of less-educated workers.
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Handle: RePEc:nbr:nberwo:3186
Template-Type: ReDIF-Paper 1.0
Title: Do Union Wealth Concessions Explain Takeover Premiums? The Evidence on Contract Wages
Author-Name: Joshua Rosett
Note: LS ME
Number: 3187
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3187
File-URL: http://www.nber.org/papers/w3187.pdf
File-Format: application/pdf
Publication-Status: published as JFEC, Vol. 27, no. 1 (1990): 263-282.
Abstract: I estimate changes in levels of union real wage growth associated with corporate takeovers and accompanying chief executive officer changes. The effects are statistically insignificant. The results are used to construct union wealth changes associated with corporate control events. Target fire shareholder wealth premiums are estimated using a simple market model. The union and shareholder wealth changes are compared, and I conclude that transfers of wealth from unions to shareholders ate not an economically significant explanation of shareholder wealth premiums.
Handle: RePEc:nbr:nberwo:3187
Template-Type: ReDIF-Paper 1.0
Title: Real Wage Determinatioan in Collective BArgaining Agreements
Author-Name: Louis N. Christofides
Author-Name: Andrew J. Oswald
Note: LS
Number: 3188
Creation-Date: 1989-11
Order-URL: http://www.nber.org/papers/w3188
File-URL: http://www.nber.org/papers/w3188.pdf
File-Format: application/pdf
Publication-Status: Published as "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements", Quarterly Journal of Economics, Vol. 107, no. 3(1992): 985-1002.
Abstract: This paper studies the determinants of real wage rates using data on Canadian labour contracts signed between 1978 and 1984. Its results are consistent with Dunlop's neglected (1944) hypothesis that real pay movements are shaped by product price changes (contrary to the predictions of implicit contract theory and other models of wage inflexibility). The level of the unemployment rate is found to lower the real wage level with an elasticity between -0.04 and -0.13, whereas a Phillips Curve specification which relates wage changes to the level of the unemployment rate is not convincingly supported by the data. These results may be seen as consistent with the view that collective bargaining is a form of rent-sharing in which external unemployment weakens workers' bargaining strength.
Handle: RePEc:nbr:nberwo:3188
Template-Type: ReDIF-Paper 1.0
Title: Financial Development, Growth, and the Distribution of Income
Author-Name: Jeremy Greenwood
Author-Person: pgr12
Author-Name: Boyan Jovanovic
Note: EFG
Number: 3189
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3189
File-URL: http://www.nber.org/papers/w3189.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 98, No. 5, Pt. 1, pp. 1076-1107, (October 1990).
Abstract: A paradigm is presented where both the extent of financial intermediation and the rate of economic growth are endogenously determined. Financial intermediation promotes growth because it allows a higher rate of return to be earned on capital, and growth in turn provides the means to implement costly financial structures. Thus, financial intermediation and economic growth are inextricably linked in accord with the Goldsmith-McKinnon-Shaw view on economic development. The model also generates a development cycle reminiscent of the Kuznets hypothesis. In particular, in the transi tion from a primitive slowgrowing economy to a developed fast-growing one, a nation passes through a stage where the distribution of wealth across the rich and poor widens.
Handle: RePEc:nbr:nberwo:3189
Template-Type: ReDIF-Paper 1.0
Title: Externalities and Growth Accounting
Author-Name: Jess Benhabib
Author-Person: pbe53
Author-Name: Boyan Jovanovic
Note: EFG
Number: 3190
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3190
File-URL: http://www.nber.org/papers/w3190.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 81, No. 1, pp. 82-113, (March 1991).
Abstract: We reexamine several bodies of data on the growth of output, labor, and capital, within the context of a model that admits the possibility of an externality to the capital input. The model is an augmented version of Paul Romer's (1987) reformulation of the Solow model. Unlike Romer, however, we find no evidence of an externality to capital. This finding implies nothing about the size of possible spillovers in the creation of knowledge because in our model, causality runs exclusively from knowledge to capital.
Handle: RePEc:nbr:nberwo:3190
Template-Type: ReDIF-Paper 1.0
Title: Predictable Stock Returns in the United States and Japan: A Study of Long-Term Capital Market Integration
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Yasushi Hamao
Author-Person: pha719
Note: ME
Number: 3191
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3191
File-URL: http://www.nber.org/papers/w3191.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Volume 47, No. 1, pp. 43-69 March 1992
Abstract: This paper studies the predictability of monthly excess returns on equity portfolios over the domestic short-term interest rate in the U.S. and Japan during the period 1971:1-1989:3. The paper finds that similar variables, including the dividend-price ratio and interest rate variables, help to forecast excess returns in each country. In addition, in the 1980's U.S. variables help to forecast excess Japanese stock returns. There is evidence of common movement in expected excess returns across the two countries, which is suggestive of integration of long-term capital markets.
Handle: RePEc:nbr:nberwo:3191
Template-Type: ReDIF-Paper 1.0
Title: Market Responses To Coordinated Central Bank Intervention
Author-Name: Kathryn M. Dominguez
Author-Person: pdo227
Note: ITI IFM
Number: 3192
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3192
File-URL: http://www.nber.org/papers/w3192.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 32, pp. 121-163 , (Spring 1990).
Abstract: The scale of unilateral and coordinated intervention in the foreign exchange market by the G-5 countries has become considerably larger over the last few years, following a period in which official U.S. policy was opposed to intervention. This paper examines market responses to official sterilized central bank intervention policy over the period 1985 through 1987. The efficacy of sterilized intervention is hypothesized to depend on the market's belief that central banks both have "inside" information about future monetary policy and the incentive to reveal that information truthfully through intervention signals. Central banks may agree to coordinate their intervention operations in order to influence the market's perception of the relative importance and credibility of own signals. Market responses to intervention over the period 1985 through 1987 are examined econometrically using heretofore unavailable daily data on G-3 unilateral and coordinated intervention operations. The empirical evidence indicates that: (1) even though daily intervention data are not published, market participants were generally able to comtemporaneously observe the source and magnitude of central bank intervention operations, (2) unilateral intervention significantly influenced market expectations in some periods, and (3) coordinated intervention had a significantly different and longer-term influence on market expectations than did unilateral intervention over the three year period examined.
Handle: RePEc:nbr:nberwo:3192
Template-Type: ReDIF-Paper 1.0
Title: Signaling and Accounting Information
Author-Name: Stewart C. Myers
Note: ME
Number: 3193
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3193
File-URL: http://www.nber.org/papers/w3193.pdf
File-Format: application/pdf
Abstract: This paper develops a signaling model in which accounting information improves real investment decisions. Pure cash flow reporting is shown to lead to underinvestment when managers have superior information but are acting in shareholders' interests. Accounting by prespecified, "objective" rules alleviates the underinvestment problem.
Handle: RePEc:nbr:nberwo:3193
Template-Type: ReDIF-Paper 1.0
Title: Explaining Japan's Innovation and Trade: A model of Quality Competition and Dynamic Comparive Advantage
Author-Name: Gene M. Grossman
Author-Person: pgr21
Note: ITI IFM
Number: 3194
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3194
File-URL: http://www.nber.org/papers/w3194.pdf
File-Format: application/pdf
Publication-Status: published as Bank of Japan Monetary and Economic Studies, Vol. 8, No. 2, pp. 75-100, September 1990.
Abstract: In this paper, I develop a model of dynamic comparative advantage based on endogenous innovation. Firms in each of two countries devote resources to R&D in order to improve the quality of high-technology products. Research successes generate profit opportunities in the world market. The model predicts that a country such as Japan, with abundance of skilled labor and scarcity of natural resources, will specialize relatively in industrial innovation and in the production of high-technology goods. Data are provided to support this prediction. I use the model to explore the effects of R&D subsidies, production subsidies and trade policies on the long-run rates of innovation in trade partner countries and on the long-run pattern of trade.
Handle: RePEc:nbr:nberwo:3194
Template-Type: ReDIF-Paper 1.0
Title: Time-Series Tests of a Non-Expected-Utility Model of Asset Pricing
Author-Name: Alberto Giovannini
Author-Name: Philippe Jorion
Note: ME
Number: 3195
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3195
File-URL: http://www.nber.org/papers/w3195.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 37, no. 5 (1993): 1083-1100.
Abstract: This paper provides two alternative estimation and testing procedures of a representative-agent model of asset pricing which relies on a particular parametrization of non-expected-utility preferences. The first is based on maximum-likelihood estimates, supplemented with an explicit model of time varying first and second moments (where the time-variation of second moments in modelled with an ARCH-Autoregressive Conditionally Heteroskedastic-process); the second is based on generalized-method-of moments estimates. We perform our tests on a data set that includes monthly observations of rates of return on US stock prices and US consumption of nondurables and services. Our results are directly comparable to a test of the dynamic capital asset pricing model performed by Hansen and Singleton (1983), and to a recent test of the model studied here performed by Epstein and Zin (1989).
Handle: RePEc:nbr:nberwo:3195
Template-Type: ReDIF-Paper 1.0
Title: Saving and Liquidity Constraints
Author-Name: Angus Deaton
Author-Person: pde30
Note: EFG
Number: 3196
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3196
File-URL: http://www.nber.org/papers/w3196.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 59, No. 5, pp. 1221-1248, (September 1991).
Abstract: This paper is concerned with the theory of saving when consumers are not permitted to borrow, and with the ability of such a theory to account for some of the stylized facts of saving behavior. When consumers are relatively impatient, and when labor income is independently and identically distributed over time, assets act like a buffer stock, protecting consumption against bad draws of income. The precautionary demand for saving interacts with the borrowing constraints to provide a motive for holding assets. If the income process is positively autocorrelated, but stationary, assets are still used to buffer consumption, but do so less effectively, and at a greater cost in terms of foregone consumption. In the limit, when labor income is a random walk, it is optimal for impatient liquidity constrained consumers simply to consume their incomes. As a consequence, a liquidity constrained representative agent cannot generate aggregate U.S. saving behavior if that agent receives aggregate labor income. Either there is no saving, when income is a random walk, or saving is contracyclical over the business cycle, when income changes are positively autocorrelated. However, in reality, microeconomic income processes do not resemble their average, and it is possible to construct a model of microeconomic saving under liquidity constraints which, at the aggregate level, reproduces many of the stylized facts in the actual data. While it is clear that many households are not liquidity constrained, and do not behave as described here, the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life-cycle models.
Handle: RePEc:nbr:nberwo:3196
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Mergers on Prices, Costs, and Capacity Utilization in the U.S. Air Transportation Industry, 1970-84
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Author-Name: Moshe Kim
Author-Person: pki122
Note: PR
Number: 3197
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3197
File-URL: http://www.nber.org/papers/w3197.pdf
File-Format: application/pdf
Publication-Status: published as Frank Lichtenberg, author, Corporate Takeovers and Productivity. Cambridge: MIT Press, forthcoming 1992, Chapter 8.
Abstract: We analyze the effect of mergers on various aspects of airline performance during the period 1970-84, using a panel data set constructed by Caves et al. Estimates derived from a simple "matched pairs" statistical model indicate that these mergers were associated with reductions in unit cost. The average annual rate of unit cost growth of carriers undergoing merger was 1.1 percentage points lower, during the five-year period centered on the merger, than that of carriers not involved in merger. Almost all of this cost reduction appears to have been passed on to consumers. Part of the cost reduction is attributable to mergerrelated declines in the prices of inputs, particularly labor, but about two-thirds of it is due to increased total factor productivity. One source of the productivity improvement is an increase in capacity utilization (load factor).
Handle: RePEc:nbr:nberwo:3197
Template-Type: ReDIF-Paper 1.0
Title: Wages, Prices, and Labor Markets Before the Civil War
Author-Name: Claudia Goldin
Author-Person: pgo601
Author-Name: Robert A. Margo
Author-Person: pma319
Note: DAE
Number: 3198
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3198
File-URL: http://www.nber.org/papers/w3198.pdf
File-Format: application/pdf
Publication-Status: published as Goldin, Claudia A. and Hugh Rockoff, eds., Strategic Factors in Nineteenth Century American Economic History, Chicago: The University of Chicago Press , 1992, pp. 67-104.
Publication-Status: published as Wages, Prices, and Labor Markets before the Civil War, Claudia Goldin, Robert A. Margo. in Strategic Factors in Nineteenth Century American Economic History: A Volume to Honor Robert W. Fogel, Goldin and Rockoff. 1992
Abstract: Two opposing views of the antebellum economy are tested. One is that aggregate economic activity was severely diminished and that unemployment was substantial and prolonged during several downturns. The alternative interpretation is that antebellum fluctuations were more apparent than real; nominal wages, not labor quantities, did most of the adjusting. We analyze data on real wages for laborers, artisans, and clerks across four regions (Northeast, North Central, South Atlantic, and South Central) during 1821 to 1856. Various time-series econometric methods reveal that shocks to real wages persisted even five years after an innovation, but that their impact eventually vanished. The persistence of shocks was less for agricultural labor than for other occupations, less for growing regions than for more mature ones, less for unskilled than for skilled labor, and probably less before 1860 than after. Although nominal wages and prices never strayed far from each other over the long run, the persistence of shocks was considerable during the 1821 to 1856 period. We, therefore, find evidence to support the first view of the antebellum economy, although the degree of unemployment in cities and industrial towns remains unknown.
Handle: RePEc:nbr:nberwo:3198
Template-Type: ReDIF-Paper 1.0
Title: Seigniorage and Political Instability
Author-Name: Alex Cukierman
Author-Person: pcu20
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Guido Tabellini
Author-Person: pta37
Note: ME ITI IFM
Number: 3199
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3199
File-URL: http://www.nber.org/papers/w3199.pdf
File-Format: application/pdf
Publication-Status: published as Cukierman, Alex, Sebastian Edwards and Guido Tabellini. "Seigniorage And Political Instability," American Economic Review, 1992, v82(3), 537-555.
Abstract: The importance of seignorage relative to other sources of government revenue differs markedly across countries. The main theoretical implication of this paper is that countries with more unstable and polarized political systems rely more heavily on seignorage. This result is obtained within the context of a political model of tax reform. The model implies that the more unstable and polarized the political system, the more inefficient is the equilibrium tax structure (in the sense that tax collection is more costly to administer), and the higher therefore, the reliance on seignorage. This prediction of the model is tested on cross-section data for 79 countries. It is found that, after controlling for other variables, political instability significantly contributes to explain the fraction of government revenue derived from seignorage. This finding is very robust. We also find that seignorage is positively related to political polarization, even though here the evidence is weaker because of difficulties in measuring polarization.
Handle: RePEc:nbr:nberwo:3199
Template-Type: ReDIF-Paper 1.0
Title: Alcohol consumption and Tax Differentials Between Beer, Wine and Spirits
Author-Name: Henry Saffer
Author-Person: psa935
Note: EH
Number: 3200
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3200
File-URL: http://www.nber.org/papers/w3200.pdf
File-Format: application/pdf
Publication-Status: published as "Alcohol Tax Equalization and Social Costs, Henry Saffer and Frank Chaloupka, Eastern Economic Journal, vol. 20, no. 1, Winter 1994
Abstract: Several public health interest groups in the United States have recently called for equalization of the federal tax on a unit of alcohol in beer, in wine and in spirits. This paper provides some new empirical evidence of what effect alcohol tax differentials have on total alcohol consumption. The data indicate that the greatest decrease in alcohol consumption results from an increase in spirits taxes, followed by beer taxes and then wine taxes. This suggests that the existing generally accepted taxation policy of placing the highest tax on spirits, a lower tax on beer, and the lowest tax on wine, results in the greatest reduction in total alcohol consumption.
Handle: RePEc:nbr:nberwo:3200
Template-Type: ReDIF-Paper 1.0
Title: Quality Ladders and Product Cycles
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: EFG ITI IFM
Number: 3201
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3201
File-URL: http://www.nber.org/papers/w3201.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, 106(2), May 1991, pp. 557-586
Abstract: We develop a two-country model of endogenous innovation and imitation in order to study the interactions between these two processes. Firms in the North race to bring out the next generation of a set of technology-intensive products. Each product potentially can be improved a countably infinite number of times, but quality improvements require the investment of resources and entail uncertain prospects of success. In the South, entrepreneurs invest resources in order to learn the production processes that have been developed in the North. All R&D investment decisions are made by forward looking, profit maximizing entrepreneurs. The steady-state equilibrium is characterized by constant aggregate rates of innovation and imitation. We study how these rates respond to changes in the sizes of the two regions and to policies in each region to promote learning.
Handle: RePEc:nbr:nberwo:3201
Template-Type: ReDIF-Paper 1.0
Title: Taxation, Corporate Capital Structure, and Financial Distress
Author-Name: Mark L. Gertler
Author-Person: pge11
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Note: EFG PE
Number: 3202
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3202
File-URL: http://www.nber.org/papers/w3202.pdf
File-Format: application/pdf
Publication-Status: published as Tax Policy and the Economy 4, edited by Lawrence H. Summers, pp. 43-71. Cambridge, MA: MIT Press, 1990.
Publication-Status: published as Gertler, Mark and R. Glenn Hubbard. "Corporate Financial Policy, Taxation, And Macroeconomic Risk," Rand Journal of Economics, 1993, v24(2), 286-303.
Publication-Status: published as Taxation, Corporate Capital Structure, and Financial Distress, Mark Gertler, R. Glenn Hubbard. in Tax Policy and the Economy: Volume 4, Summers. 1990
Abstract: Is corporate leverage excessive? Is the tax code distorting corporate capital structure decisions in a way that increases the possibility of an economic crisis owing to "financial instability"? Answering these kinds of questions first requires some precision in terminology. In this paper, we describe the cases for and against the trend toward high leverage, and evaluate the role played by taxation. While provision of proper incentives to managers may in part underlie the trend to the debt, high leverage may in practice be a blunt way to address the problem, and one which opens up the possibility for undue exposure to the risks of financial distress. Our story takes as given the kinds of managerial incentive problems deemed important by advocates of leverage. We maintain, however, that when a firm is subject to business-cycle risk as well as individual risk, a profit maximizing arrangement is not simple debt, but rather a contract with mixed debt and equity features. That is, the contract should index the principal obligation to aggregate and/or industry-level economic conditions. We argue that the tax system encourages corporations to absorb more business cycle risk than they would otherwise. It does so in two respects: First, it provides a relative subsidy to debt finance; second, it restricts debt for tax purposes from indexing the principal to common disturbances. At a deeper level, the issue hinges on the institutional aspects of debt renegotiation. If renegotiation were costless, then debt implicitly would have the equity features relevant for responding to business-cycle risk. However, because of the diffuse ownership pattern of much of the newly issued debt and also because of certain legal restrictions, renegotiation is likely to be a costly activity.
Handle: RePEc:nbr:nberwo:3202
Template-Type: ReDIF-Paper 1.0
Title: The Role of World War II in the Rise of Women's Work
Author-Name: Claudia Goldin
Author-Person: pgo601
Note: DAE LS
Number: 3203
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3203
File-URL: http://www.nber.org/papers/w3203.pdf
File-Format: application/pdf
Publication-Status: published as "The Role of World War II in the Rise of Women's Employment." From The American Economic Review, Vol. 81, No. 4, pp. 741-756, (September 1991).
Abstract: The 1940's were a turning point in married women's labor force participation, leading many to credit World War II with spurring economic and social change. This paper uses information from two retrospective surveys, one in 1944 and another in 1951, to resolve the role of World War II in the rise of women's paid work. More than 50% of all married women working in 1950 had been employed in 1940, and more than half of the decade's new entrants joined the labor force after the war. Of those women who entered the labor force during the war, almost half exited before 1950. Employment during World War II did not enhance a woman's earnings in 1950 in a manner consistent with most hypotheses about the war. Considerable persistence in the labor force and in occupations during the turbulent 1940's is displayed for women working in 1950, similar to findings for the periods both before and after. World War Il had several significant indirect impacts on women's employment, but its direct influence appears considerably more modest.
Handle: RePEc:nbr:nberwo:3203
Template-Type: ReDIF-Paper 1.0
Title: The Long-Run Behavior of Velocity: The Institutional Approach Revisited
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Lars Jonung
Note: ME
Number: 3204
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3204
File-URL: http://www.nber.org/papers/w3204.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Policy Modeling, Vol. 12, No. 2, pp. 165-197, (Summer 1990).
Abstract: In this paper we provide evidence using annual data for the period 1880 to 1986 that institutional variables are significant determinants of velocity in the United States, United Kingdom, Canada, Sweden and Norway. This evidence supplements our earlier findings (Bordo and Jonung, Cambridge University Press, 1987) for annual data ending in the early 1970's. We present eVidence that several proxies for institutional change in the financial sector are significant determinants of the long-run velocity function; that for the majority of countries the long-run velocity function incorporating institutional determinants has not undergone significant change over the last 10 to 15 years; and that out of sample forecasts over the last 10 to 15 years based on our institutional hypothesis are superior to those based on a benchmark long-run velocity function for a number of countries. these results suggests that failure to account for institutional change in the financial sector such as may be captured by our proxy variables may well be one factor behind the recently documented instability and decline in predictive power of short-run velocity models incorporating dynamic adjustment and higher frequency data.
Handle: RePEc:nbr:nberwo:3204
Template-Type: ReDIF-Paper 1.0
Title: Japan's Saving Rate: New Data and Reflections
Author-Name: Fumio Hayashi
Author-Person: pha83
Note: PR
Number: 3205
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3205
File-URL: http://www.nber.org/papers/w3205.pdf
File-Format: application/pdf
Publication-Status: published as Chapter 10 in F. Hayashi, Understanding Saving: Evidence from the U.S. and Japan, MIT Press, 1997.
Abstract: This paper examines available evidence on Japan's wealth accumulation. Time-series evidence over the last one hundred years indicates that the phenomenon of extraordinarily high Japanese saving rate ia limited to the high-growth era of 1965-1975. Micro evidence about consumption and aaving by age can be more easily explained by the dynasty model than by the lifecycle hypothesis. The infinite horizon neoclassical growth model, while capable of generating the hump in the saving rate and explaining why it was preceded by the rapid GNP growth in the post-war period, leaves unanswered the question of why wealth accumulation in pre-war Japan was so slow. Perhaps growth in pre-war Japan was hampered by harmful effects of misguided government policies.
Handle: RePEc:nbr:nberwo:3205
Template-Type: ReDIF-Paper 1.0
Title: Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Author-Name: Michael Woodford
Author-Person: pwo3
Note: EFG
Number: 3206
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3206
File-URL: http://www.nber.org/papers/w3206.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, 100: 1153-1207 (1992)
Abstract: We construct a dynamic general equilibrium model in which the typical industry colludes by threatening to punish deviations from an implicitly agreed upon pricing path. We argue that models of this type explain better than do competitive models the way in which the economy responds to aggregate demand shocks. When we calibrate a linearized version of the model using methods similar to those of Kydland and Prescott (1982), we obtain predictions concerning the economy's response to changes in military spending which are close to the response we estimate with postwar US data.
Handle: RePEc:nbr:nberwo:3206
Template-Type: ReDIF-Paper 1.0
Title: Human Capital Responses to Technological Change in the Labor Market
Author-Name: Jacob Mincer
Note: LS
Number: 3207
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3207
File-URL: http://www.nber.org/papers/w3207.pdf
File-Format: application/pdf
Publication-Status: published as Studies in Human Capital, Elgar Publishers, 1993
Abstract: In a broad sense, the relation of human capital to economic growth is reciprocal. This study focuses more narrowly on labor market consequences of human capital adjustments to the pace of technological change. Using Jorgensons multifactor productivity growth indexes for industrial sectors in the 1960's and 1970's the study explores effects of differential pace of technological changes on industry demands for educated and trained workers as reflected in PSID data covering the 1968 to 1983 period. The findings show relative increases both in quantity demanded (utilization) and in price (wages) of skilled workers in the more progressive sectors. Steeper wage profiles, lesser turnover, and lesser unemployment characterize labor in sectors whose productivity grew faster in preceding years. The growth of sectoral capital intensity produces similar effects. But, as newer vintages of capital contain new technology, the skill bias of capital intensity partly reflects the skill bias of technology.
Handle: RePEc:nbr:nberwo:3207
Template-Type: ReDIF-Paper 1.0
Title: Job Training: Costs, Returns, and Wage Profiles
Author-Name: Jacob Mincer
Note: LS
Number: 3208
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3208
File-URL: http://www.nber.org/papers/w3208.pdf
File-Format: application/pdf
Publication-Status: published as Market Failure inTraining Springer Verlag 1991
Abstract: Using information on time costs of training and gains in wages attributable to training I computed rates of return on training investments. The range of estimates based on several data sets generally exceeds the magnitudes of rates of return usually observed for schooling investments. It is not clear, however, that the difference represents underinvestment in job training. Two methods were used to estimate total annual costs of job training in the U.S. economy, for 1958, 1976, and 1987. The "direct' calculation uses information on time spent in training and on wages. For 1976 so calculated costs amounted to 11.2% of Total Employee Compensation and a half of costs of school education. In the "indirect" method training costs were estimated from wage functions fitted to PSID data. In 1976 the direct estimate amounted to between 65% and 80% of the indirect estimate based on the wage profile. This result represents strong support for the human capital interpretation of wage profiles. The estimates indicate a slower growth of training than of school expenditures in the past decades. Substitution of schooling for job training is a likely cause.
Handle: RePEc:nbr:nberwo:3208
Template-Type: ReDIF-Paper 1.0
Title: A Simple Proof That Futures Markets are Almost Always Informationally Inefficient
Author-Name: Ian Gale
Author-Name: Joseph Stiglitz
Note: ME
Number: 3209
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3209
File-URL: http://www.nber.org/papers/w3209.pdf
File-Format: application/pdf
Abstract: Previous work which showed that prices could aggregate perfectly the diverse information of traders depended critically on the assumption that all agents had constant absolute risk utility. We show that either all agents must have constant absolute risk aversion utility, or all must have constant relative aversion in order for the strong form of the efficient market hypothesis to hold generically.
Handle: RePEc:nbr:nberwo:3209
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Technological Change
Author-Name: Paul Romer
Author-Person: pro45
Note: EFG ITI IFM
Number: 3210
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3210
File-URL: http://www.nber.org/papers/w3210.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 98, No. 5, Part 2, pp. S71-S102, (1990).
Abstract: Growth in this model is driven by technological change that arises from intentional investment decisions made by profit maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported, and instead, the equilibriumis one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.
Handle: RePEc:nbr:nberwo:3210
Template-Type: ReDIF-Paper 1.0
Title: The Dynamic Relationship between Low Birthweight and Induced Abortion in New York City: An Aggregate Time-Series Analysis
Author-Name: Theodore Joyce
Author-Person: pjo112
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH
Number: 3211
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3211
File-URL: http://www.nber.org/papers/w3211.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol. 9, pp. 273-288, (1990).
Abstract: We use a vector autoregression to examine the dynamic relationship between the race-specific percentage of pregnancies terminated by induced abortion and the race-specific percentage of low-birthweight births in New York City. With monthly data beginning in 1972, we find that induced abortion explains low birthweight for blacks, but not for whites. There is no evidence of feedback from low birthweight to induced abortion. Simulations based on the model reveal that an unanticipated decrease in the percentage of pregnancies terminated by induced abortion results in an increase in the rate of low-birthweight births among blacks. The findings suggest that restrictions on legalized abortion in New York City would worsen birth outcomes among blacks.
Handle: RePEc:nbr:nberwo:3211
Template-Type: ReDIF-Paper 1.0
Title: Using Production Based Asset Pricing to Explain the Behavior of Stock Returns Over the Business Cycle
Author-Name: John H. Cochrane
Author-Person: pco57
Note: EFG
Number: 3212
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3212
File-URL: http://www.nber.org/papers/w3212.pdf
File-Format: application/pdf
Publication-Status: published as "Production-Based Asset Pricing and the Link Between Stock Returns and Economic Fluctuations." From The Journal of Finance, Vol. 46, No. 1, pp. 209-2 37, (March 1991).
Abstract: The investment return is defined as the real return that results from marginally increasing investment at date r, and then reaping the extra output and decreasing investment at date t+1 to leave the production plan for other dates unchanged. This paper constructs investment returns from investment data and a production function, and compares investment returns to stock returns, in order to explain forecasts of stock returns by business cycle related variables, and to explain forecasts of future economic activity by stock returns.
Handle: RePEc:nbr:nberwo:3212
Template-Type: ReDIF-Paper 1.0
Title: Longitudinal Patterns of Compliance with OSHA Health and Safety Regulations in the Manufacturing Sector
Author-Name: Wayne B. Gray
Author-Person: pgr111
Author-Name: Carol Adaire Jones
Note: LS
Number: 3213
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3213
File-URL: http://www.nber.org/papers/w3213.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Volume 26, Number 4, Fall 1991.
Abstract: We examine the impact of OSHA enforcement on company compliance with agency regulations in the manufacturing sector, with a unique plant-level data set of inspection and compliance behavior during 1972-1983, the first twelve years of the agency operation. The analysis suggests that, for an individual inspected plant, the average effect of OSHA inspections during this period was to reduce expected citations by 3.0 or by .36 s.d. The total effect on expected citations of additional inspections can be decomposed into two parts; evaluated at the mean of the sample, 59 percent of the total change in citations occurred due to an increase in the compliance rate; 41 percent was due to a reduction in citations among continuing violators.
Handle: RePEc:nbr:nberwo:3213
Template-Type: ReDIF-Paper 1.0
Title: Policy Distortions, Size of Government, and Growth
Author-Name: William Easterly
Author-Person: pea1
Note: EFG
Number: 3214
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3214
File-URL: http://www.nber.org/papers/w3214.pdf
File-Format: application/pdf
Abstract: This paper analyzes the structural relationship between policies that distort resource allocation and long-ten growth. It first reviews briefly the Solow model in which steady-state growth depends only on exogenous technological change. Policy distortions do affect the rate of growth in the transition to the steady state in the Solow model. However, growth falls off so rapidly in the Solow transition as to make it unsatisfactory as a model of long-ten growth, even over periods as short as a decade. The paper proposes an increasing returns model in the spirit of the new literature on economic growth. With increasing returns, endogenous economic variables - - and thus policy - - will affect the steady-state rate of growth. The model gives output as a linear function of total capital, but a decreasing function of each of two types of capital. The distortion is defined as a policy intervention that increases the cost of using one of the types of capital. The relationship between this distortion and steady-stste growth is negative but highly nonlinear. At very low levels and very high levels of distortion, the effect on growth of changing the distortion is close to zero. Changes in structural parameters of the economy - - the elasticity of substitution between the two types of capital and the share of nondistorted capital in production - - will affect significantly the impact of the policy distortion on growth. The model is extended to an analysis of the relationship between the size of government and growth by treating the distortion strictly as a tax on one form of capital. The tax revenue is used to finance the acquisition of productive government capital. There is then a tradeoff between two forms of distortion- -one resulting from distortionary taxation and the other from insufficient public capital. Increasing the tax from zero has a positive effect on growth, but with further tax increases the relationship will eventually turn negative. Tax revenue ("size of government") as a function of the tax rate will be given by a Laffer curve. Growth still remains above a certain minimum as the tax rate gets arbitrarily large, but the range between relationship maximum and minimum growth will be larger than in the original model. The relationship between tax revenue and growth for alternative tax rates can be positive, negative, or zero. The same is true of the relationship between public and private investment. Changes in the share of tax revenue devoted to capital accumulation ("government saving") will affect the results. The results suggest that simple linear relationships between distortions and growth or between size of government and growth are untenable. The dialogue between advocates of liberalization and policymakers could be enriched by a recognition of the structural factors that influence the effect of lowering distortions on growth.
Handle: RePEc:nbr:nberwo:3214
Template-Type: ReDIF-Paper 1.0
Title: Poverty Programs, Initiation Of Prenatal Care And The Rate Of Low Birthweight Births
Author-Name: Richard G. Frank
Author-Name: Donna Strobino
Author-Name: David S. Salkever
Author-Person: psa1313
Author-Name: Catherine A. Jackson
Note: EH
Number: 3215
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3215
File-URL: http://www.nber.org/papers/w3215.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, vol.27, no.4, pp.629-642, 1992.
Abstract: This paper specifies and estimates an econometric model of low and very low birthweight rates for counties in the U.S. for the years 1975-1984. We focus on the impact of several specific public policy actions on use of prenatal care and the subsequent effect on birthweight outcomes. Our results point to strong racial differences in the impact of prenatal care on low birthweight rates. We also find that for the white population changes in income eligibility standards and expanded availability of publicly financed maternal and infant clinics have the strongest impacts on low birthweight rates.
Handle: RePEc:nbr:nberwo:3215
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Corporate Restructuring on Industrial Research and Development
Author-Name: Bronwyn H. Hall
Author-Person: pha54
Note: PR
Number: 3216
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3216
File-URL: http://www.nber.org/papers/w3216.pdf
File-Format: application/pdf
Publication-Status: published as Bronwyn H. Hall & Ernst Berndt & Richard C. Levin, 1990. "The Impact of Corporate Restructuring on Industrial Research and Development," Brookings Papers on Economic Activity. Microeconomics, vol 1990.
Abstract: This paper investigates whether the recent wave of corporate restructuring in the United States has had a negative impact on research arid development investment by industrial firms. Using a newly constructed sample of about 2500 manufacturing firms from 1974 to 1987, I examine three major classes of restructuring events: leveraged buyouts and other "going private" transactions, mergers and acquisitions in general, and substantial increases in leverage. The major conclusions are first, that leveraged buyouts do not occur in R&D-intensive sectors or firms and cannot therefore be having much of an impact on R&D spending; rather, the evidence seems consistent with an agency cost and cash flow-driven model of buyouts. Second, major increases in leverage are followed by substantial declines in the R&D intensity of the firms in question, and the effect takes at least three years to work through. Finally, although the evidence on acquisitions by publicly traded firms is mixed, the basic conclusion is that any declines in the R&D intensity of acquiring firms relative to their past history appear to be associated with the leverage structure of the transaction rather than the acquisition itself.
Handle: RePEc:nbr:nberwo:3216
Template-Type: ReDIF-Paper 1.0
Title: The Demand For Money in the U.S. During the Great Depression: Estimates and Comparison with the Post War Experience
Author-Name: Dennis Hoffman
Author-Person: pho707
Author-Name: Robert H. Rasche
Author-Person: pra180
Note: ME
Number: 3217
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3217
File-URL: http://www.nber.org/papers/w3217.pdf
File-Format: application/pdf
Abstract: This study investigates the equilibrium demand for narrowly defined monetary aggregate during the Great Depression. We find evidence in support of a stable demand for real balance, but no evidence in support of stable demand functions for real currency and real monetary base. This is consistent with the Friedman-Schwartz interpretation of this period.
We do not reject the hypothesis that the equilibrium demand for real Ml is stable between the pre and post WWII sample periods. We find that the "shift in the drift" of Ml velocity after 1945 and at the end of 1981 as well as the "shift in the drift" of currency and base velocities in 1981 is the image of corresponding "shift in the drift" of short-term interest rates. We interpret this as consistent with the hypothesis that the dramatic change in velocity patterns after WWII and in 1981 result from changes in inflationary expectations.
Handle: RePEc:nbr:nberwo:3217
Template-Type: ReDIF-Paper 1.0
Title: Target Zones and Interest Rate Variability
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ITI IFM
Number: 3218
Creation-Date: 1989-12
Order-URL: http://www.nber.org/papers/w3218
File-URL: http://www.nber.org/papers/w3218.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 31, pp. 27-54, (1991).
Abstract: The trade-off between interest rate variability and the width of an exchange rate target zone is examined, using the regulated Brownian motion model of target zones. It is shown that for narrow exchange rate bands, and for reasonable parameter values, the interest rate differential's asymptotic variability is increasing in the width of the exchange rate band; whereas for wide exchange rate bands it is slowly decreasing in the exchange rate band. The interest rate differential's instantaneous variability is decreasing in the width of the exchange rate band.
A narrow target zone differs from a completely fixed exchange rate regime in that the interest rate differential's instantaneous standard deviation is high and even increases when the zone narrows.
The model is extended to include a realignment/devaluation risk, as well as an endogenous exchange rate risk premium. The risk premium is small for reasonable parameter values and does not matter much.
Handle: RePEc:nbr:nberwo:3218